preqin quarterly update: real estate q2 2018 · preqin quarterly update: real estate, q2 2018...

PREQIN QUARTERLY UPDATE:REAL ESTATEQ2 2018Insight on the quarter from the leading provider of alternative assets data

Content includes:

FundraisingFund LaunchesFunds in MarketDealsInstitutional Investors Dry Powder & Fund Performance

© Preqin Ltd. 2018 / www.preqin.com2

PREQIN QUARTERLY UPDATE: REAL ESTATE, Q2 2018

FOREWORD - Oliver Senchal, Preqin

The private real estate industry entered Q2 on the back of the best opening quarter in recent history. Both capital raised and deal flow were strong, and helping to drive investor appetite was the fact that distributions continued to exceed capital calls by a significant

margin, demonstrating that the late cycle concerns were merely about perspective. Yes, to invest in this environment still presents significant challenges when valuations are continuing to rise, but many funds are sitting on record levels of dry powder, which means not only can they act quickly but can also effectively drive negotiations for attractive assets. For those that are ready to dispose of property, the demand is there from a wide variety of participants both locally and internationally.

So, has this momentum continued into Q2? In a nutshell, no. Both fundraising and deal flow are not only down on Q1 results but are also relatively weak compared to recent quarterly levels. Even without the level of $1bn+ fundraises we saw in Q1, the average fund size remained high – a reflection of the bifurcation of the fundraising market. Further illustrating this point – despite the decline in aggregate deal value – Blackstone were able to close a deal on Gramercy Property Trust for $7.6bn, representing 12% of the total quarterly value.

Concerns over a downturn are still evident, not only from the increase in appetite for debt funds we have seen in recent years and the downside risk protection they offer, but also from the mandates that institutional investors are putting out. Indicators appear to be moving from opportunity funds down the spectrum towards value added and core-plus vehicles, although this does not mean that the higher-risk vehicles are dead: the $1.85bn raised for Kayne Anderson’s opportunistic Real Estate Partners V is evidence of experienced firms’ ability to capture the attention of investors at any stage in the cycle.

As it stands, the Federal Reserve’s increase in rates in June – with more planned throughout the year and into 2019 – will have an impact on how attractive the asset class will look relative to other forms of investment, traditional or alternative. However, we are at a new quarterly record of available capital which should filter down into deal markets over H2, and the fundraising market is on the cusp of some mega fund closures. As such, Q2 may just be a blip on the way to another strong year for the industry.

We hope that you find this report useful and welcome any feedback you may have. For more information, please visit www.preqin.com or contact [email protected].

All rights reserved. The entire contents of Preqin Quarterly Update: Real Estate, Q2 2018 are the Copyright of Preqin Ltd. No part of this publication or any information contained in it may be copied, transmitted by any electronic means, or stored in any electronic or other data storage medium, or printed or published in any document, report or publication, without the express prior written approval of Preqin Ltd. The information presented in Preqin Quarterly Update: Real Estate, Q2 2018 is for information purposes only and does not constitute and should not be construed as a solicitation or other offer, or recommendation to acquire or dispose of any investment or to engage in any other transaction, or as advice of any nature whatsoever. If the reader seeks advice rather than information then he should seek an independent financial advisor and hereby agrees that he will not hold Preqin Ltd. responsible in law or equity for any decisions of whatever nature the reader makes or refrains from making following its use of Preqin Quarterly Update: Real Estate, Q2 2018. While reasonable efforts have been made to obtain information from sources that are believed to be accurate, and to confirm the accuracy of such information wherever possible, Preqin Ltd. does not make any representation or warranty that the information or opinions contained in Preqin Quarterly Update: Real Estate, Q2 2018 are accurate, reliable, up-to-date or complete. Although every reasonable effort has been made to ensure the accuracy of this publication Preqin Ltd. does not accept any responsibility for any errors or omissions within Preqin Quarterly Update: Real Estate, Q2 2018 or for any expense or other loss alleged to have arisen in any way with a reader’s use of this publication.

