Despite the 359 institutional investors that have US$1 billion or more allocated to real estate representing only 9% of the number of institutional investors committing to real estate, they account for a significant 84% of total capital allocated to the asset class, according to a new research from Preqin released in the December issue of Real Estate Spotlight.
With the majority of capital invested in real estate coming from such a small pool of institutions, private real estate fundraising is even more competitive, and it is even more difficult for fund managers to get in front of the right investors to raise capital.
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Other Key Findings:
- Although the competitive fundraising market has made raising capital for first-time real estate funds even more challenging in recent years, appetite for investing in these funds is significantly higher among US$1 billion plus investors (investors that commit US$1 billion or more to real estate). Twenty-nine percent of investors committing US$1 billion plus investors will invest in first-time funds. Comparatively, only 11% of smaller investors in real estate will commit to first-time funds.
- Investors with US$1 billion or more in real estate commit far more capital per fund on average, US$77 million, than those investors with smaller portfolios. In contrast, just 4% of investors with real estate portfolios of less than US$1 billion commit more than US$70 million per fund on average.
- Larger allocators are also more likely to consider alternatives to blind pool fund commitments, and have the resources to do so; the vast majority of US$1 billion plus investors in real estate will consider co-investments, joint ventures and separate accounts, with 63%, 75% and 72% of these investors demonstrating appetite for these routes to market respectively.
- 37% of US$1 billion plus investors in real estate make all decisions concerning their investments in-house, as opposed to utilizing the services of an investment consultant; only 12% of all other investors in real estate do the same.
Andrew Moylan, head of real assets products, Preqin, said: "Though they account for just 9% of institutions investing in real estate, institutional investors allocating $1bn or more to real estate represent the vast majority of total capital allocated to the asset class; they are, therefore, vital sources of capital for any fund manager raising a real estate vehicle in the current fundraising market. These larger investors have a greater depth of resources and more diversified real estate portfolios than other smaller investors in the asset class, and are therefore more willing to invest in first-time time fund managers, or to form separate accounts and joint ventures with external real estate managers. As such, it is vitally important for fund managers to ensure they are using all avenues available to them to get their funds in front of the key decision makers at these investors."
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