In the last two weeks, private real estate’s capital markets saw two record-setting fundraises. Bridge Investment Group closed on the largest dedicated multifamily fund ever on Monday. The close came shortly after Prime Group Holdings raised the largest ever dedicated self-storage fund.
Both raises show the institutional appetite for those parts of private real estate expected to continue benefiting from today’s strongest secular themes – despite depressed levels of fundraising generally.
Certainly, some investors have made a point of maintaining activity levels even in the face of last year’s inflationary spiral. PERE’s latest Investor Report, published on Thursday, highlights the institutions that wrote sizable checks to real estate funds last year. Some, like US pension California Public Employees’ Retirement System, increased the total amount of commitments last year relative to 2021, despite greater caution from the broader investor universe.
So evidence of positive sentiment by investors toward strategies in private real estate can be found, but successful capital raising does not complete a rosy picture. Only the deployment of this capital will do that and the overall outlook for transaction activity still looks murky.
The fourth quarter is typically the busiest time of the year for real estate investors, as shown by record investment volumes in the last quarter of 2021. However, every property type suffered in terms of volume last year, with total transactions of $138.9 billion down 62 percent year-over-year for the same period, according to MSCI.
Total investment volume fell 15 percent to $729.8 billion in 2022 relative to 2021, dragged down by a 25 percent dip in office activity. Early conversations this year suggest Q1 could be similarly challenged as interest rate rises plateau. That will be the catalyst for most property sectors to thaw and deployment activity to resume in earnest.
Folks at Bridge and Prime – and, for that matter, Blackstone which reported on January 26 how its 10th global opportunity fund would stretch the industry’s fundraising record further with a final close approaching $30 billion – will feel confident their fundraisings will place them in prime positions when the market starts the next cycle.
But it would be premature to interpret their raises as a sign that a starter gun is poised to fire.