PREQIN’S REAL ESTATE DATA

Preqin’s award-winning real estate data covers all aspects of the asset class, including fund managers, fund performance, fundraising and institutional investors. Our comprehensive platform is ideal for fund marketers and investor relations professionals focused on the real estate asset class.

www.preqin.com/realestate

p3 Fundraising

p5 Fund Launches

p6 Funds in Market

p7 Deals

p9 Institutional Investors

p10 Dry Powder

p11 Fund Performance

3

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FUNDRAISING

6 3.1

2 0.24

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2210.8

103.7

11

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Aggregate CapitalRaised ($bn)

Secondaries

Fund of Funds

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Debt

Source: Preqin

Fig. 2: Closed-End Private Real Estate Fundraising in Q2 2018 by Primary Strategy

Following the fundraising market’s most successful opening quarter of recent times, Q2 faced an uphill struggle to continue

the early momentum. The 47 funds closed raised a combined $22bn, the lowest quarterly total since 2013 (Fig. 1). The lack of mega funds is the reason behind the decline, with Q1’s two largest funds securing a combined $15bn, while Q2’s largest vehicles, Landmark Real Estate Fund VIII and Kayne Anderson Real Estate Partners V, raised $5.2bn collectively.

From 2015 to 2017, 182 funds, on average, have closed in the first half of the year, securing aggregate capital of $63bn. H1 2018 is currently below average for the number of funds closed (121) and aggregate capital raised ($60bn), but as more information

becomes available we do expect capital raised to match or surpass prior H1 totals, although the average number of products will lag significantly behind.

Value added and opportunistic funds accounted for two-thirds of fund closures and capital raised in Q2 (Fig. 2), in line with previous quarters. Landmark’s fund closure meant that secondaries vehicles represented just 2% of products closed in Q2 but nearly 15% of total fund commitments.

North America represented the primary focus for the majority of funds closed (32 funds and $14bn, Fig. 4). However, it is worth noting that even though there were fewer Europe- and Asia-

Fig. 3: Largest Private Real Estate Funds Closed in Q2 2018

Fund Firm Headquarters Fund Size (mn) Primary Strategy Geographic Focus

Landmark Real Estate Fund VIII Landmark Partners US 3,300 USD Secondaries Global

Kayne Anderson Real Estate Partners V Kayne Anderson Capital Advisors US 1,850 USD Opportunistic US

GreenOak US III GreenOak US US 1,550 USD Value Added US

Blackstone Tactical Opportunities RI Fund Blackstone Group US 1,200 USD Debt UK

AEW Value Investors Asia III AEW Capital Management US 1,120 USD Value Added Asia

NREP Nordic Strategies Fund III NREP Denmark 903 EUR Value Added Europe

Waterton Residential Property Venture XIII Waterton US 910 USD Value Added US

AG Europe Realty Fund II Angelo, Gordon & Co US 843 USD Value Added West Europe

Tricon US Single-Family Venture Tricon Capital Group Canada 750 USD Value Added US

Brunswick Real Estate Capital II Brunswick Real Estate Sweden 640 EUR Debt Nordic

Source: Preqin

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56

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7892

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2013 2014 2015 2016 2017 2018

No. of Funds Closed Aggregate Capital Raised ($bn)

Source: Preqin

Fig. 1: Global Quarterly Closed-End Private Real Estate Fundraising, Q1 2013 - Q2 2018

Date of Final Close



focused funds closed during the quarter, the average size of these funds was larger than those in North America. Globally, average fund size has decreased from Q1 2018, but remains nearly $100mn higher than the average fund size of Q2 2017 (Fig. 5).

Those private funds that did reach a final close have generally been oversubscribed – nearly half (49%) of vehicles closed in Q2 surpassed their initial target size, slightly above the Q1 figure (44%, Fig. 6). Adding the 16% of funds that hit their target, Q2 was relatively successful for funds that reached a final close.

