preqin quarterly update: real estate q1 2017 · for the three years to june 2016, the most recent...

PREQIN QUARTERLY UPDATE:

REAL ESTATE

Q1 2017Insight on the quarter from the leading provider of alternative assets data

alternative assets. intelligent data.

Content includes:

Fundraising

Funds in Market

Deals

Institutional Investors

Dry Powder

Fund Performance

© Preqin Ltd. 2017 / www.preqin.com2

PREQIN QUARTERLY UPDATE: REAL ESTATE, Q1 2017

FOREWORD - Andrew Moylan, Preqin

Fundraising for private real estate slowed in Q1 2017 compared with recent quarters, with just 38 funds reaching a ! nal close, raising

an aggregate $16bn. Although these ! gures may increase as more data becomes available, at present, this is the lowest amount of

capital raised in a single quarter since Q1 2013.

Despite fund managers holding record levels of dry powder, deal activity has fallen in comparison with recent quarters. The number of

completed private equity real estate deals was around a third lower, with 568 deals completed in Q1 2017 compared with 853 in Q4

2016. Aggregate deal value was also lower at $38bn compared with $57bn in Q4 2016.

Despite some slowdown in these areas, private real estate continues to perform strongly for investors, with annualized returns of 14.9%

for the three years to June 2016, the most recent data available. Private real estate funds have delivered 25 consecutive quarters of NAV

growth to Q2 2016 and the PrEQIn Real Estate Index stands at 104.3 (rebased to December 2007), meaning that the fall in the Index from

December 2007 to June 2010 has now been fully recovered.

The fundraising marketplace for real estate remains competitive: there are currently a record number (554) of funds in market, seeking

$189bn in aggregate capital, the highest amount targeted since 2009. Although value added and opportunistic funds make up a

large proportion of the vehicles coming to market, investors appear to be increasingly targeting core real estate funds for their future

investments as they seek to use the asset class to generate income, with the strategy now the most frequently targeted among investors

with active fund searches and mandates on Preqin’s Real Estate Online.

We hope that you ! nd this report useful and welcome any feedback you have. For more information, please visit www.preqin.com or

contact [email protected].

REAL ESTATE ONLINE

Real Estate Online is the leading source of intelligence on the private real estate fund industry and is the only service that can provide information on all areas of the private real estate asset class, including institutional investors, fund, performance, deal and asset data.

Get in touch today to arrange a demo of Real Estate Online: *: [email protected] | þ: www.preqin.com/realestate

All rights reserved. The entire contents of Preqin Quarterly Update: Real Estate, Q1 2017 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, Q1 2017 is for information purposes only and does not

constitute and should not be construed as a solicitation or other o� er, 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 � nancial 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, Q1 2017.

While reasonable e� orts have been made to obtain information from sources that are believed to be accurate, and to con� rm 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, Q1 2017 are accurate, reliable, up-to-date or complete. Although every reasonable e� ort 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, Q1 2017 or for any expense or other loss alleged to have arisen in any way with a reader’s use of this publication.

p3 Channelling Global Capital, Jersey Finance

p5 Fundraising

p6 Funds in Market

p8 Deals

p9 Institutional Investors

p10 Dry Powder

p11 Fund Performance

3

DOWNLOAD DATA PACK: www.preqin.com/quarterlyupdate

Commentators on cross-border

investment fund activity regularly

refer to the impact of global regulatory

and market shifts on business � ows. The

changes we have witnessed in the past 12

months have perhaps, though, seemed

more signi� cant than ever.

The fallout of the UK’s Brexit vote,

combined with the US presidential

election, in particular, have prompted

fund professionals, including those in the

real estate sector, to think about how they

operate in a much more complex and

potentially more fragmented landscape.

All this change, however, should not

necessarily be daunting for those

involved in cross-border real estate

activity but could, on the contrary, o� er

smart and innovative players some fresh

opportunities.

In fact, long-term macro trends suggest

that global property investment will

continue to rise in the coming years.

In the alternative investments world,

global trends such as the shift in wealth

towards Asia-Paci� c and the increase in

cross-border investment � ows are driving

demand for sophisticated investment

support, with estimates from PwC (Asset

Management 2020: A Brave New World,

2014) indicating that the global asset

management industry will grow to more

than $100tn within the next � ve years.

With this comes a greater interest in

property investment. Institutional and

private investors in markets now stretching

from the US to the Middle East and Africa

to Asia are seeking e� cient means of

deploying investment capital into real

estate funds, and fund managers in those

markets are also looking to diversify their

portfolios into non-domestic assets.

