Real estate funds have a record amount of cash – but nowhere to put it

Private real estate fund managers don’t know what to do with all the cash they’re sitting on.

This month, the total amount of dry powder in closed-end private property funds reached a record $333 billion, according to Preqin. Typically, closed-end funds pledge to spend investor money within three to four years, but managers have been struggling to find attractive investments, the Wall Street Journal reported. As of June, closed-end real estate funds launched in 2013 and 2014 had $24.8 billion in capital.

“A lot of firms have been sitting on their hands and not putting money to work, and that’s dangerous,” Christian Dalzell, managing partner at real estate investment firm Dalzell Capital Partners, told the Journal.

Some firms have been forced to change their investment strategy. For example, Jamestown LP — left with $570 million in capital that needed to be spent by the end of 2018 — bought up properties, including shopping centers in cash with far less debt than they originally planned.

“In an environment with increased interest rates, low cap rates and more questions about future growth, you need to be very disciplined,” a spokesperson for Jamestown said.

Meanwhile, larger firms like Brookfield Asset Management and Blackstone Group argue that they can more easily meet deadlines because they invest globally and have enough capital to buy entire companies and portfolios.

Blackstone is reportedly getting ready to close on a record $20 billion real estate fund. [WSJ] — Kathryn Brenzel