Blackstone is widely considered to be the heavyweight champion of private real estate, having topped PERE’s annual ranking of top fundraising managers since the list’s 2008 inception. But while the New York-based manager began making property investments in 1991, some of its closest rivals today – such as Brookfield Asset Management and KKR – were still newcomers to the sector only a decade ago.

In the past year, a new class of contenders have stepped into the real estate ring through mergers and acquisitions or strategic hires. Already successful in other private markets, these firms are now positioning themselves to become formidable players in private real estate, too. Here, we look at what is driving these upstarts into real estate, their ambitions for the sector and how they plan to stand out in an increasingly crowded playing field.

“A lot of new names have come into the space,” says Drew Murphy, head of the real estate practice at New York-based strategic advisory firm Berkshire Global Advisors. “The landscape has changed a bit since the pandemic.”

In the case of M&A, covid-triggered market disruption has allowed new buyers to emerge as other acquirers have withdrawn because of public market pressures or greater risk aversion.

For many managers, real estate remains a missing piece in their private markets offerings, says Ted Gooden, founder of Berkshire’s private markets advisory practice. While a good number of platforms invest in private equity, private debt and other alternatives, “many don’t have any real estate capability whatsoever.”

As real estate has become a key strategy for investors because of its inflation protection, tangible nature and global reach, it also has become an important growth engine for managers, Gooden says: “As more money comes into the investment industry, you need vast asset pools to grow. You can’t just keep putting it into private companies or corporate credit.”

As for new entrants’ growth aspirations, “of course everybody wants to be in a position to be Blackstone,” Murphy says. But “it’s not necessarily scaling to compete with the number one group out there. It’s diversifying product sets for most of them and being able to have a solution to whatever a client is looking for across private markets.”

Up for the challenge

Newcomers have the advantage of a clean slate in the asset class, observes Jarrett Vitulli, co-head of real estate capital advisory at New York-based investment bank Evercore.

“You’ve got the opportunity to reset the narrative around what you’ve been doing.”

Such was the case after the global financial crisis, when many of the general partners with a pre-crisis fund “were saddled with incredibly poor performance,” he says. By contrast, firms that got started between 2010-12 often benefited from being unencumbered by a pre-GFC track record.

However, “the disadvantage is the maturity of the industry,” Vitulli continues. “You really need to have a unique value proposition to be successful today, which is why you’re seeing so many groups have success being focused on a particular strategy.”

Many of the largest investors in private real estate have been active in the sector for 15-20 years, he points out. “It begs the question, ‘What are you going to offer that’s differentiated relative to what they already have?’”

Still, many managers are up for the challenge. Indeed, in affiliate title Private Equity International’s ranking of the top 50 private equity managers, 19 had real estate businesses. Of the remaining 31 firms, Gooden says 10 are currently looking to break into the asset class. And there are more to come: “we anticipate this interest growing in the future.”

PODCAST: What investors think of manager changes

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Listen to executives from Allianz Real Estate and The Townsend Group share the pros and cons related to the ongoing evolution of the private real estate industry.