When LPs commit to a private equity real estate fund, they are committing to a long-term relationship with their fund sponsor. So unlike hedge funds, when the fundraising taps are dramatically turned off, private equity real estate GPs don’t unravel at the seams and disappear into the backdrop.
That has certainly been evidenced in the third annual PERE 30 ranking, unveiled in the May issue of PERE magazine. The list, which tracks the 30 largest private equity real estate firms in the world by capital raised over a five-year period, covers the biggest boom as well as the sharpest decline in the history of the asset class.
Firms that raised a great amount of capital leading up to 2008, for example, have for the most part retained their standing in the market because much of that capital raised in better times remains under management.
But the year 2009 represented a very weak fundraising market, and the falling tide lowered many boats. Indeed, the threshold for firms making the PERE 30 grade this year came down by roughly $500 million to $2.45 billion.
That said, there is an impressive collection of upwardly mobile GPs and newcomers in the PERE 30, not least Starwood Capital Group. In closing a $1.8 billion opportunity fund and a $1 billion hospitality fund, Starwood helped catapult itself up the ranking an impressive 17 places, early proof that not all investors are turning away from the commingled, blind pool fund model.
Robin Marriott discovers Starwood’s fundraising success is being translated into action in Europe, where the firm has once again started investing – for the first time in three years.
But even the best opportunity funds might find it hard to deploy their capital amid growing concerns of over-optimism in the US and UK markets. As our Capital Splurge feature explains, key cities in the two countries are experiencing a surge in real estate valuations to levels not seen since the peak of the market.
Ultimately, if deal volume doesn’t increase, many real estate investors – including private equity real estate firms – could struggle to put their capital to work. That is an issue that will shape the PERE 30 for years to come.
Enjoy the issue,
Senior Editor, Real Estate