PERE Forum Asia: $140bn to be raised for RE in 2011, club structures to prevail

At the PERE Forum in Hong Kong today, delegates heard how $140bn would be raised for real estate globally in 2011 but that club structures would be regarded as the most capable of vehicles to compete on transactions. Conference polls showed how fund sizes would shrink and opportunistic returns would decrease also.

Delegates at this year’s PERE Forum: Asia heard today how up to $140 billion has been earmarked for real estate investing in 2011 across all investment strategies, however in the private markets, club structures would attract the most.

In his keynote address, Robert Morse, chairman and chief executive officer at private equity firm Primus/PMN Capital said while 2009 and 2010 were a ‘like a desert’ in fundraising terms, 2011 would much greater levels raised globally across all investment strategies.

He said capital raised in 2011 would reflect an 80 percent increase by number of vehicles and an 80 percent increase in the amount of capital on last year. He added that most international investors saw better buying opportunities ‘in their own backyard’ and were favouring one-off deals. “There are plenty of opportunities for cashed-up investors,” he said.

Commenting on the $140 billion prediction, panellists at the Hong Kong conference, which was attended by more than 250 delegates, said that traditional private equity real estate funds would likely not raise ‘mega funds’ of billions of dollars but much smaller funds. In a delegate poll, 54 percent of respondents said that such funds would likely be between $500 million and $1 billion, while 30 percent said they would be less than $500 million.

“That’s exactly where all the opportunistic fund were in 1999/2000,”said Morgan Laughlin, managing director at Grosvenor Fund Management.

Tom Pulley, managing director and chief investment officer at Fortress Real Estate: “The indication is that investors have more allocation than before. That said, I think memories are short but not that short. They are still focussed on what happened in 2006/2007.”Delegates agreed that managers are being vetted much more closely than before and that other types of vehicles would play a more prominent role.

In another delegate poll, 33 percent of respondents said the most capable types of vehicle to compete in both core and opportunistic strategies over the next three to five years lay in investment clubs. This compared to 25 percent who felt the majority would be raised through financial institution-sponsored funds, 22 percent who backed developer-led platforms as the biggest capital raisers and 20 percent who backed indirect platforms to raise the most.

Pulley said: “The enthusiasm for clubs has come from the ‘lessons learned’ from 2006/2007 vintage funds. “He said investors had become concerned about potential conflicts of interest should the fund manager fall into difficulties and about managers that would push capital into the markets just to have assets under management or meet investment period deadlines. “The club investment then grew in popularity,” he said.

Chris Gradel countered when he said: “Some investors have built good teams and can invest their own equity but I think that’s a tiny percentage. They’ll look at individual opportunities but I think funds are here to stay.”

Panellists agreed with a further conference poll about what return in the short-term, market participants expected to generate from opportunistic investments. 34 percent of those polled said returns would fall to between 18 and 20 percent while only 16 percent of those polled said such returns would be more than 20 percent. Only nine percent felt they would drop to between 12 and 15 percent. “That’s two to three hundred basis points lower than we would have anticipated,” said Philip Levinson, managing director at Blackstone. But pointing to Asia markets he said that a reduction in return did not equate, however, to a reduction in risk.