Opportunity fundraising to sink to 4-year lows

Just $16.2bn has been raised for real estate opportunity funds worldwide in H1 2009, according to Probitas Partners. Much of the negative investor sentiment falls at the door of “legacy real estate funds”, says partner Kelly DePonte.

Global real estate opportunity fundraising is on course to sink to its lowest level for four years, according to the latest research by global placement agent Probitas Partners.

Figures shared with PERE this week show that just $16.2 billion was raised in the first half of 2009, the firm said.

Even if this figure were to treble in the second half of the year, it would still fall short of the $60.4 billion raised in 2005. The total amount of equity raised in 2004 was $24.3 billion, and $11.7 billion in 2003.

Kelly DePonte, a partner from the firm’s San Francisco office, said September 2008 – the month Lehman Brothers collapsed – illiquid alternative assets have fallen out of favour with investors as performance and asset values came under pressure.

“Since September of 2008, all areas of illiquid alternative assets have been hit hard as available capital at investors shrank and liquidity became a prime concern,” he said. He added investor sentiment had been further dented by losses piling up in “legacy real estate funds”.

Only last week, US pension fund California State Teachers’ Retirement System, traditionally a key investor in real estate opportunity funds, reported a $6.8 billion loss as it took a 50 percent write-down in its value-added and opportunistic real estate investments in the year to 31 March 2009. Some of the vehicles it invested with are currently reporting IRRs of more than -100 percent.

While it is too early to determine how much could be raised come the end of 2009, in its “Funds in the Market & Real Estate and Hard Asset Handbook” report released earlier this year, Probitas predicted: “Global real estate opportunity fund capital raised for 2008 reached $106 billion, a new record that will not be challenged in 2009 as the market deteriorates.”

DePonte said that those investors which are still committing to real estate opportunistic investing are only interested in “distressed plays”.

Within the $16.2 billion figure raised in the first half of the year, $7.7 billion was raised for North American strategies as investors sought to capitalise on distressed opportunities in mature markets. Fundraising for Asia has been worse hit with just $1.5 billion raised against $21.8 billion recorded by the firm as being raised in 2008. $4.7 billion has been raised in the first half for Europe while only $1.6 billion was raised for funds employing global strategies and $0.8 billion for emerging markets outside of Asia.