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Investors love real estate funds – for now

Survey finds joy over returns, concern over valuations

Sternlicht Gray
From left: Real estate fund managers Barry Sternlicht, Joe Sitt and Jonathan Gray

Real estate investors are much happier with their returns than in past years but are also anxious over valuations, according to a new survey by research firm Preqin.

In the survey, conducted among investors in private real estate funds, 90 percent of respondents said returns met or exceeded their expectations. A mere 9 percent said they were disappointed, down from 18 percent in December 2013 and 47 percent in December 2012.

At the same time, a significant share of respondents indicated concerns that prices are getting too high amid fierce competition for properties. When asked what their key concerns are, 63 percent pointed to valuations, followed by deal flow (37 percent) and performance (30 percent).

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These worries may help explain why most investors aren’t exactly scrambling to throw more cash at fund managers. 26 percent of respondents said they are looking to increase their exposure to real estate funds, but 22 percent are planning to reduce it.

Still, Preqin’s head of real estate asset products Andrew Moylan has a positive takeaway. “Despite high levels of dry powder, and concerns among investors about valuations and the potential impact on future performance, many are planning to commit significant amounts of capital to real estate,” he wrote.

Private real estate funds racked up stellar returns in recent years, which made them attractive to investors wary of low bond yields. No one has been more successful at raising capital than Blackstone, which recently raked in $15.8 billion for its latest global real estate fund.

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