Friday Letter Thirty to watch

When we decided to rank the 30 largest private equity real estate firms in the world, we knew it would be no mean feat. Well, we did it, and here they are: Introducing the PERE30.

 Trying to rank the largest private equity real estate firms is not nearly as simple as, say, ranking public corporations by market capitalization. For a start, where do you begin looking? Do you judge a firm according to its assets under management, by the value of the property it owns, or the value of undrawn capital committed to its funds?

Or do you try to capture a firm’s current heft in the private equity real estate market by looking at the amount of capital raised over a set period of time?

At PERE, we opted for the latter, not least because there are underlying problems with several of the methods mentioned above. For one, relying on a firm’s exposure – defined as undrawn capital commitments plus the value of a firm’s portfolio – allows older firms to rest on their laurels by including investments made years ago but that they still hold.

By adopting a methodology that covers the amount of capital raised in dedicated, direct-investment private equity real estate programs over a fixed five-year period (from January 1, 2003 until the time of press in mid-April 2008) we believe we have arrived at something unique – and extremely powerful.

It will probably come as no surprise therefore to discover that The Blackstone Group and Morgan Stanley Real Estate have made it to the top two positions of PERE 30. Within the past 12 months alone, the two New York-based giants have closed on mega funds totaling almost $19 billion. That figure relates to just two funds – Blackstone Real Estate Partners VI on $10.9 billion and Morgan Stanley Real Estate Fund VI on $8 billion. Their “heft” in the market is plain to see

What is interesting to note though is that all but three of the top 30 firms are based in the US. Two are based in London and one in Tokyo. A third of the firms have their headquarters in New York.

The PERE 30, we believe, has achieved a first: A single standard of measurement by which all private equity real estate firms can be judged. And similar to a ranking we created a year ago called thePEI 50, which measures private equity firms, the PERE 30 will continue to judge the private equity real estate industry.

Of course, with news that Morgan Stanley is already out targeting at least $10 billion for its latest international real estate vehicle, it will be interesting to see who makes it to the top spot in 2009.