Private equity real estate funds near record $55bn in 2006

According to Private Equity Real Estate, the supersized war chest points to the continued influence of private equity firms on real estate around the world.

Private equity real estate funds will raise approximately $55 billion (€42 billion) in 2006, far surpassing the $37 billion raised in 2005, according to figures compiled by Private Equity Real Estate (PERE).

The record amount of equity, along with favorable debt financing, is fueling much of the recent activity in the US public real estate markets, including the recent $36 billion acquisition of Equity Office Properties Trust by Blackstone Real Estate Advisors.

But the growing influence of private equity real estate firms is not just limited to the US. According to PERE, funds with a global mandate accounted for more than 50 percent of the capital raised in 2006. Private equity real estate funds targeting Europe and Asia also accounted for a substantial amount of equity, closing on approximately $5 billion and $2 billion, respectively. Factoring in debt financing, the funds raised in 2006 have buying power in excess of $160 billion.

The flow of capital shows little signs of letting up. Real estate is becoming an increasingly important asset class for institutional investors around the world. And within real estate, high-target-return vehicles such as private equity real estate funds are gaining in popularity. Funds currently in the market or coming to market within the next 12 months are targeting more than $60 billion in capital, according to PERE, suggesting that 2007 could rival 2006 in terms of fundraising and deal activity.

Morgan Stanley, for example, is reportedly on the fundraising trail seeking $8 billion for Morgan Stanley Fund VI International. Already this year, the investment bank has already closed on approximately $8 billion for three other real estate vehicles. Lone Star is mulling a $6 billion fund according to one industry placement agent. And Blackstone, which has already committed a significant amount of its fifth real estate fund, may have to raise another pool of capital in the near future.