200

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Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2

2013 2014 2015 2016 2017 2018

Source: Preqin

Aver

age

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Siz

e ($

mn)

Date of Final Close

Fig. 5: Average Size of Closed-End Private Real Estate Funds, Q1 2013 - Q2 2018

32 14.3

11 6.4

3 1.71 0.04

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Aggregate CapitalRaised ($bn)

Rest of World

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Source: Preqin

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Fig. 4: Closed-End Private Real Estate Fundraising in Q2 2018 by Primary Geographic Focus

10%4%

12%5%

22% 37% 18% 30%

27% 16%26% 16%

22%

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18%32%

24% 22%

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Q3 2017 Q4 2017 Q1 2018 Q2 2018

125% or More

101-124%

100%

50-99%

Less than 50%

Source: Preqin

Fig. 6: Proportion of Target Size Achieved by Closed-End Private Real Estate Funds, Q3 2017 - Q2 2018

Date of Final Close

Prop

ortio

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Fun

ds

Funds closed in 2018 so far spent an average of 19.1

months on the road

PREQIN CAN HELP YOU FUNDRAISE

The real estate fundraising landscape is more competitive than ever: more than 600 funds are on the road seeking over $200bn in aggregate capital commitments. With industry-leading data and tools, Preqin can help find those investors that are the best match for your vehicle.

Preqin’s award-winning real estate data covers all aspects of the asset class, including fund managers, fund performance, fundraising and institutional investors. This comprehensive platform is ideal for fund marketers and investor relations professionals focused on real estate funds.

To find out more, please visit: www.preqin.com/realestate

5


FUND LAUNCHES

Fund launches typically decline from Q1 to Q2, and the first half of 2018 has followed this trend. Notably, both H1 2017 and H1

2018 have seen the fewest fund launches in recent history (Fig. 7), likely due to the concentration of capital commitments in fewer funds and a fundraising market that has become increasingly competitive (see page 6: Funds in Market).

There has been no real shift in where launch activity is coming from: North America remains the epicentre of private real estate activity and, as such, managers based in the region represented nearly two-thirds of launches in Q2 (Fig. 8). Unsurprisingly, this is

reflected in the primary geographic focus of funds launched, with 57% of funds launched in Q2 targeting investment in the region (Fig. 9).

While value added and opportunistic funds have historically dominated quarterly launches, Q2 has seen value added funds represent a smaller share of launch activity than the strategy has done over the previous half year (Fig. 10). This is despite the large proportion of investor searches including a value added mandate in Q2 (see page 9: Institutional Investors).

71

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2013 2014 2015 2016 2017 2018

Source: Preqin

No.

of F

und

Laun

ches

Fig. 7: Quarterly Closed-End Private Real Estate Fund Launches, Q1 2013 - Q2 2018

67% 64%54%

67% 62%

20% 23%29%

20% 24%

7% 11% 14% 7% 10%7% 3% 7% 5%

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Q2 Q3 Q4 Q1 Q2

2017 2018

Rest of World

Asia

Europe

North America

Source: Preqin

Fig. 8: Closed-End Private Real Estate Fund Launches by Fund Manager Headquarters, Q2 2017 - Q2 2018

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d La

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es

60% 61%51%

60% 57%

20% 20%

20%13% 14%

9% 7%17% 13% 14%

11% 11% 11% 13% 14%

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Q2 Q3 Q4 Q1 Q2

2017 2018

Rest of World

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Source: Preqin

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es

Fig. 9: Closed-End Private Real Estate Fund Launches by Primary Geographic Focus, Q2 2017 - Q2 2018

20% 16% 20% 20% 19%

22%

5%

17%9%

19%

2%

16%

3%11%

40%

36%43% 40% 38%

16%27%

17% 20%19%

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Q2 Q3 Q4 Q1 Q2

2017 2018

Secondaries

Fund of Funds

Distressed

Opportunistic

Value Added

Core-Plus

Core

Debt

Source: Preqin

Fig. 10: Closed-End Private Real Estate Fund Launches by Primary Strategy, Q2 2017 - Q2 2018

Prop

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d La

unch

es



FUNDS IN MARKET

At the beginning of Q3 2018, there are 624 closed-end private real estate funds in market targeting an aggregate $206bn

in investor capital (Fig. 11). This represents the first quarterly decline in the number of products available to investors in over two years, and comes in the wake of concerns that the market is oversaturated with opportunities at present.

