Real estate fundraising hits lowest level since 2013

Largest fund managers like Blackstone and Brookfield stand to gain from tougher environment

National /
Jan.January 21, 2020 10:00 AM
Brookfield's largest-ever $15B property fund has invested in properties from New York (666 Fifth Avenue) to Bangalore (the Leela Palace hotel) (Credit: Brookfield, Getty Images, Leela)

Brookfield’s largest-ever $15B property fund has invested in properties from New York (666 Fifth Avenue) to Bangalore (the Leela Palace hotel) (Credit: Brookfield, Getty Images, Leela)

As high-yielding real estate deals become harder to come by, institutional investors are starting to become more selective — making it harder for private equity real estate funds to raise capital.

Real estate funds closed in the fourth quarter of 2019 totaled $18 billion, the Wall Street Journal reported, citing data from Preqin. That’s down from the $47 billion raised in the third quarter and was the slowest quarter since 2013.

“I notice in our conversations with investors that there’s even more of an air of caution than we’ve seen in the last few years,” Todd Ladda, a managing director at SoftBank-owned Fortress Investment Group, told the journal.

Fortress, whose big bet on rental apartments in Japan has now made it that country’s largest private landlord, provides an example of the more offbeat strategies funds have had to pursue as rising property values become less of a sure thing.

Due to the irregular pace of real estate fund closings, analysts caution against reading too much into a single quarter’s fundraising totals.

The third quarter of 2019 saw Blackstone Group close on a record $20.5 billion fund. In the first quarter, Brookfield closed a $15 billion fund which has invested in the Kushner Companies’ former crown jewel 666 Fifth Avenue, as well as the Leela Palace hotel in Bengaluru, India.

The largest fund managers like Blackstone and Brookfield stand to gain the most from a more selective fundraising environment. Many large institutions have been cutting down their fund manager portfolios since the financial crisis.

“The market is not providing as many clear opportunities to hit those high return objectives like it once did,” PJT Park Hill Real Estate Group’s Michael Stark said, noting that funds typically target returns in the mid-teens or as high as 20 percent. [WSJ] — Kevin Sun


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