Figures from Preqin show that more

institutional investors hold real estate

assets (61%) than any other alternative

asset class, and that 24% of institutional

investors plan to increase their exposure to

real estate assets this year (Preqin Investor

Outlook: Alternative Assets, H1 2017).

Institutional investors around the world see

property as a safe investment, and certainly

it is Jersey’s experience that investors,

increasingly from Asia, continue to be

attracted to commercial real estate assets

in major European hubs and, interestingly

in light of Brexit, in London.

ROLE FOR IFCs

More than ever, cross-border investment

� ows require precise alternative fund

structuring and servicing expertise,

particularly against the backdrop of

international regulatory change and the

drive towards international standards,

such as the OECD’s base erosion and pro� t

shifting (BEPS) agenda.

The reality is that international � nance

centres (IFCs) like Jersey can play a key role

in channelling and pooling investment

capital from source to markets such as

London, providing an excellent hub for

establishing real estate holding structures

for international investors.

In relation to the London and wider UK real

estate market, there is a strong rationale

for the appeal of those IFCs located in

close proximity to the UK, like Jersey,

particularly among Chinese, Malaysian

and Singaporean private, institutional and

sovereign wealth funds.

Jersey is independent yet has close

connections with the UK and is a

jurisdiction of substance, with the expertise

of more than 13,000 professionals working

in its � nance industry. This is important as

jurisdictions get to grips with the OECD’s

BEPS agenda.

With a strong focus on high-end real estate

fund business, Jersey has seen annual

growth in real estate fund business of some

11% (as at September 2016), with property

fund assets now representing almost a

quarter of all Jersey’s alternative funds

business.

This growth is made possible by

o� ering a comprehensive range of fund

structuring options, including company,

limited partnership and separate limited

partnership vehicles, all backed up by

high-quality infrastructure and a range

of regulatory regimes catering to a full

spectrum of investor types, including those

tailored to the needs of professional and

institutional investors.

NEW-LOOK EUROPE

There is no doubt that Brexit and the

prospect of a new-look Europe have

thrown up some uncertainty, particularly

in terms of asset values and access to

the European and UK investor market.

Nevertheless, Preqin’s interviews suggest

that a signi� cant proportion of institutional

investors (63%) still see Europe as o� ering

the most attractive real estate investment

opportunities at the moment. The Brexit

vote does not seem to have dampened

demand for European exposure, either on

the continent or in the UK.

Within the context of the UK and wider

Europe, Jersey has earned a strong

reputation as a real estate structuring

centre for a diverse investor base, including

funds, individual private clients and

sovereign wealth funds.

This has particularly been the case for

property investment in the UK and

primarily London; recent months have

illustrated the depth and breadth of

overseas real estate activity being

structured through Jersey into the UK,

involving investment and regeneration

projects in student accommodation,

industrial units, shopping centres,

residential developments and major

landmark city-centre prime premises.

In fact, one of the biggest ever single-

asset London real estate deals and by

far the largest since the Brexit vote – the

‘Cheesegrater’ acquisition by Hong Kong-

based � rm CC Land – was structured

through Jersey.

CHANNELLING GLOBAL CAPITAL- Geo� Cook, Jersey Finance



Further underlining the high-end, high-

value nature of Jersey’s real estate fund

business is an analysis of UK Land Registry

data, which shows that around a third of

the total purchase value of all UK property

held by foreign corporates was attributable

to Jersey companies (£85bn out of a total

of £263bn).

Interestingly, the redemption issues faced

by some open-ended real estate funds

in the UK immediately following Brexit

actually served to highlight the bene! ts of

closed-end funds for real estate structures,

such as the type available in IFCs like

Jersey.

With Brexit fresh in their minds, managers

are now showing greater preference in

establishing closed-ended funds. This is

good news for centres like Jersey, which

are well experienced in structuring closed-

ended structures speci! cally for small

numbers of sophisticated institutional

investors.

It was with that in mind that Jersey recently

introduced a new and enhanced Jersey

Private Fund vehicle following an extensive

consultation process, speci! cally for

sophisticated, experienced investors. The

feeling is that this could prove an attractive

platform for cross-border real estate

activity, particularly in enabling overseas

investors to access UK commercial property

assets.

MARKET ACCESS

Market access, of course, also remains

a key factor in the decisions made by

fund managers, particularly against the

backdrop of Brexit and an increasingly

fragmented Europe, and the concept

of ‘passporting’ under the Alternative

Investment Fund Managers Directive

(AIFMD).

