With the coronavirus outbreak roiling global markets and triggering waves of volatility, Madison International Realty is taking a measured approach to investing the dry powder in its latest real estate fund.
The New York-based firm has instructed its team to pause deploying capital from the Madison International Real Estate Liquidity Fund VII. The firm announced a final close for the fund earlier this week at $1.2 billion, including sidecars and co-investment vehicles. The vehicle was launched in April 2018 with a $1.3 billion target and a $1.75 billion hard-cap.
“Our timing could not have been better. We are very fortunate to have completed our capital raise before coronavirus and this market correction”
Fund VII is only slightly smaller than its predecessor vehicle, Fund VI, which closed on $1.39 billion in 2016.
“Our timing could not have been better. We are very fortunate to have completed our capital raise before coronavirus and this market correction,” Ronald Dickerman, Madison International Realty founder and president, told PERE. “Any fundraise in the market now is likely undergoing a significant pause.”
PERE understands that the pause on capital deployment, meanwhile, will last for several months until the market reaches some level of equilibrium.
Growing fears over the economic impact of covid-19 – now declared a pandemic by the World Health Organization – has triggered a panic sell-off in the public markets. Thursday’s precipitous drop in stocks triggered a 15-minute halt in trading for the second time in just a week. This came just a day after the Dow Jones Industrial Average plunged into bear-market territory for the first time in a decade.
“We have told our team to re-evaluate pricing and take a pause on capital deployment,” he said. “We are looking at pricing. Public markets are indicating a 25 percent correction for the time being and potentially going lower. We have had a real knack of finding differentiated entry points into prime real estate assets that create an asymmetric return for our investors. Current market conditions will only serve to magnify this opportunity.”
Madison pursues a direct secondary investment strategy focused on acquisition of ownership stakes in prime properties and portfolios in growth-oriented capital cities of the US, UK and Europe. The latest Fund VII is about 30 percent deployed in various locations, including a multifamily asset in Madrid, a logistics property in Poland and prime assets in London and New York.
“We are waiting for the markets to find an equilibrium and figuring out how public and private market pricing is going to converge,” Dickerman said, explaining the measured stance on deployment. “In my opinion, public markets are over-shooting on the downside. Coronavirus is a real issue, but the risk is of finite duration. I think the long-term health impact is overstated and the economic impact is understated. We need to get our minds around that.”