Mid-market and smaller, more nuanced real estate funds can compete for capital in an environment increasingly dominated by so-called megafunds, delegates said at the annual PERE Europe Summit 2016 today.
Sitting on the panel were Christophe de Taurines, managing director at Los Angeles-based investment manager Colony Capital; Agate Freimane, investment director at online crowdfunding platform BrickVest; Damien Smith, principal at Cleveland-based investment firmTownsend Group and Robbert Zoet, head of capital markets at London-based fund manager Moorfield Group.
Hosting the panel, which discussed real estate capital markets and the current fundraising environment, was Michael Crawford, managing director of Rowayton, Connecticut based placement agent Eaton Partners.
Megafunds, such as those launched by industry giants such as The Blackstone Group and Lone Star Funds, have dominated the private equity real estate landscape in recent years – so much so that 55 percent of the total funds raised last year was accrued by the top ten largest firms by non-core real estate equity raised in the past five years, according to the PERE 50 survey,.
This was reinforced by Freimane, who believed reputation is still key. “The brand name has never mattered more than it does now. Capital is much more global now,” she said. “If investors have five names to choose from, how do they differentiate? The bigger name will be most likely to succeed,” she added.
de Taurines agreed with the sentiment but said this had a knock-on effect. “Megafunds have and will just get bigger and bigger,” he said. “But this means there will always be space for specialist firms, so they will spin out,” he added.
Smith said he felt commitments were still being made towards medium-market firms and that there was a “glimmer of hope” for these businesses because there were still many people looking to diversify.
“There are firms who will want, for example, a logistics specialist or a more niche product to complement the funds committed to larger fund managers,” he said. “There are something like 55 non-core funds working in Europe. That's €32 billion of capital looking for ways to invest, so there will always be winners and losers.”
Zoet, concluding the discussion, offered a word of caution for the industry going forward. He said:”The environment is always evolving. I think the number of fund managers will continue to shrink. For the smaller GPs, the danger is that they are increasing in size. It is a delicate balance.”
The two-day PERE Europe Summit 2016 concludes tomorrow, Wednesday, June 8.