Real estate crash hits small private equity funds

Despite the third quarter of 2008 reporting the lowest number of private equity real estate fund closures since the first quarter of 2005, the aggregate raised reached US$30.8bn, according to Preqin, the third highest on record.

Only Q2 2007 and Q2 2008 have exceeded Q3 2008 in terms of aggregate capital raised.

Preqin reveals that a total of 32 private equity real estate funds reached a final close in the last three months of the year.

The average fund size for funds closed in Q3 is US$962m, compared to US$548m in Q2 2007, the biggest quarter ever in terms of private equity real estate fundraising.

Smaller private equity real estate firms are bearing the brunt of the three year slump in closures as investors become more cautious when making new commitments, and prefer to place their money in the larger funds dominating the sector.

To date this year, 109 funds have reached a final close, compared to the 145 which had reached a final close at the same stage last year.

Fundraising for Asia and the rest of the world has exceeded that of funds focused on Europe. Only six European-focused funds closed, raising a total of US$3.8bn compared, with six funds focused on Asia and the rest of the world which raised US$7.7bn.