The headline from this year’s PERE 50 ranking of private equity real estate managers is that institutional investors have been increasingly capitalizing higher risk and return strategies over the past five years. But there were further takeaways besides:
1) Cue the PERE 100?
The PERE 50 has grown in tandem with the increase in higher risk and return strategies with this year’s ranking capturing 20 percent more capital than 2017’s. The aggregate of $333.75 billion now includes a $20 billion club of Blackstone, Brookfield and Starwood, with Lone Star hovering just outside the door. Three more firms – Carlyle, GLP and PIMCO – have raised more than $10 billion.
The capital required to make the bottom rung was $2.57 billion, up about 6 percent on last year, but a huge 80 percent rise on five years ago, when the ranking was expanded from the original PERE 30 format. For the first time since the ranking was introduced, the firm that would have been placed at 100 raised more than $1 billion: Philadelphia-based Rubenstein Partners hit $1.08 billion. That is prompting the honchos at PERE to consider introducing a third iteration of the ranking: the PERE 100.
2) The Blackstone gap is shrinking
So entrenched is New York-based Blackstone’s dominance in private equity real estate capital raising, it is easy to overlook the progress of the chasing pack. But progress the pack has made, particularly Toronto’s Brookfield, which, thanks to its $29.06 billion haul, has shortened the chase to $20.8 billion. That’s a significant advance, given the space between the leader and then-second placed Lone Star was more than $35 billion in 2016. Nevertheless, the gains Blackstone, the market’s equity sponge, has made in a relatively short space of time are remarkable: a decade ago, the gap was just $3.67 billion with Morgan Stanley Real Estate Investing, the market’s original pacesetter, in second place.
3) Lone Star slips on a selling streak
John Grayken’s firm has ranked second for three of the last five years, but dropped to fourth this year. It could fall further once 2013’s $7 billion Lone Star Real Estate Fund III no longer qualifies within the five-year window in next year’s ranking, unless it returns to the fundraising trail in the coming months. One indication that might happen is its current net seller status. According to specially compiled buy-sell-net statistics from transactions research house Real Capital Analytics, Lone Star has been the biggest net seller of property in the last year, selling $8.76 billion versus acquisitions of just $317.66 million. The firm has acquired large quantities of corporate and real estate non-performing loans, which are not included in RCA’s data, but that does not alter the fact it has been extremely active on the sell side as of late.
4) The continental plates have shifted, a little
Once again, the ranking was dominated by North American managers. They accounted for 38 of the 50 and $283.62 billion of the $333.75 billion. But the other regions made a stronger showing in this year’s PERE 50, indicative of toppy markets stateside and increasingly attractive relative opportunities elsewhere. Sticking with the theme of relativity, the $50.13 billion, or approximately 15 percent, of the total capital raised by the non-North American managers in this year’s ranking is an increase on the 9.8 percent captured in the 2017 iteration. Coincidence probably, but the biggest faller this year was a US firm, Fortress, which slipped to 48th position with $2.6 billion of qualifying capital.
5) The PERE capital of the world
‘The city that never sleeps’ is certainly true for private equity real estate capital raising. New York is home to 13 of the 50 firms included in this year’s ranking. More importantly, however, firms from the Big Apple accounted for $101.53 billion, or more than 30 percent, of the $333.75 billion aggregate. And the city’s market dominance is further magnified by the fact the second most dominant cities, Los Angeles and London, are home to only five firms each, which, combined, contributed $45.53 billion, less than half that of the New York-based managers.
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