North America-focused funds on the road continue to dominate the fundraising landscape: 388 funds are seeking a combined $125bn in capital commitments, representing 61% of targeted capital (Fig. 12). All six of the largest closed-end private real estate funds in market have exposure to the region, including TPG Real Estate Fund III which solely focuses on investments in the US.

While value added and opportunistic funds together constitute the majority (58%) of funds in market, seeking $119bn in aggregate capital, real estate debt funds are also gaining traction (Fig. 13). There are nearly as many debt funds open to investment as there are core and core-plus vehicles, while the capital targeted by these vehicles is now only $3bn less than for opportunistic funds. Competition for higher-risk/return assets could be playing a part in the shift (more details available in Preqin Special Report: Real Estate Fund Manager Outlook, H1 2018), as could the move to greater downside risk protection required in institutional

portfolios – a product of late cycle concerns. Three of the six largest funds in market include a debt component (Fig. 14), including TCI Real Estate Partners Fund III which is solely focusing on debt through the provision of secured lending on prime real estate assets in the US and Western Europe.

117 50

7719

53 13

229 66

131 53

7 17 0.23 4

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Aggregate CapitalTargeted ($bn)

Secondaries

Fund of Funds

Distressed

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Value Added

Core-Plus

Core

Debt

Source: Preqin

Prop

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al

Fig. 13: Closed-End Private Real Estate Funds in Market by Primary Strategy (As at July 2018)

388 125

146 51

61 2029 10

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100%

No. of FundsRaising

Aggregate CapitalTargeted ($bn)

Rest of World

Asia

Europe

North America

Source: Preqin

Fig. 12: Closed-End Private Real Estate Funds in Market by Primary Geographic Focus (As at July 2018)

624

206

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Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2015 2016 2017 2018

No. of Funds Raising Aggregate Capital Targeted ($bn)

Source: Preqin

Fig. 11: Closed-End Private Real Estate Funds in Market over Time, Q1 2015 - Q3 2018 (As at July 2018)

Prop

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al

Fig. 14: Largest Closed-End Private Real Estate Funds in Market (As at July 2018)

Fund Firm Target Size (mn) Strategy Geographic Focus

Brookfield Strategic Real Estate Partners III Brookfield Property Group 10,000 USD Debt, Opportunistic, Value Added Global

Cerberus Global NPL Fund Cerberus Real Estate Capital Management 4,000 USD Debt, Distressed Global

CIM Fund IX CIM Group 3,000 USD Opportunistic North America

Digital Colony Partners Colony NorthStar 3,000 USD Opportunistic, Value Added Global

TCI Real Estate Partners Fund III TCI Real Estate Partners 3,000 USD Debt Europe, North AmericaTPG Real Estate Fund III TPG Real Estate 3,000 USD Opportunistic, Value Added US

Source: Preqin

7


DEALS

In the second quarter of 2018, there was a reduction in both the number and value of private equity real estate (PERE)

deals from Q1, with 1,295 transactions completed for $62bn. With these figures down one-fifth from the previous quarter, Q2 2018 represents the second consecutive quarterly decline in deal activity.

The slowdown can be attributed to rising prices for assets, with fund managers moving to the lower end of the market for deal flow: two-thirds of transactions in Q2 were valued at less than $50mn, compared with 59% one year prior. This does not mean large transactions did not occur – Blackstone Group’s $7.6bn acquisition of Gramercy Property Trust in May makes it one of the largest real estate deals of recent times. As a result, the proportion of deals by asset type has skewed in favour of operating companies (Fig. 16). Though, having said this, there has been an increase in the proportion of value attributed to residential deals (15% in Q2 2017 to 27% in Q2 2018), to the detriment of office transactions, which fell from 36% to 28%.

Following the increase in lower-value transactions, there has been a two-percentage-point increase from Q2 2017 in the proportion of PERE deals completed for assets smaller than 100,000ft². These smaller deals also represent an increased proportion of total deal value, up nine percentage points in Q2 2018 from 8% in Q2 2017.

