Opportunistic real estate funds were targeting $54 billion (€34.6 billion) in equity commitments for their vehicles during the first three months of this year – up more than 16 percent compared to the third quarter of 2007, research by real estate fund of funds firm, Clerestory Capital Partners, has revealed.
There were 128 small-cap funds, those raising less than $1 billion in equity, in market in the first quarter of 2008 compared with 107 during the third quarter of 2007. During that period, funds were seeking to raise a total of $45 billion in equity, New York-based Clerestory said.
The opportunistic funds were primarily focused on real estate in Asia, with $22 billion being raised for the region during the first quarter of this year compared to $19 billion for the Americas and $11 billion for Europe. During the third quarter of last year, Asia funds were targeting $17 billion in equity, while Americas funds were seeking to raise $17 billion and Europe funds $7 billion.
Out of the 128 funds in market in the first three months of this year, 51 were focused on the Americas, 47 on Asia and 24 on Europe. In 2007, 44 funds were focused on the Americas, 39 on Asia and just 14 funds were targeting Europe – a 41 percent increase for the European region.
Clerestory principal and co-founder Tommy Brown said there was clear investor focus on the emerging markets, but he warned rising competition could also prompt managers to accept “special terms” from investors in their bid to attract capital, such as a share of GP carry, exclusive co-investment rights and a reduction of LP carry paid. Calling for equitable terms for all, with the exception of fee breaks for certain commitment sizes, Joanne Douvas, Clerestory principal and co-founder, added that special terms could complicate negotiations surrounding partnership vehicle documents and lead to increased legal fees.
“The results of our recent market survey clearly show the proliferation of funds pursuing higher-return investment strategies continues. At the same time, we also observe that the velocity of capital raising has decreased significantly – suggesting that competition among funds is increasing and, with it, the temptation to accept special terms from investors to draw in capital,” she said.