RESEARCH & ANALYTICS: Looking beyond targets

Private real estate fundraising has vastly strengthened in the years following the global financial crisis of 2008. Each year has improved on the last and 2015 is on track to see the highest amount of capital raised of all post-crisis years.

This past quarter saw the close of the largest private real estate fund to date: the Blackstone Real Estate Partners VIII, which attracted $15.8 billion, $2.8 billion more than its initial $13 billion target. This fund represents one of the largest capital raises above its initial target for all private real estate funds.

Looking further afield, funds are either reaching or exceeding their initial targets in greater volume in the following post-crisis years with year-to-date 2015 closing on one of the highest percentages of funds reaching above their target. The year will also likely see the lowest amount of funds closing below their targets.

With this in mind, PERE Research & Analytics took a deeper look at funds that closed above, on, or below target.

The data reveals that, between 2008 and the end of Q3 2015, a total of $823.2 billion was raised between 1,927 funds. Of those fund closures, 31 percent of funds closed above their target, 40 percent met their target while 29 percent closed below. Perhaps predictably, in the immediate aftermath of the financial crisis, fundraising for private real estate had its highest percentage of funds closing below their targets. However, in recent years, more funds have either met or surpassed their initial targets, with YTD 2015 seeing just 17 percent of funds closing below their target.

For funds that have closed above their targets, the amount of extra capital raised each year has increased too. Between 2008 and Q3 2015, $63 billion was raised in extra capital with the largest chunk coming from 2015, accounting for 21 percent of the overflow. Since 2010, total extra capital raised has increased each year. The $13.3 billion raised in YTD 2015 represents a 440 percent growth from a post-crisis low of $2.5 billion of extra capital raised in 2010. Notably, the bulk of the $63 billion in extra capital came from mega-funds – funds that attracted $1 billion plus – accounting for 71 percent of total extra capital. The largest fund differential between targeted capital and committed capital was Blackstone Real Estate Partners VII, which pulled in $13.3 billion compared to its $10 billion target.

Fundraising in 2015 is on track to be one of the greatest years of capital raising yet, with the year accounting for one of the largest amounts of capital raised through the fewest number of fund closings. Additionally, 2015 is on track for the best ratio of funds meeting/exceeding their target versus funds that did not meet their goals. In the first nine months of 2015, 36 percent of private real estate funds closed above initial target, while 47 percent met target and 17 percent were below target; a boost from the prior year where 21 percent of funds surpassed their goals with 60 percent closed at target and the remaining 19 percent closing below expectations.

Whether this growing trend of funds meeting or beating their targets continues when key interest rates rise and market cycles turn will be interesting to see.