The make-up of deals by transaction type in Q2 2018 has remained relatively similar to Q2 2017, with the differences being the number of single-asset deals increasing by three percentage points and the aggregate value of those single-asset deals increasing by two percentage points from Q2 2017.

0%

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2014

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2018

No. of Deals Aggregate Deal Value

Operating Company

Niche

Land

Hotel

Mixed Use

Industrial

Retail

Residential

Office

Source: Preqin

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Fig. 16: PERE Deals by Primary Asset Type, 2014 - Q2 2018

921

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2014 2015 2016 2017 2018

North America Europe Asia Rest of World

Source: Preqin

No.

of D

eals

Fig. 17: Quarterly PERE Deal Flow by Region, Q1 2014 - Q2 2018

938

1,303

1,084

1,278

1,121

1,515

1,275

1,4001,415

1,4671,378

1,4641,311

1,5721,6281,719

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2014 2015 2016 2017 2018

No. of Deals Aggregate Deal Value ($bn)

Source: Preqin

No.

of D

eals

Fig. 15: Quarterly PERE Deals, Q1 2014 - Q2 2018

Aggregate Deal Value ($bn)



Fig. 18: Largest PERE Deals in North America in Q2 2018

Asset(s) Buyer(s) Seller(s) Location Asset Type Deal Size (mn) Deal Date

Gramercy Property Trust Blackstone Group Gramercy Property Trust US Operating

Company 7,600 USD May-18

US, Multifamily Portfolio

Brookfield Property Group Carmel Partners

Ewa Beach, US, Glendale, US, Los Angeles, US, New York, US, Northridge, US,

Pleasanton, US

Residential 1,900 USD May-18

Starrett City Brooksville Company, Rockpoint Group Unidentified Seller(s) New York, US Residential 905 USD May-18

1745 Broadway Invesco Real Estate Ivanhoé Cambridge, SL Green Realty New York, US Office 633 USD Apr-18

US, Residential Portfolio Related Companies Apartment Investment and

Management Company San Francisco, US Residential 590 USD Apr-18

Source: Preqin

Fig. 19: Largest PERE Deals in Europe in Q2 2018


Netherlands, Diversified Portfolio Vesteda Group NN Group Netherlands Mixed Use 1,500 EUR Jun-18

Ropemaker Place Ho Bee LandAXA Investment Managers – Real Assets, Gingko Tree

Investment, Hanwha GroupLondon Office 650 GBP May-18

Devonshire Square PFA Pension, TH Real Estate, WeWork Blackstone Group London Mixed Use 600 GBP Apr-18

Amsterdam, Netherlands, Diversified Portfolio

HighBrook Investors Breevast Amsterdam Mixed Use 615 EUR Apr-18

114 Av. des Champs-Élysées

Hines, Universal-Investment EPI Group Paris, France Retail 600 EUR Apr-18

Source: Preqin

Fig. 20: Largest PERE Deals in Asia in Q2 2018


Mumbai, India, Office Portfolio Ascendas-Singbridge Unidentified Seller(s) Mumbai, India Office 9,300 INR May-18

Japan, Diversified Portfolio

Nomura Real Estate Asset Management Unidentified Seller(s) Kawasaki, Japan,

Tokyo, Japan Residential 14,496 JPY Apr-18

Osaka, Japan, Hotel Portfolio Ascendas-Singbridge Unidentified Seller(s) Osaka, Japan Mixed Use 10,000 JPY Jun-18

Logiport Icheon Deutsche Asset Management Unidentified Seller(s) Gyeonggi-do, South Korea Industrial 61,200 KRW Apr-18

Kumho Asiana Main Tower

CPP Investment Board, GIC Kumho Asiana Group Seoul, South Korea Office 4,180 KRW May-18

Source: Preqin

Fig. 21: Largest PERE Deals in Rest of World in Q2 2018


Westpac Place Mirvac Funds Management Blackstone Group Sydney, Australia Office 722 AUD Jun-18

VXV Office Portfolio Blackstone Group GIC, Goodman New Zealand Office 635 NZD May-18

