Far from making such investors more nervous about property investment, the credit crunch seems to have increased their appetite for the asset class. Institutions are keen both to diversify the geographic focus of their existing property allocations and to boost overall allocations to property.
Ignatius Fogarty, head of real estate research at
“Despite the credit crunch, investors do appear to be optimistic about the market and are looking to continue investing,” said Fogarty. Prequin said the most positive group are insurers, among which 71% are looking to increase their allocations to private equity real estate over the next 12 months.
Private equity, being a “chameleon” asset class and being eager to reinvent itself after losing access to the loans required to support leveraged buyouts, has risen to the challenge by launching a plethora of dedicated real estate funds. Fogarty says 307 private equity real estate funds are currently looking for investors on a global basis, and that between them they are seeking equity investments of US$167bn.
He believes that 2008 could be a record year for the asset class, with private equity real estate funds raising more than US$100bn for the first time. However the rise in the number of funds on the road means that fund raising will be competitive, warns Fogarty.
In Q1 alone, private equity real estate funds raised US$25bn, with
“The current fund raising environment is very, very strong,” says Julian Gabriel, a principal at private equity property investors Doughty Hanson, which raised a €590m private equity real estate fund in 2006. “The question is will the fund raising environment still be as buoyant next year?”
Quinlan Private took 12 months to raise €725m of equity for its new Quinlan Private European Strategic Real Estate Fund. More than half of the total came from US-based investors – including pension funds, endowments and insurers. The fund intends to focus on investing its total fund of €2.5bn (including debt) in retail, hotels and offices in Central and Eastern Europe.
Another reason for strong investor demand is that the property market corrections seen in European markets such as the UK and Spain mean there are currently some real bargains to be had and some listed property groups are hugely undervalued. Blackstone is reported to be considering buying back into some of the property assets that it sold at the peak of the cycle, at distressed prices.
Robert Hodges, head of asset management at
Hodges said: “We’re out there with a huge amount of dry powder, and we can afford to pick the very best deals, in the most promising markets, right across Europe.” Should existing owners be facing liquidity issues, Hodges smells opportunity. In addition to direct property assets, the CEREPIII fund will also acquire packages of debt backed by commercial property.
The whole area of property-related debt, particularly the distressed variety, has become a major growth area for private equity players. Blackstone is already heavily involved in acquisitions of distressed property debt and TPG is considering entering the field.
Prequin’s survey of limited partners found that that demand for debt funds is running high. One large European pension fund said: “We will be actively looking to take advantage of uncertainties in the market and invest in more distressed debt funds.”