RED 50 managers shrug off market woes

The largest real estate debt managers once again outperformed in a nightmare year for real estate fundraising.

In a lackluster year for capital raising across real estate, PERE’s Real Estate Debt 50 ranking for 2024 shows the biggest players in real estate debt enjoyed another hike in fundraising, even as real estate capital raising overall fell to its lowest level in 11 years.

The managers making up this year’s RED 50 have secured an aggregate $275 billion over the five years to end-2023, which marks a rise of 3 percent from the $267 billion total recorded over the five years to end-2022. That said, the rate of year-on-year growth has slowed dramatically from 19 percent in last year’s ranking.

Demonstrative of the success of the RED 50, however, PERE data shows $139 billion was raised across 309 closed-end private real estate funds in 2023, down 38 percent from the total raised in 2022 and a significant drop from the peak of $236 billion across 554 funds in 2021. Without Blackstone’s record-breaking Blackstone Real Estate Partners X, which raised $30.4 billion in April 2023, the annual figure would have been substantially lower.

Investor interest in private real estate debt remains robust, says Paul Brindley, head of real estate debt advisory, APAC, at real estate services firm JLL. “Interest remains strong with investors seeking advice on debt markets and debt fund investing. No one size fits all investors: Middle Eastern investors want higher return with more risk, whereas Japanese investors are happy with lower returns and lower risk.”

Real estate continued to be impacted by rising interest rates in 2023. The US Federal Reserve, European Central Bank and the Bank of England continued raising interest rates until summer 2023 and held rates at decade-plus highs for the rest of the year. This resulted in declining values in many markets and sectors across the world, as cap rates rose to account for the higher cost of borrowing.

This blow to equity investors also created an opportunity in real estate debt, not least because equity-like returns became achievable with a lower relative risk profile. Coupled with this was a withdrawal of bank lending from real estate markets worldwide, which enhances the appeal of real estate debt. Broker CBRE estimates a debt funding gap for commercial real estate loans maturing over the next three years of €176 billion in Europe and $5.8 billion in Asia-Pacific. In the US, it estimates a $157 billion gap in the office and multifamily sectors alone.

Explaining a $200 million commitment from Pennsylvania Public School Employees Retirement System to PIMCO’s $3 billion PIMCO Commercial Real Estate Debt II fund in June last year, Sean Sarraf, senior investment professional at the US pension fund, wrote in a public memo to its board of trustees: “There has been an ongoing secular shift since the onset of the global financial crisis, creating an opportunity for private capital to bridge the funding gap of unmet commercial real estate borrower demand.”

He added that supply/demand imbalances in commercial real estate debt markets are expected to persist given the “historic level of debt maturities on the horizon.”

Europe underperforms

A notable feature of this year’s RED 50 is the continued relative underperformance of Europe-based managers’ capital raising. Indeed, eight of the 10 Europe-based managers in the ranking saw their rolling five-year fundraising tally fall from the previous year. Aggregate fundraising for the European managers in the table was $51.8 billion, a fall of 17 percent on the prior year.


Aggregate capital raised over the five years to end-2023 by the RED 50, up 3% on last year’s ranking


Decline in aggregate fundraising for the European managers in the ranking year-on-year


Number of North American firms in the RED 50 that reported an increase in aggregate capital raised

AXA IM Alts, which has sat in pole position on the RED 50 league table since the 2020 edition, is responsible for much of this decline. Aggregate capital raised by the Paris-based investment manager has fallen 27 percent, equating to a $7.7 billion drop-off from the previous year’s total.

Meanwhile, 24 of the 35 North American firms in the RED 50 reported an increase in aggregate capital raised for the period. The total collected by this cohort was $190.5 billion, up 5 percent from the previous year.

“The US CRE debt market is the world’s largest and most transparent, and there is a view that it corrects more rapidly and therefore enables access to distressed opportunities and opportunistic higher returns more quickly than other regions,” says Dale Lattanzio, managing partner at London-based manager DRC Savills Investment Management. “The UK and Europe will likely be behind the speed of market change and opportunity that will be witnessed in the US, but it will still be incredibly compelling.”

In Asia-Pacific, meanwhile, which has the least mature private real estate market, capital raising for the region’s biggest debt managers continues to grow. Aggregate capital raised by the five Asia-Pacific-based managers in the region was $32.5 billion, up 40 percent from 2023’s $23 billion.

There are two key reasons for the sharp jump in capital raised. Firstly, a new entry from Australia-based Metrics Credit Partners, which entered the ranking in 20th place, added more than $5 billion to the Asia-Pacific total. Secondly, fellow Australian manager Qualitas more than doubled its capital total to $6.3 billion. The RED 50, with three Australian managers in the top 25, suggests an outsized opportunity in Australia relative to the size of the market.

Andrew Schwartz, co-founder and managing director at Qualitas, says: “Tailwinds are provided by the continued narrowing of the focus of traditional financiers, providing ongoing demand for the alternative sector.” Australia’s ‘big four’ banks have been de-risking and reducing their real estate lending for several years, which has led to the creation of a number of new private debt platforms.

Schwartz also believes interest in the Australian housing market, a focus for many private debt lenders, is a factor in the recent fundraising success. “For global investors, the Australian housing market thematic is relatively attractive on a risk-adjusted basis for several reasons. Supply is limited and takes time, so the risk of excess supply and imbalance is low,” he explains.

Bigger is better

As in overall real estate fundraising, the largest managers continue to dominate the RED 50. The top 10 managers account for 43 percent of all capital raised in this year’s ranking, marginally less than last year. That said, the threshold of around $2 billion to gain entry to the top 50 ranking has dropped slightly to $1.9 billion.

As the market grows, so do the requirements for being at the top table, however. To get in the top 20 this year required a capital total of more than $5 billion, while to make it to the top 10, managers needed at least $7.7 billion, compared with just over $6 billion last year.

JLL’s Brindley says: “There is no career risk in going with big brand-names. Larger managers have bigger distribution teams, are seen as having better dealflow and the ability to deploy. They also have experience of servicing investors from all corners of the world.”
He notes that larger managers can also offer a suite of products catering to different risk profiles across geographies, while emerging managers tend to be “local champions.”

Looking ahead, Lattanzio expects capital flows into commercial real estate lending to increase this year from traditional institutional sources of capital. Furthermore, he sees an additional source of investment coming from opportunistic investors globally, which have traditionally invested more capital in equity products.

“They are considering higher-yielding debt strategies in the short term to generate high returns,” he says. “This is particularly attractive when there is uncertainty about the shape and timing of the property recovery.”