Grand Plaza Invesco Real Estate CPP Investment Board, Future Fund Brisbane, Australia Retail 215 AUD Apr-18

80 Grenfell Street Centuria Property Funds, Lederer Group Blackstone Group Adelaide, Australia Office 185 AUD May-18

117 Clarence Street Investa Property Group Roxy-Pacific Holdings Limited, Unidentified Seller(s) Sydney, Australia Office 153 AUD Jun-18

Source: Preqin

9


INSTITUTIONAL INVESTORS

Investors seeking new private real estate fund commitments in the next 12 months are largely looking for exposure to value

added (58%), core-plus (51%) and core (49%) strategies (Fig. 22). The increase in the proportion of fund searches issued for both value added and core-plus funds, and away from opportunistic funds, is representative of an industry where investors are increasingly seeking to de-risk portfolios in light of the current market conditions.

Europe remains the most targeted region among institutional investors: 65% of fund searches issued in Q2 included a European mandate (Fig. 23). With no real shift in priorities over the coming year when compared to historical investor mandates, North America remains a key target in the year ahead, along with global opportunities.

Institutions are typically planning to make larger commitments than a year ago, with the proportion seeking to invest $100mn or more in the next 12 months increasing from 34% to 42%, and those seeking to commit more than $600mn to private real estate funds increasing from 3% to 11% (Fig. 24). However, this capital is likely to be deployed across fewer funds, with 37% of investors planning just one commitment in the year ahead, compared to 24% a year ago (Fig. 25).

45% 44%

21%13%

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Source: Preqin

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Fig. 24: Amount of Capital Investors Plan to Commit to Private Real Estate Funds in the Next 12 Months, Q2 2017 vs. Q2 2018

24%37%

43%

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28% 20%

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1 Fund

Source: Preqin

Prop

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Fig. 25: Number of Private Real Estate Funds Investors Plan to Commit to in the Next 12 Months, Q2 2017 vs. Q2 2018

24%

47%

34%

50% 50%

10%17%

49% 51%

58%

45%

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Source: Preqin

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Fig. 22: Strategies Targeted by Private Real Estate Investors in the Next 12 Months, Q2 2017 vs. Q2 2018

40%

54%

27%

5% 7%

38%42%

65%

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Source: Preqin

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Region Targeted

Fig. 23: Regions Targeted by Private Real Estate Investors in the Next 12 Months, Q2 2017 vs. Q2 2018

Strategy Targeted



DRY POWDER

Fundraising has remained robust throughout the first half of 2018, as has the amount of capital available for deployment.

Dry powder held by real estate firms stands at $278bn as at June 2018 (Fig. 26), although this does mark the first decline in the monthly figure since the end of 2017 (Fig. 27).

North America-focused dry powder totals dwarf those of other regions, with the $176bn held at the beginning of H2 2018 representing 63% of available capital globally (Fig. 28). Furthermore, dry powder totals for the region have grown faster than any others over the quarter, with Europe up 2%, Asia down 6% and all other regions combined up 1%.

There has been no change in the share of dry powder held across real estate strategies over the quarter. Debt dry powder continues to climb, with capital ready to be deployed sitting at $53bn as at June, up 6% from March – the fastest growth of any top-level strategy (Fig. 29). As such, debt continues to catch up with the higher-risk equity strategies, with value added dry powder up 5% over the quarter to $69bn and opportunistic dry powder down 3% to $108bn.

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-14

Dec

-15

Dec

-16

Dec

-17

Mar

-18

Jun-

18

North America Europe Asia Rest of World

Source: Preqin

Dry

Pow

der

($bn

)

Fig. 28: Closed-End Private Real Estate Dry Powder by Fund Primary Geographic Focus, 2007 - 2018

53

1814

69

108

120

20

40

60

80

100

120

Dec

-07

Dec

-08

Dec

-09

Dec

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Dec

-11

Dec

-12

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-14

Dec

-15

Dec

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Dec

-17

Mar

-18

Jun-

18

Debt Core Core-Plus Value Added Opportunistic Distressed

Source: Preqin

Dry

Pow

der

($bn

)

