trends in real estate private equity · 2015-07-29 · global market outlook trends in real estate...
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Global market outlookTrends in real estate private equity
Contents
Interest rates and cap rate expansion
16
Getting in front of limited partners
6
Outsourcing11
3Introduction
Strategies for growth4
Rethinking joint ventures
8
13
SEC examinations20
Securitization18
Conclusion22
3Trends in real estate private equity
Introduction
interests
Mark Grinis
Howard Roth
Global market outlook
3Trends in real estate private equity
entering a new positive growth cycle, investors have made clear their intentions about how and with whom they will invest capital. Fund managers that continue to struggle in the current fundraising environment will have to
about whether their existing strategies can succeed amid new market realities.
4Global market outlook
Type No. of funds raising Aggregate target capital ($bn)
Table 1. Total alternative private equity fund raising
5Trends in real estate private equity
favoritism towards fund managers with proven track records
their focused investment interests, few managers remain exclusively committed to closed-end
successful managers understand that, to stand out in a heavily saturated market, they have to broaden their services.
Chart 1. Investor hierarchy of needs
Source: EY
Acceptablefees
6Global market outlook
Emerging manager programsSome investors are taking their own initiative in test-driving new fund managers without taking the risk with large amounts of capital. These “emerging manager programs” are a new trend to watch.
These programs do not appear to favor completely new and inexperienced managers, however; rather, they seem focused on identifying managers with the potential to become the next major global fund manager. They are looking for ones who show a willingness to be closely involved in the real
behalf, and who have solid expertise with a well-developed operating strategy.
the allocations from emerging manager programs may be too
provide a strong launch point.
7Trends in real estate private equity
Joint ventures have long been a staple for doing deals in real estate. Now, as the downturn exposed lapses in due diligence and documentation across the sector, fund managers are taking a closer look at their partnership structures, and putting greater transparency measures in place, particularly around property management practices.
ventures
Source: EY
Table 2. JV terms/fees
8Global market outlook
Mitigating corruption risks Responding to investor demands
9Trends in real estate private equity
Risk Potential impact Impact detail
Table 3. Cost leakage
Source: EY
Global market outlook
Constructing lasting partnershipsWhat enables enduring partnerships is a balance of
be negotiated to successfully close deals. Integrating different businesses — from tax structures to the staff overseeing day-to-day investment responsibilities — is an instrumental part of the deal-making process. Indeed, the joint ventures that appear most mutually rewarding often look like strong business
so meticulously that the reason for the partnership gets buried or lost in the paperwork.
administration services become more sophisticated, fund managers are increasingly outsourcing internal functions.
Trends in real estate private equity
DUE TO BE RELEASED SHORTLY,
Global market outlook
Net asset valuesThe EY real estate team has been working for several months
overhaul and upgrade its industry guidelines.
in areas such as the calculation of fund net asset values, expense ratios, annual and interim reporting disclosures, and asset valuations, as well as best practice frameworks for
It is hoped that the new guidelines, due to be released shortly,
basis of discussion with similar standard-setting and fund
Pricing disparities between top international markets and all others continue to widen, and real estate opportunistic
with higher-return
themselves all but priced out of primary cities. In addition to diversifying geographically, managers are extending further on both the risk and creativity spectrums to get deals done.
Trends in real estate private equity
Chart 2. Funds looking outside gateway markets
Jakarta
Kuala Lumpur
Bangkok
Taipei
LyonIstanbul
AustinCalgary
Edmonton
Portland
Denver
Minneapolis
RaleighCharlotte
Nashville
Mexico City
San Antonio
San Diego
Rio de Janeiro
BrusselsDublin
CopenhagenWarsaw
Moscow
Helsinki
Guangzhou
Melbourne
North AmericaSouth America
Asia-PacEurope
Source: EY
Global market outlook
Trends in real estate private equity
The real estate market is
anticipate continued interest rate rises, many are contemplating their
asset value in light of more expenses, debt and cap rates rising.
Global market outlook
19%
14%
11%
8%
5%
2%
0.0%2.0%4.0%6.0%8.0%
10.0%12.0%14.0%16.0%18.0%20.0%
4% 5% 6% 7% 8% 9%
Leve
rage
d IR
R
Exit cap rate
Chart 3. Interest rates and cap rates rising*
Source: EY
Trends in real estate private equity
The commercial mortgage-backed
comeback in the United States; however, the
estate deals look very
at the head of a wave of “megadeals,” or those
Global market outlook
Chart 4. US CMBS issuance
0
250
US$bn
200
150
100
50
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
YTD
2.8 5.313.9 16.0 15.2 15.7
26.336.8
74.3
56.646.9
67.1
52.1
77.8
93.3
168.7
202.7
230.2
12.13.0
12.3
32.7
48.453.8
Trends in real estate private equity
managers that meet the
million assets under management have now gone through the process of SEC registration, and are now taking steps to prepare for potential examinations.
Global market outlook
SEC examinationsThe key issues SEC examiners will look out for in examinations and presence exams include:
•
•
• Fraud
•
• Proof of custody
Trends in real estate private equity
Global market outlook
ContactsConclusion
GlobalMark Grinis
Robert Otremba
Howard Roth
Rick Sinkuler
AmericasViktor Andrade
Thomas Brown
Dovid Frankel
Michael Frankel
Josh Herrenkohl
Mike McNamara
Mike Syers
EMEIAOlga Arkhangelskaya
Rishi Bhuchar
Ad Buisman
Ebrahim Dhorat
Global market outlook
Trends in real estate private equity
Christoph Ehrhardt
Hartmut Fründ
Karl Hamberger
Dean Hodcroft
Michael Hornsby
Ajit Krishnan
Matt Maltz
Jean-Roch Varon
Yousef Wahbah
Doug Bain
Maggie Eather
Shohei Harada
Seng Leong Teh
EY
ey.com/realestate