More investors are anteing up, placing new bets on commercial real estate. Others are looking to raise their stakes as they seek to move some capital out of dreary fixed-income and into alternatives such as real estate where they might actually earn an attractive yield. The appeal of the asset class has been reflected in increasing capital flows.
Global private equity real estate funds raised $14.9 billion in the second quarter of 2013, according to Institutional Real Estate FundTracker; not a figure that will blow your hair back but at least one that should grab your attention. It ranks as the second highest fundraising total over the past 12 quarters, trailing only the fourth quarter 2012 mark of $24.8 billion — a figure significantly inflated by The Blackstone Group’s closing of its $13.3 billion Blackstone Real Estate Partners VII.
The largest fund to close during the second quarter was Starwood Capital Group’s Starwood Distressed Opportunity Fund IX, which raised $4.2 billion from more than 75 global investors.
The fundraising momentum has continued into the third quarter. Four billion dollar–plus funds announced final closings in July and early August, including Brookfield Asset Management, which raised $4.4 billion for its first opportunity fund, Brookfield Strategic Opportunity Partners; Perella Weinberg, which collected commitments of $1.72 billion for its European opportunity fund, Perella Weinberg Real Estate Fund II; Alpha Investment Partners, which raised $1.65 billion for its Alpha Asia Macro Trends Fund II; and KTR Capital Partners, which attracted $1.2 billion of investor capital for its KTR Industrial Fund III.
Early in the third quarter, fundraising volume has already surpassed $12 billion. With subsequent closings expected from sizable funds sponsored by Gaw Capital Partners, Mesa West Capital, Crow Holdings and Secured Capital, third quarter volume could total $18 billion or more.
The increased flow of capital has been evident with U.S.-based core open-end funds as well. The first quarter 2013 deposit queue to enter this group of funds was more than $6 billion, according to The Townsend Group.
Investors’ attraction to the asset class has been rewarded with recent strong performance. For example, CalPERS recently reported that its real estate portfolio recorded an 11.2 percent return for the 2012–2013 fiscal year, and CalSTRS reported a 14.1 percent return.
With fixed-income assets stuck in the mud and with the stock market’s unpredictable volatility, investors might consider real estate the slow and steady tortoise; for now it certainly looks like a winner.
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Larry Gray is editorial director of Institutional Real Estate, Inc.