Fig. 29: Closed-End Private Real Estate Dry Powder by Primary Strategy, 2007 - 2018

165 168 176

150161

135

201 194

228 237249

274 278

0

50

100

150

200

250

300

Dec

-07

Dec

-08

Dec

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Dec

-10

Dec

-11

Dec

-12

Dec

-13

Dec

-14

Dec

-15

Dec

-16

Dec

-17

Mar

-18

Jun-

18

Source: Preqin

Dry

Pow

der

($bn

)

Fig. 26: Closed-End Private Real Estate Dry Powder, 2007 - 2018

245

254

241

249 250253

249

263

271274

282 284

278

220

230

240

250

260

270

280

290Ju

n-17

Jul-1

7

Aug-

17

Sep-

17

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-17

Nov

-17

Dec

-17

Jan-

18

Feb-

18

Mar

-18

Apr-

18

May

-18

Jun-

18

Source: Preqin

Dry

Pow

der

($bn

)

Fig. 27: Monthly Closed-End Private Real Estate Dry Powder, 2017 - 2018

11


FUND PERFORMANCE

Closed-end private real estate funds of recent vintages have median returns typically within the low- to mid-teens bracket,

although 2015 vintage funds posted a median net IRR of 11.8% (Fig. 30). While these vehicles are still early on in their lifespan, encouragingly, median returns have not deviated substantially from the average seen in post-crisis years. Top-quartile fund performance remains robust, with managers needing to deliver 19% to reach this barrier achieved by top performers for funds of vintage 2012 and beyond. The spread between top and bottom quartiles remains wide (c.100bps in post-crisis vintages) and highlights the challenge for allocators in identifying opportunities.

The inherent characteristics of debt vehicles have produced less volatile returns of around the 10% mark for recent vintages, whereas for equity strategies, the same can be said of core and core-plus funds relative to their peers across all vintages (Fig. 31). Opportunistic and value-added funds have produced the highest

median net IRRs for fund vintages since 2009, at around 16% and 15% respectively.

Not only have fund managers produced high returns for investors in recent years, but they have also been effective at redistributing this capital. The latest data shows that although full-year 2017 distributions have failed to match the record levels seen in 2016, the $194bn returned is still substantial relative to the prior years (Fig. 33). Furthermore, the difference between capital calls and distributions (net cash flow to LPs) remains positive at $69bn, and in line with totals seen in 2014 and 2015. The net result is that investors in real estate are becoming more liquid, and are having to deploy more capital to remain in line with target allocations. These factors – strong performance, distributions and investor liquidity – are the main drivers behind fund managers’ success in raising their vehicles in recent years.

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

2000

2001

2002

2003

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2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Top Quartile NetIRR Boundary

Median Net IRR

Bottom QuartileNet IRR Boundary

Source: Preqin

Net

IRR

sinc

e In

cept

ion

Fig. 30: Closed-End Private Real Estate: Median Net IRRs and Quartile Boundaries by Vintage Year

Vintage Year

-5%

0%

5%

10%

15%

20%

25%

30%

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Debt

Core/Core-Plus

Opportunistic

Value Added

Source: Preqin

Med

ian

Net

IRR

sinc

e In

cept

ion

Fig. 31: Closed-End Private Real Estate: Median Net IRRs by Fund Type

Vintage Year

-10%

-5%

0%

5%

10%

15%

20%

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

North America

Europe

Asia & Rest ofWorld

Source: Preqin

Med

ian

Net

IRR

sinc

e In

cept

ion

Fig. 32: Closed-End Private Real Estate: Median Net IRRs by Geographic Focus and Vintage Year

Vintage Year

-100

-50

0

50

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300

2000

2001

2002

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2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Capital Called up ($bn) Capital Distributed ($bn) Net Cash Flow ($bn)

Source: Preqin

Fig. 33: Closed-End Private Real Estate: Annual Amount Called up, Distributed and Net Cash Flow, 2000 - Q3 2017

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PREQIN QUARTERLY UPDATE:REAL ESTATEQ2 2018

preqin quarterly update: real estate q2 2018 · preqin quarterly update: real estate, q2 2018...

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