Opportunistic fundraising on the rise

Opportunistic real estate funds have hit a total target of $76 billion, according to research by New York-based Clerestory Capital Partners.

The number of opportunistic real estate funds seeking to raise capital has picked up markedly this year, reaching a total target of $76 billion, according to Clerestory Capital Partners. The latest research by the New York-based fund of funds firm attributed the increase to managers seeing more chances to profit from distressed deals coming to market, particularly in the US. 

“The funds currently in the market are focused predominately on the US, which reflects the level of distressed loan resolution activity in this market compared with Europe,” said Joanne Douvas, co-founder and managing principal at Clerestory. “Larger funds also are returning to the market as investment periods are expiring and the opportunities are scaling up in size.” She noted that Clerestory also is seeing “many new smaller funds, especially ones with more differentiated investment strategies.” 

The Clerestory research found that, by the end of the first half of 2011, there were 116 real estate opportunity funds in the market seeking to raise more than $76 billion of capital globally. Of these, 58 were seeking around $32 billion to invest in the US, comprised of 11 large-cap funds and 47 small-cap funds. This compares with a total of 94 funds seeking to raise about $60 billion for opportunistic strategies in the fourth quarter of 2010. 

The increase in opportunistic focus is primarily due to the rise in new capital being sought by large-cap funds this year. The bigger funds, at about $41 billion, made up a little more than half of the capital being sought in 2011, with small-cap funds at roughly $35 billion.

“Real estate in mature investment markets needs to be recapitalised,” said Tommy Brown, co-founder and managing principal at Clerestory. “Transactional activity in the US has been increasing steadily since the fall of 2009, as has capital formation. The continued volatility in the capital markets along with economic uncertainty, especially in certain parts of Europe, is expected to further accelerate the transition of broken capital structures back towards a more functioning marketplace.”