Jersey is in a strong place in the context

of Brexit and helping to facilitate seamless

foreign investment into UK-focused

commercial real estate. As a Crown

Dependency, its constitutional relationship

with the UK remains unchanged in relation

to Brexit. It is also already outside the EU –

a ‘third country’ – and retains market access

in member states for ! nancial services

thanks to existing directly negotiated

agreements, which will not change.

With change a major theme across the

UK and Europe this year, it is inevitable

that stability and certainty will prove

increasingly valued qualities for

those committed to globally focused

investments. These are qualities that

Jersey can clearly demonstrate, thanks to

the optionality and " exibility of its AIFMD

private placement routes into EU member

states, and its ability to distribute to non-

EU markets completely outside the scope

of the directive.

Despite Jersey having received once

again the strongest possible support

from the European Securities & Monetary

Authority (ESMA) in July 2016 for the

e# ectiveness and appropriateness of

its regulatory regime, ongoing delays

with the implementation of the EU-wide

funds passport under the AIFMD for

third countries has frustrated many. It

is disappointing that, following Brexit,

third-country passporting has become

something of a political football.

However, what the market is showing

us is that actually the National Private

Placement Regimes (NPPR), under which

Jersey funds are distributed across Europe,

continue to be highly regarded and in

many cases preferable to the full passport

option, being used increasingly by real

estate fund managers in the US and Asia.

As at December 2016, almost 130 Jersey

fund managers had received private

placement authorization and more than

250 Jersey funds were being marketed into

Europe through NPPRs. That is up 22% and

10% year on year respectively, and there

is good reason that private placement is

working well.

Preqin data suggests that just under

one third of the total $3.83tn invested

in real estate globally is derived from

investors in Europe. Of that, just over half

of the investor base is situated in the UK,

Switzerland and the Netherlands. With

Switzerland located outside the EU, the UK

about to leave the EU and the Netherlands

proving to be easily accessible through

private placement, private placement

looks very attractive alongside the AIFMD

marketing passport option, and its usage

looks likely to increase.

Meanwhile, by far the largest proportion

of investors in Jersey alternative funds

historically (around 90%) have been

located outside continental EU, meaning

that Jersey’s ability to o# er a regime

outside the scope of AIFMD for structures

targeting non-EU investors is making

Jersey a compelling option for managers

wanting a jurisdiction within the European

timezone that can cater for funds targeting

both assets and investors in non-EU growth

markets.

RETURNS

In a complex world where wealth patterns

are driving demand for institutional-level

real estate investment expertise in all

corners of the world, Jersey is well placed

to provide robust cross-border investment

platforms and demonstrate a mature

response to regulatory change.

Its robust regulatory framework, world-

leading approach to managing bene! cial

ownership information, simple and

transparent tax neutral environment,

readily available real estate expertise and

range of " exible structures mean that, as

well as attracting foreign investment into

the UK, Jersey acts as a quality ! lter that

helps ensure the legitimacy, robustness

and legality of funds entering the UK

commercial property market.

International investment is important to

the UK property market, too. Many recent

and high-pro! le additions to the London

skyline have been funded by international

investors, using Jersey structures. Without

the bene! t of those investors, key

developments would have been less likely.

Jersey’s fund industry is proud of the

work it, its asset management clients and

its investors do to facilitate cross-border

investment, ! nance the growth of real

estate and infrastructure developments

and, crucially, enlarge pension fund and

savings returns for a growing ageing

population.

By placing an emphasis on providing a

premium, quality service, centres like

Jersey can continue to play a key role in

channelling global capital into the London,

UK and European commercial property

markets.

5


FUNDRAISING

Private real estate fundraising had a slow start to 2017, with

only 38 funds reaching a � nal close in Q1, raising an aggregate

$16bn (Fig. 1). This is the lowest amount of capital raised in a single

quarter since Q1 2013. Capital raised in Q1 fell by 41% compared to

Q1 2016, while the number of funds closed more than halved.

Value added funds had the strongest quarter: 17 value added funds

reached a � nal close, raising an aggregate $6.9bn, representing

44% of total capital raised (Fig. 2). Funds pursuing opportunistic

strategies were also relatively successful when compared with

other strategies during the quarter, with 10 vehicles raising $4.0bn,

26% of total capital raised. However, the largest fundraise during

the quarter was achieved by a fund with a focus on distressed

investments. Cerberus Institutional Real Estate Partners IV raised

$1.8bn and will invest in distressed real estate, including the

purchase of non-performing loans, commercial and residential

mortgage-backed securities in the US and Western Europe.

