Private equity real estate H1 fundraising beats 2007 pace

Private equity real estate funds are on course to raise more capital in 2008 over last year’s record level of fundraising, according to proprietary data from sister publication PERE Magazine. Firms around the world raised $40.2 billion (€25.5 billion) in dedicated value-added and opportunistic funds in the first half of 2008.

The amount of equity capital raised to date this year surpassed the $30.4 billion raised in the first half of 2007 – nearly $10 billion more raised in the first six months of this year compared to 2007, a year-on-year increase of 32 percent, according to PERE data. In total, $74 billion in private equity real estate funds was raised in 2007.

Europe-focussed funds accounted for 42 percent of the total capital raised during the first six months of 2008, with funds targeting the Americas accounting for 31 percent. Asia and the rest of the world saw 15 percent of the capital raised targeted to their regions, while global funds made up 12 percent.

Despite credit market dislocation, investors are continuing to direct investment dollars to private equity real estate. A recent report by consulting firm Watson Wyatt revealed that alternative assets managed by the world’s top 99 investment firms on behalf of pension funds grew 40 percent over the past year with real estate managers occupying the top nine positions – managing 62 percent of pension funds’ $822 billion of assets.

Research by US real estate fund of funds manager Clerestory Capital Partners also indicated a surge in private equity real estate investing compared to previous years, with 128 small-cap real estate opportunistic funds seeking to raise less than $1 billion in equity in market in the first quarter of 2008 compared with 107 during the third quarter of 2007. The funds, according to Clerestory, are targeting $54 billion in equity commitments for the first three months of this year, compared to $45 billion for the third quarter of last year.

Mega funds have played a key part in the $40.2 billion of total capital raised during the first six months of 2008. The Carlyle Group closed its €2.2 billion Carlyle Europe Real Estate Partners III fund in June, while London-based private equity real estate MGPA also closed on $5.2 billion of commitments, with its $3.9 billion MGPA Asia Fund III and $1.3 billion MGPA Europe Fund III. Earlier this year, US firms Rockpoint Group and Westbrook Real Estate Partners each raised $2.5 billion for funds with a global focus.

Lists of funds in the market and funds closed are published each month in PERE magazine.

Alan Bear, principal of San Francisco-based placement agent Probitas Partners, said the robust fundraising figures demonstrated that, despite the credit crunch and the desire by investors to re-evaluate their fund manager relationships, capital for private equity real estate fund commitments is still very much “out there.” Investors are, however, becoming much more selective about the funds they invested with, with increasing focus on pan-Asian, pan-European and pan-Latin American funds. “It’s about the emerging markets,” Bear said. “Investors are really focusing on the operating capability of the fund team.”