Institutional capital fundraising climate update

September 15, 2014 admin

Institutional capital flows continue to rise at a predictable pace. Demand for cash flow–oriented products — debt and core real estate — remains strong and actually continues to grow, particularly among non-U.S. investors. Even CMBS is beginning to draw renewed interest after being severely tainted by the severe and sudden collapse in demand experienced during the GFC.

Institutional investors’ risk appetites also continue to grow: Suburban and second-tier city investing once again is on the rise. And despite the fact that many investors are concerned that the REIT market may be fairly or even overpriced at present time, investor demand for global REIT investment strategies and products continue to grow, both domestically and offshore.

Mega-fund managers such as The Blackstone Group, The Carlyle Group, Starwood Capital and Lone Star Funds continue to command a disproportionate share of the capital fundraising market. New entrants also are drawing a lot of capital — private equity fund managers like TPG, which fairly recently have entered the funds markets, as well as hedge funds, which increasingly are competing for distressed debt and opportunistic type plays, and, in some cases, even core deals. Lift-out teams such as Richard and Bill Mack as well as well-established traditional developer/owner/operators such as the Related Companies also are now raising capital directly from institutional capital sources, rather than relying on joint venture relationships with traditional investment managers as they had in the past.

Consequently, all real estate investment managers — including the mega-managers — are finding the fundraising environment to be a lot more crowded, a lot more competitive and, consequently, a lot more challenging. Everyone is having to exert a lot more effort for a lot less yield, on a relative basis. Some managers — particularly those with narrow product lines, particularly those with single product lines, and especially those saddled with sketchy track records and relatively weak marketing teams — are finding it nearly impossible to raise capital.

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GeoffFinalv5forwebGeoffrey Dohrmann is president and CEO of Institutional Real Estate, Inc.

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