In Q1, 27 funds closed with a primary focus on North America,

securing a combined $12.2bn (Fig. 3). This represents 79% of the

total capital raised during the quarter.

Fig. 4: Five Largest Private Real Estate Funds Closed in Q1 2017

Fund Firm Fund Size (mn) Strategy Geographic Focus

Cerberus Institutional Real Estate Partners IVCerberus Real Estate Capital

Management1,800 USD Distressed US, Europe

Orion European Real Estate Fund V Orion Capital Managers 1,500 EUR Opportunistic, Debt Europe

DRA Growth & Income Fund IX DRA Advisors 1,500 USD Value Added US

Greystar Equity Partners IX Greystar Real Estate Partners 1,250 USD Value Added US

Rockwood Capital Real Estate Partners Fund X Rockwood Capital 1,100 USD Value Added US

Source: Preqin Real Estate Online

0

20

40

60

80

100

120

140

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

2012 2013 2014 2015 2016 2017

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


Date of Final Close

Fig. 1: Closed-End Private Real Estate Fundraising, Q1 2012 - Q1 2017

32

17

10

2 21 10.6 0.8

6.9

4.0

0.61.9

0.2 0.70

2

4

6

8

10

12

14

16

18

Co

re

Co

re-P

lus

Va

lue

Ad

de

d

Op

po

rtu

nis

tic

De

bt

Dis

tre

sse

d

Se

con

da

rie

s

Fu

nd

of

Fu

nd

s



Primary Strategy

Fig. 2: Closed-End Private Real Estate Fundraising in Q1 2017 by Primary Strategy

27

6

32

12.2

2.10.6 0.6

0

5

10

15

20

25

30

North America Europe Asia Rest of World



Primary Geographic Focus

Fig. 3: Closed-End Private Real Estate Fundraising in Q1 2017 by Primary Geographic Focus



FUNDS IN MARKET

The number of private real estate funds in market continues

to surpass previous records, with 554 funds in market as at

the beginning of Q2 2017 (Fig. 5). These funds are collectively

targeting $189bn in capital commitments, the highest level since

2009. Sixty percent of funds currently in market have already held

at least one interim close, raising $70bn towards their respective

targets.

More than half (58%) of funds in market will primarily invest in

North America, seeking $107bn from institutional investors (Fig.

6). This is more than the combined capital targeted ($82bn) by

funds focused on other regions.

Fundraising remains competitive in 2017 as the number of funds

in market continues to increase. Sixty-four percent of funds in

market have now been on the road for more than a year; among

funds that have not held an interim close, 47% have been raising

for more than 12 months (Fig. 7).

Funds with a primary focus on value added investments make

up the largest proportion (35%) of funds in market, followed by

opportunistic funds (25%). However, among the largest funds

in market, opportunistic and distressed strategies are the most

commonly used (Fig. 8). The largest of these is Blackstone Real

Estate Partners Europe V, targeting €7bn in investor commitments.

The Europe-focused vehicle will look to invest 60% of its capital

in the UK, Germany and France, as well as in distressed markets

across Ireland, Spain and Italy. It will target opportunistic

investments in o" ce, industrial, residential, retail and hotel assets.

Fig. 8: Five Largest Closed-End Private Real Estate Funds in Market

Fund Firm Target Size (mn) Strategy Geographic Focus

Blackstone Real Estate Partners Europe V Blackstone Group 7,000 EUR Distressed, Opportunistic Western Europe

Starwood Global Opportunity Fund XI Starwood Capital Group 6,000 USDDebt, Distressed, Opportunistic,

Value AddedUS, Europe

Carlyle Realty Partners VIII Carlyle Group 5,000 USD Opportunistic US

Oaktree Real Estate Opportunities Fund VII Oaktree Capital Management 3,500 USD Debt, Distressed, Opportunistic Global

PIMCO Bravo Fund III PIMCO 3,500 USD Debt, Distressed, Opportunistic Global


0

100

200

300

400

500

600

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

2013 2014 2015 2016 2017

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


Fig. 5: Closed-End Private Real Estate Funds in Market over Time, Q1 2013 - Q2 2017

319

124

6645

107

52

20 100

50

100

150

200

250

300

350


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


Primary Geographic Focus

Fig. 6: Closed-End Private Real Estate Funds in Market by Primary Geographic Focus

17%30%

9%

19%

23%

17%

24%

17%

28%

13%

15%

12%

27%15%

34%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

All Funds Funds Yet toHold an Interim

Close

Funds that HaveHeld at Least One

Interim Close

More than 24Months

19-24 Months

13-18 Months

7-12 Months

6 Months orLess


Pro

po

rtio

n o

f Fu

nd

s in

Ma

rke

t

Fig. 7: Time Spent on the Road by Closed-End Private Real Estate Funds in Market

Jersey for

FundsJersey was the first ‘third country’ to

offer a fully functional opt-in regime

under the EU’s Alternative Investment

Fund Management Directive (AIFMD).

