Despite taking a hit during the pandemic, private real estate fundraising volume in 2020 ultimately turned out to be similar to prior years’ levels, which generally have hovered around $150 billion. This year, however, is shaping up to be a different kind of fundraising year.
Below are three takeaways from PERE’s H1 2021 Fundraising Report, which was published this week and provides few reasons for optimism during the second half of the year.
Fundraising volumes fall even further
With another quarter in the books, the decline in fundraising volume this year compared with other years has become more apparent. Total capital from funds closed during the first half of the year fell 36.3 percent to $61.7 billion from the $96.8 billion collected during H1 2020. The H1 2021 equity haul was also the smallest H1 total since 2012, when $57.5 billion was gathered during the first six months of the year. Additionally, the total number of funds closed during H1 2021 – 107 – is the lowest in the 14 years since PERE has been tracking fundraising data.
Worst fundraising year in a decade
More capital was raised during the first half than second half of the year during the last five consecutive years, according to PERE data. H2 2021 fundraising volume consequently has a higher probability of falling short of H1’s $61.7 billion total than exceeding it. 2021 is therefore poised to be the worst fundraising year for private real estate since 2012, when approximately $119 million was amassed from vehicles closed during the year.
Further evidence can be seen in our H1 2021 Investor Report, which showed diminishing investor appetite for real estate in the past year. Among public pension funds, foundations/endowments, insurance companies and private pension funds, the plurality had decreased their private real estate allocations between H1 2020 and H1 2021, the report stated.
Reason for optimism
The more subdued fundraising activity as of late is partly due to the lack of mega-fundraises, with just one $5 billion-plus real estate equity vehicle – Blackstone Real Estate Partners Europe VI – closing last year. Similarly, none of the funds that closed during H1 2021 reached the $5 billion mega-fund threshold. What could save 2021 from becoming one long fundraising slump is if multiple mega-funds close during the second half of the year. Indeed, Starwood Capital Group is expected to hold a $10 billion final close for Starwood Distressed Opportunity Fund XII Global in late third quarter or early fourth quarter.
The outlook is less promising for the other two mega-funds in market, however. The biggest real estate fund, Brookfield Asset Management’s Brookfield Strategic Real Estate Partners IV, is targeting $17 billion but having launched earlier this year, is unlikely to close by the end of the year. After all, it took Brookfield at least a year and a half to raise $15 billion for the prior fund in the series, BSREP III.
Also unlikely to add to this year’s fundraising tally is The Carlyle Group’s Carlyle Realty Partners IX, which was launched in January with a $6 billion target. The fund was expected to reach a first close last month and a final close within 18 months after the first close, according to documents from the Pennsylvania Public Schools Employees’ Retirement System.
The good news is the fundraising slump that has thus far characterized 2021 is not expected to continue indefinitely. The final closes for the Brookfield and Carlyle mega-funds may not come in time to boost 2021 capital raising volumes, but that then bodes well for 2022. Such is the fundraising environment these days that it is difficult to have a robust year without the help of a few behemoth funds.