Billions of dollars sit on the sidelines, poised to reshape the commercial real estate landscape—if only the right moment would arrive. According to CoStar, the ten largest commercial real estate funds currently hold a staggering $46.4 billion in dry powder, capital that’s ready to deploy but waiting for the right opportunity.
Blackstone Real Estate Partners X leads the pack, having raised $30.4 billion and retaining $18.5 billion in dry powder. Other funds in this elite group include TPG Real Estate Partners IV with $5 billion in dry powder from $6.8 billion raised, Brookfield Strategic Real Estate Partners IV with $4 billion and Starwood Distressed Opportunity Fund XII with $3 billion.
The list continues with Carlyle Realty Partners IX, Blue Owl Real Estate Fund VI, EQT Exeter Industrial Value Fund VI, Landmark Real Estate Fund IX, Crow Holdings Realty Partners X, and DRA Growth and Income Master Fund XI, each holding between $1.8 billion and $3.9 billion in dry powder.
But these figures only scratch the surface. CoStar notes that Blackstone alone has $177 billion available for global investment, though not all of it is concentrated in a single fund. The private equity world as a whole is flush with cash. Bain & Co. estimates that private equity firms collectively hold $1.2 trillion in buyout dry powder. Remarkably, nearly a quarter of that capital has been waiting for more than four years, intensifying the urgency for deployment.
This abundance of capital is not without consequences. “It creates unnatural pressure on the funds themselves and also creates unnatural pressure on the market that distorts fundamentals,” Adam Gower, a consultant specializing in real estate equity capital formation, told GlobeSt.com. With so much leverage at their disposal, large funds can afford to pay premiums to secure deals, a strategy that can mislead smaller investors into believing the market has bottomed out when, in reality, deep-pocketed players are simply outbidding the competition.
Yet, the urgency to invest may not be as intense as some believe, especially among institutional investors with long-term horizons. “There’s definitely a little bit of pressure,” said Robert Gilman, real estate practice leader at Anchin. “Eventually, we’re going to be able to buy these properties when they’re on the floor.”
Gilman explained to GlobeSt.com that many investors prefer to wait for further price drops rather than buy prematurely, especially since funds can earn modest returns by parking their cash in the meantime.
Fund structures and restrictions further complicate the landscape. Some funds are bound by deadlines to deploy capital, while others have redemption limitations that give general partners greater flexibility in timing their investments.
Meanwhile, those seeking capital often find themselves in a state of limbo. Jeff Klotz, founder and CEO of The Klotz Group of Companies, a multifamily-focused CRE investment firm, described to GlobeSt.com how even established partners are struggling to access funds. “The big funds, or the institutional allocators, their underwriting standards have all changed,” Klotz said. “They’re more conservative. We raised almost a billion dollars from the large funds, and we can’t get the money loose. ‘We’re not going to underwriting for any rent increases or bumps, but we will for [cost increases],’” he recounted. “Everyone is getting picky.”
Ultimately, the most important principle remains unchanged. “That’s rule number one: Don’t lose money,” Klotz emphasized. “If you can’t get that rule right, nothing matters.”
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