DTZ: 80% of new real estate capital targeting ‘non-core’

The latest research in the property services firm’s Great Wall of Money series reveals that opportunistic funds currently are pulling in the greatest amounts of capital from investors.

DTZ has reported today that four-fifths of the newly available capital targeting direct commercial real estate in 2014 is chasing non-core strategies and that capital is dominated by an opportunistic risk-return appetite.

In research that will be welcomed by the private equity real estate industry at large, the property services firm revealed in the latest edition of its Great Wall of Money series that opportunistic capital accounts for 44 percent of all new capital targeting the asset class.

Timed for publication with this week’s EXPO Real conference in Munch, DTZ also revealed that newly available capital targeting direct commercial real estate in 2014 grew 6 percent overall to a new record of $340 billion.

DTZ said the dominance of incoming opportunistic capital was best demonstrated by a number of large equity amounts raised by managers of global funds.

Its findings chime with the research of PERE’s own Research and Analytics division, which has found that $10.7 billion was raised by opportunistic private equity real estate funds in the third quarter alone. Among the biggest raisers were Brookfield Asset Management for a global fund, Lone Star Funds for a global fund and The Blackstone Group for Asia and Europe pan-regional funds.

DTZ said in its report: “The dominance of opportunity funds is most obvious from those funds with a global focus, representing two-thirds of available capital. Many of these funds have raised billions of dollars to invest across a broad range of asset types, including both direct real estate and distressed loan portfolios, and are highly active in the market.”

Within the capital allocated by investors for non-core real estate, the Americas continues to attract a higher share, DTZ noted. The US recovery is attracting capital, but so are emerging Latin America markets such as Brazil, it said.

While dominating incoming capital flows, DTZ said available opportunistic capital actually was lower this year than last year but that “is likely to reflect the ease with which many of these funds are able to deploy capital in the market, whereas availability of core product is more limited and competition is much greater.”

The biggest concentration of new core capital has come in Europe, accounting for about one-third. However, DTZ noted: “With core product on the market in relative short supply, funds are finding it increasingly difficult to deploy capital against these assets.”

Geographically, DTZ reported that Asia-Pacific accounted for the biggest growth in new equity, up 10 percent on last year to $44 billion, while Europe saw 7 percent growth to $66 billion.  “However, lower gearing levels mean available capital remains below that targeting the Americas,” the firm added.