Mega funds virtually disappear from fundraising map

There was just one opportunistic real estate fund targeting more than $1 billion in equity commitments in the first six months of 2010, in a sign the industry is scaling down its fundraising efforts.

Real estate opportunity vehicles raising more than $1 billion have “virtually” disappeared from the fundraising landscape, with just one mega fund in market during the first half of this year.

Research by fund of funds Clerestory Capital revealed that in the first six months there were 31 new opportunistic vehicles targeting $1 billion of equity or less. The New York-based investment manager said in total the non-listed funds were trying to raise $12.6 billion of capital from investors.

Joanne Douvas, co-founder and managing principal, said the research confirmed industry trends that opportunistic real estate funds were “scaling down in size”.

Tough fundraising conditions have forced many fund managers to revise their equity targets, and for some to force them to postpone raising capital altogether.

Managers with proven track records and the ability to execute are raising capital.

Joanne Douvas, co-founder and managing principal, Clerestory Capital

Dallas-based Lone Star is the biggest firm affected by the trend, with news this month that the private equity and real estate investor has more than halved the amount of capital being targeted for its second property vehicles.

The firm went to market in April 2009 with plans to raise $10 billion for Lone Star Real Estate Fund II, but has now lowered the target to $4 billion a piece, with a hard cap of $5 billion.

Douvas added that there was also a significant amount of “churn” in the number of unsuccessful managers coming to market. “Managers with proven track records and the ability to execute are raising capital,” she said.

Clerestory found that the 30 new small cap (less than $1 billion) opportunistic funds coming to market were targeting a total equity raise of $11.3 billion. Of the 30 funds, 60 percent were focused on the Americas with the ambition of raising $7.6 billion in equity. Just one large cap fund was in market targeting $1.5 billion of capital.

Fellow co-founder and managing partner Tommy Brown said the US and European property markets were stuck in the “great muddle” for the foreseeable future, where an unwillingness by debt and equity holders to recognise losses was preventing markets from repricing.