New research from Preqin shows that investors in private real estate are increasingly moving up the risk/return spectrum, with a significant 59% of the real estate investors that are searching for new funds in the year ahead planning to target opportunistic funds, compared to 47% in the 12 months following Q1 2013.
There has been a corresponding decline in interest in the lower-risk core strategy, with only 35% of investors searching for new funds in the next 12 months expecting to invest in core funds, down from 56% of investors in Q1 2013.
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2013 also saw the fundraising for opportunistic funds remain strong; 57 opportunistic closed-end private real estate funds closed in 2013 raising an aggregate US$36bn, a small increase on the US$35bn raised by the 80 opportunistic vehicles that closed in 2012.
This decrease in the number of funds closed, but increase in aggregate capital raised demonstrates that capital is increasingly concentrated among fewer managers. So far during 2014, 7 opportunistic funds have reached a final close and secured an aggregate US$8bn.
Other Key Facts:
- Opportunistic funds are increasingly meeting or exceeding their fundraising targets, with 64% of such funds closed in 2013 doing so, compared to 42% of opportunistic funds that closed in 2012.
- Opportunistic funds that closed in 2013 on average spent less time on the road at 16.5 months compared to other funds that spent on average 21.5 months in market. This is a reversal of the trend seen prior to 2012, with opportunistic funds spending longer on the road than all other funds.
- Fundraising for closed-end core funds has been less strong however, and has correspondingly decreased over the same time period; 35 such funds closed in 2012 raising an aggregate US$6.5bn, compared to 11 core funds that closed in 2013 raising a total of US$2.3bn.
- Several large opportunistic funds have closed recently; Blackstone Group recently closed Blackstone Real Estate Partners Europe IV on 5.1bn, making it the fifth largest Europe-focused fund closed of all time, while Lone Star Real Estate Fund III reached a final close in October 2013 on $7bn.
- As of the start of April 2014, there are 142 primarily opportunistic real estate funds on the road, targeting aggregate capital commitments of US$49bn, an increase from the 117 such funds in market at the same time last year that were seeking a combined US$49bn.
- The largest opportunistic closed-end private real estate fund currently in market is Blackstone Real Estate Partners Asia, which is targeting US$4bn, while Carlyle Group is targeting US$3.5bn for its Carlyle Realty Partners VII.
Andrew Moylan, head of Real Assets Products, Preqin, said: "With concerns over the availability and pricing of prime real estate, many institutional investors are increasingly moving up the risk/return curve and Preqin’s research shows that there has been a notable increase in appetite for opportunistic real estate funds, a trend many fund managers have been quick to capitalize on. Fundraising has improved for the strategy over the last year as a result, and the outlook for managers on the road marketing opportunistic funds is more positive. However, with more than 140 funds being marketed, competition for investor commitments will remain extremely competitive. Those managers that have a compelling story and proven track record will be well placed to take advantage of the increased appetite among the institutional investor community for opportunistic real estate exposure."
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