Private Equity’s Strong Appetite for Risky CRE Funds

Preqin’s London headquarters

Not only was 2018 a volatile year for investors but nearly half of those surveyed by Preqin recently said that the market is due for a correction within the next three year. However that did not deter private equity real estate from focusing on higher-risk value-added and opportunistic funds. According to Preqin, fundraising in these categories totalled $36 billion and $43 billion respectively last year. By contrast, core and core-plus was significantly down from $15 billion in 2017 to $6.1 billion in 2018.

Investors are not moving down the risk/return curve, says Tom Carr, head of Real Estate for Preqin. “This is despite many investors we interviewed saying that they were seeking to position themselves in anticipation of a correction and would be targeting these lower-risk strategies in the coming months.”

A Slowing Market?

Preqin also uncovered another trend in its new fundraising update: the closed-end private real estate market showed signs of having slowed in 2018. Last year 298 funds closed globally, raising a total of $118 billion, arguably a substantial amount. However, in 2017 406 funds raised $132 billion.