Time to face the fundraising headwinds

As a looming recession stands to make capital raising more challenging, forward-thinking managers are planning ahead.

Even with the current market uncertainty, many managers are still enjoying fundraising successes.

Just this week, PERE broke the news on two record-hitting real estate fundraises. New York-based manager Ares Management closed on its largest US value-add real estate fund to date, the $1.8 billion Ares US Real Estate Fund X. Meanwhile, Bridge Investment Group raised $1.74 billion for Bridge Workforce and Affordable Housing Fund II, which is almost three times the size of its predecessor and also the largest dedicated workforce housing fund ever raised.

These funds will help to boost the private, closed-ended fundraising total for the year to date, with H1 2022 seeing a total of $72 billion raised across 139 funds. That total represented an almost 14 percent drop from the same period in 2021, as well as the lowest half-year volume of capital raised since 2012, according to PERE’s H1 2022 fundraising report. As with H2 2021, a flurry of large fund closes in H2 2022 – particularly if Blackstone wraps up its $30 billion BREP X by year-end – could still allow 2022 to finish as one of the best fundraising years on record.

But the fundraising totals for 2022 will largely represent vehicles that launched and gathered the bulk of their capital during a more robust and stable market environment. Going forward, we can expect the headwinds to pick up considerably for managers seeking to raise capital.

Investor sentiment certainly points to institutions pulling back on commitments. An INREV sentiment survey showed that 100 percent of respondents were concerned about increasing risk in September 2022, compared with just north of 10 percent in September 2021. The lack of clarity around real estate valuations, as well as the denominator effect, has many institutions sitting out the next fundraising rounds for managers.

In fact, PERE knows of at least two managers that have called time on their next fundraising campaigns early.

Some of the industry’s largest firms, however, are still plowing ahead with their fundraising plans – if their latest hires are any indication. As we also reported this week, both LaSalle Investment Management and EQT Exeter – which are 23 and 18 on the PERE 200 ranking, respectively – have named new global heads of capital raising.

Over the past five years, LaSalle has raised some of its largest funds in more than a decade, including several billion- or multi-billion dollar funds: the $2.2 billion LaSalle Asia Opportunity VI, €1.1 billion LaSalle Real Estate Debt Strategies IV and the $1.15 billion LaSalle Asia Opportunity V, according to PERE data. While many established managers are still able to rely on re-ups for fundraising during uncertain times, LaSalle’s choice for its new global capital raising head, Samer Honein, points to its ambitions to bring in new capital to fuel continued growth. Honein, after all, is understood to be the firm’s biggest fundraiser in terms of new capital.

EQT Exeter is similarly growth-minded, having nearly quadrupled the amount of capital it has raised over the past five years, as we highlighted in our September cover story. Following four cross-border M&A transactions over the past 18 months, the real estate arm of Swedish private equity firm EQT plans to raise sector-specific funds targeting beds, sheds and meds in all three regions of the world. The firm has tapped Alok Gaur – who has led the global capital raising teams at both LaSalle and The Carlyle Group – to lead this multi-pronged effort and expand its fundraising totals by further multiples.

As the private real estate industry stares down the oncoming recession, we can expect fundraising to be a daunting task for managers in 2023 and beyond. But some firms certainly remain up to the challenge and are equipping themselves to keep at it.