Oct 27, 2010
Recent data released by The Townsend Group indicates that private equity real estate fund sponsors are facing strong competition and a challenging fund-raising environment. The consulting firm is tracking 405 private real estate funds that are currently in the market seeking to raise capital. Townsend reports these funds have raised $14.25 billion year-to-date, only 10 percent of their aggregate fund-raising target of $135.9 billion. For 2010 vintage funds, sponsors have collected $5.8 billion of equity to date, approximately 6.7 percent of the $87 billion goal. Funds are spending an average of roughly 400 days in the market, according to the Townsend data.
The firm also reports that of the 405 funds currently in the market, 288 have a strategy focused on the developed Americas, while 35 are focused on developed Europe, 20 are targeting developed Asia and another 24 are concentrated on emerging Asia. Of the 288 funds with strategies targeting investments in the developed Americas, 104 have a diversified property focus, while 58 are debt-oriented. For the diversified group of funds focused on the developed Americas, Townsend reports an average target net levered IRR of 17.0 percent and an average target gross unlevered IRR of 14.4 percent. Roughly 75 percent of funds in the market are employing placement agents.
It seems that all funds, even those with strong brand names and track records, are struggling to raise equity in the current environment. Funds that do make it to the finish line are typically closing at amounts well below their initial targets, and oftentimes after extending their original marketing period. One of the hurdles seems to be the backlog of uncalled capital; transaction volume remains muted and LPs are hesitant to commit new capital until some of the existing commitments are funded.
Source: Institutional Real Estate, Inc.
