Private closed-end real estate funds have returned record amounts of capital to investors, says Preqin as part of its 2016 Global Real Estate Report.
Funds distributed US$138 billion to investors in 2013, $187 billion in 2014, and a further $103 billion in the first half of 2015, it calculates. Buoyed by rising real estate valuations, the industry has seen 22 consecutive quarters of increase in net asset value (NAV) up to Q2 2015, the latest available data. Private real estate funds generated returns of 15 percent in the year to June 2015, and 16 percent per annum in the three years to June 2015.
As a result of these returns, 89 percent of investors surveyed by Preqin said that their real estate investments either met or exceeded their expectations in 2015. Record levels of distributions have made more capital available for re- investment, and 82 percent of investors expect either to maintain or increase their capital commitment to real estate funds in 2016 compared to 2015.
Key 2016 Global Real Estate Report Facts:
AUM Plateaus: Record distributions have reduced the AUM (assets under management) of the real estate industry by $15 billion to total $743 billion at the end of June 2015. Though dry powder held by real estate firms grew by $5 billion to reach $202 billion, the unrealised value of assets fell from $561 billion to $541 billion in H1 2015.
Top Performers: 2011 vintage real estate funds have generated a median net IRR (internal rate of return) of 17 percent, the highest of any vintage year since the Global Financial Crisis.
North America Leads the Way: North America-focused real estate funds have the highest median IRR of any regional focus in four of the five most recent vintage years (2008 – 2012). The median IRR for these funds has been 10 percent or more for every vintage year since 2008.
Competition for Assets: Sixty-seven percent of fund managers say that it is currently more difficult to find attractive investment opportunities than one year ago. Over half (56 percent) say that finding attractive opportunities is the biggest challenge facing fund managers going into 2016.
Deployment of Capital: Despite the growing ‘wall of capital’ available to firms, real estate fund managers remain confident of their ability to put capital to work with 60 percent expecting to deploy more in 2016 than 2015.
Comments Andrew Moylan – head of real assets products at Preqin: “Rising real estate valuations globally have helped the asset class become one of the best performing private capital strategies in recent years. Many fund managers have viewed recent quarters as an attractive time to exit; 2014 saw record levels of capital returned to investors, and when the final data becomes available, we are likely to see 2015 eclipse 2014.
“It is little wonder then that institutional investor satisfaction is generally high. 2015 represented a fifth straight year of growth in real estate fundraising and most investors expect to maintain or increase the capital they put to work in 2016. The strong demand for real estate has made competition intense in many markets however and fund managers are finding it harder to find attractive opportunities than it was a year ago. Nevertheless deal flow looks set to remain strong, with the majority planning to deploy more capital in 2016 than 2015.”