Friday Letter Topping out the 30 largest firms

Blackstone and Morgan Stanley lead the latest PERE 30 ranking for the second year running. That may change in the future, though. 

PERE magazine this week launched the latest ranking of the industry’s biggest players.

The Blackstone Group and Morgan Stanley Real Estate Investing once again came out as the two firms to have raised the largest amount of value-added and opportunistic real estate capital over the past five years.

The pair raised $25.6 billion and $20.15 billion respectively in dedicated real estate funds between January 2004 and mid-April, 2009, when the ranking was officially closed. Together, Blackstone and Morgan Stanley raised a fifth of all the direct-investment capital secured by the world's 30 largest firms in the 2009 PERE 30, a total of $211.9 billion.

The duo’s capital raising abilities over the last five years certainly stands out in the ranking. The two firms have raised some of the industry’s biggest dedicated property vehicles ever, including the $10.9 billion Blackstone Real Estate Partners VI and the $8 billion MSREF VI fund, which closed in 2007 and 2008 respectively.

The next placed firm, Goldman Sachs Real Estate Principal Investment Area, raised significantly less in comparison – just $13.58 billion – while the firm in 30th position, Starwood Capital, raised $2.95 billion over the same period.

Should we expect to see Blackstone and Morgan Stanley in the same positions next year?

The 2009 PERE 30 saw lots of movement compared with last year’s debut ranking. Of the 24 firms that reappeared in the latest list, 12 firms dropped one or more positions, eight increased their standing and four remained static – including Blackstone and Morgan Stanley. Six firms though entered the list for the first time. Click here to read an executive summary of the 2009 PERE 30.

As the PERE 30 continues to develop each year counting capital raised over a five-year period, readers should expect to see plenty of movement among the firms – with many dropping out altogether and new ones entering the fold.

Starwood may be last on the list in 2009, however Barry Sternlicht’s Greenwich, Connecticut-based firm is currently in market with two real estate funds targeting capital raises of more than $4 billion. Lehman Brothers Real Estate – which closed Lehman Brothers Real Estate Partners III on $3.2 billion last September – on the other hand is one firm that is not expected to raise additional funds in the future, at least under the same name.

The original “opportunity” funds of the early 1990s spawned an industry within real estate that was unique in the degree of control it gave to the fund managers and in the affect it had on the way institutional investors viewed their real estate allocations.
The PERE 30 are the most significant players within that continuing trend. Is the established order of private equity real estate about to fundamentally change?

Yes. It may take several years to emerge, but changes are afoot.