Townsend: More funds mean more challenges

A new report from The Townsend Group reveals that the increase of funds in the market means GPs are having a more difficult time reaching their targets.

With the market seeing signs of recovery and real estate continuing to be an attractive asset class, the number of private real estate funds in the market has grown on a year-over-year basis. However, as a result, many of these funds are having difficulty reaching their targets, according to a new report released by The Townsend Group.

In Townsend’s annual Real Estate Fundraising Report, the Cleveland-based consulting firm found 562 private real estate funds in the market globally this year. This is compared to the 505 funds in the market during the prior year.

“It’s clearly an attractive time for fund managers to be back in the market raising capital,” said Dan Geuther, an analyst at The Townsend Group and author of the report. “With the amount of funds out there, however, they’re not raising all the capital that they want.”

One of the reasons for this, according to Geuther, is because LPs “can afford to be more selective” with where they put their capital now. So, although the figures from Townsend’s report reveal that GPs are eager to hit the fundraising trail, the glut of funds makes it difficult to raise equity commitments.

In addition, the report reveals there’s been $55 billion of capital raised over the past 12 months, up a considerable 77 percent from one year earlier, when just north of $30 billion was raised. Still, fund managers are facing a difficult time. Currently, the real estate GPs being tracked by Townsend that launched funds in 2012 are seeking an aggregate of $90 billion in equity commitments globally. Of that amount, only about $6 billion has been raised to-date.

Geuther believes this uptick in real estate funds in market will continue into 2013 and beyond, which will result in the weeding out of some of the less savvy fund managers. “If we fast forward one year, the amount of money raised will probably continue to increase, but I still think investors will be more selective,” he said. “It’ll still be a challenging time for managers to raise capital. The best GPs will rise to the top.”