Private Equity’s Strong Appetite for Risky CRE Funds
While fundraising in value add and opportunistic funds was up last year, core and core-plus had dropped dramatically.
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.
Appetite still appears to be strong among investors though. Of the funds that closed in 2018, 45% closed above target, the largest proportion in the past five years.
Another positive note for market watchers: at the start of 2019, there were 674 real estate funds in the market, seeking a total of $250 billion. This is significantly up from a year ago when 573 funds were targeting a combined $191 billion.