Friday Letter The law of probabilities

Some improbable events took place in 2011, so here in our final newsletter of the year, we take a completely unscientific approach to weighing up the probability of certain other significant developments happening in 2012. 

 1. Just two years on from the prevailing wisdom that said mega funds were ‘dead’, a private equity firm breaks the record for the largest dedicated private equity real estate fund since records began.
Verdict: Probable (watch Blackstone).

2. China, which so many firms are interested in as a “growth” market, veers from boom to bust and becomes the biggest distressed property market in the world.
Verdict: Sounds unlikely, but faintly possible if the country becomes undone by credit.

3. An Irish state-owned organisation owning €30.6 billion of Irish-banked property loans forgets the stated aim of a long, drawn out sell-off of assets, and becomes a public property company instead.
Verdict: Unlikely (ideas to turn NAMA into a REIT have recently surfaced, but that would require comprehensive legislative change).

4. Chile and Israel suddenly become sought after as hitherto untapped sources of private and institutional capital.
Verdict: Probable (If pension funds from Korea and Malaysia could become the hottest source of money in 2011 for global real estate markets, then why not from South America and elsewhere? Some firms are already looking).

5. A Wall Street bank derided by peers and written off by almost everybody returns to the real estate fundraising trail with a big opportunity fund
Verdict: We’re on the fence on this one (The Volcker rule will continue to make things tough for bank-owned real estate investment platforms but, you know, where there’s a will, there’s often a way).

6. A real estate investment manager suddenly becomes the biggest in the world thanks to the deep pockets of its broker parent.
Verdict: Unlikely (Though it happened this year with CBRE and ING REIM, the chances of a firm finding such a good fit with up-for-sale RREEF are low, and any combination between RREEF and another platform would still probably be smaller than CBRE Global Investors).

7. A fund manager raises eye brows by caving into an LP demand to insert a term into its fund agreement saying the investment period should end if the Euro collapses.
Verdict: Unlikely (At least one LP has demanded a similar thing in recent times, but at the most a GP would only agree to ‘talk’ about ending the investment period).

8. Lehman Brothers’ estate buys a majority stake in the biggest real estate investment the bank made, which some say contributed to the bank's downfall in the first place.
Verdict: Possible, but unlikely (Sam Zell’s company Equity Residential wants Archstone and Lehman has been told to stop suing people and sit down with its co-owners instead).

9. Fund managers are going to charge higher fees
Verdict: Extremely unlikely (None would dare, surely!).

10. The annual PERE Global Awards attracts some complaints for failing to take into consideration various firms and deals.
Verdict: Highly likely (It is already happening but we will never please everyone! Remember there’s that open category for alternative nominations to the ones already selected)

As you ponder our clairvoyance we’d like to also tell you we’re going to still be producing industry news throughout the festive season and into the New Year so, if you’re feeling burnt out from all the festivities, steel yourself a moment and log back into for your daily fix.

 That just leaves us to say thank you for your support in 2011 and we look forward to covering your industry in 2012.

All the best,

Erik Kolb, Robin Marriott, Jonathan Brasse, James Comtois, Evelyn Lee and all the team at PERE.