Benefits for funds and managers include:

• A regulatory framework which has evolved

specifically for alternative asset classes

• A tax-neutral environment to avoid the double

or triple taxation of funds and their investors

• Fund service providers ranging in size and

specialisation

• Regulations which are proportionate to the

level of investor sophistication

• An outstanding quality of life for managers

looking to relocate

For further information, visit www.jerseyfinance.je or call +44 (0)1534 836000

J E R S E Y • L O N D O N • D U B A I • M U M B A I • H O N G K O N G • S H A N G H A I

total net asset valueof regulated funds under administration

US$308bn

* Stats as at September 2016

of fund assets in alternatives

70% Private equity Venture capital Real estate Infrastructure Hedge

1,245funds administered or managed from Jersey



DEALS

The number of private equity real estate deals completed in Q1

2017 was substantially lower than the previous quarter: 568

deals were completed, a 33% decrease compared to Q4 2016 (Fig.

9). This has translated into a $19bn drop in aggregate deal value,

from $57bn to $38bn.

However, the decline in acquisitions has not stopped some large

deals taking place. The ! ve largest single-asset deals accounted for

over $3.6bn, and included the acquisition of Ballantyne Corporate

Park by Northwood Investors from Bissell Companies for $1bn

in March (Fig. 11). The 10 largest deals completed in the quarter

together account for $8.6bn or 22% of aggregate deal value.

In terms of the speci! c properties being targeted, the largest

proportion (39%) of capital is focused on o" ce assets, in line with

recent quarters (Fig. 10). The proportion of capital committed to

residential properties dropped to 10% from 20% in Q4 2016, with

industrial and retail increasing their share over the same period.

Fig. 12: Five Largest Portfolio Private Equity Real Estate Deals Completed in Q1 2017

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

Germany Industrial PortfolioIndustrial, Logistics

Blackstone Group, M7 Real

EstateHansteen Holdings 1,280 EUR Germany Mar-17

US, Industrial Portfolio Industrial DRA Advisors Cabot Properties 1,070 USD US Feb-17

Washington, DC, Diversi! ed Portfolio

O" ce, Retail, Shopping Center

Beacon Capital Partners, GIC

Unidenti! ed Seller/s 1,050 USD US Feb-17

Ikea Retail Park Portfolio Retail Pradera Ikea Group 900 EUR

Denmark, Finland, France,

Germany, Poland, Sweden,

Switzerland

Mar-17

Eastern Europe, Retail Portfolio

Retail, Retail Warehouse,

Shopping Center

CPI Property Group

CBRE Global Investors

650 EURCzech Republic, Hungary,

Romania, Poland, SlovakiaMar-17


731

863 805

960

864

1,030 953

1,048 984

900 829 853

568

34

42 44

61

46

80

54

68

55 55 57 57

38

0

10

20

30

40

50

60

70

80

90

0

200

400

600

800

1,000

1,200

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

2014 2015 2016 2017

No. of Deals Aggregate Deal Value ($bn)


No

. of

De

als

Ag

gre

ga

te D

ea

l Va

lue

($b

n)

Fig. 9: Private Equity Real Estate Deals, Q1 2014 - Q1 2017

4% 5% 2% 4% 6%6% 7% 11% 6%

15%1% 1% 1%2%

2%14%

20%8% 11%

8%3%

3%

6% 8%3%

33%28% 40% 39%

39%

3%1%27% 20%

13% 20% 10%

13% 17% 16%11%

17%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q1 Q2 Q3 Q4 Q1

2016 2017

Retail

Residential

Operating Company

Office

Niche

Mixed Use

Land

Industrial

Hotel


Pro

po

rtio

n o

f A

gg

reg

ate

De

al V

alu

e

Fig. 10: Private Equity Real Estate Deals by Primary Asset Type, Q1 2016 - Q1 2017

Fig. 11: Five Largest Single-Asset Private Equity Real Estate Deals Completed in Q1 2017

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

Ballantyne Corporate Park O" ce Northwood Investors Bissell Companies 1,000 USD Charlotte, NC Mar-17

Junkerstraße 1 Logistics Center

IndustrialECE Real Estate Partners,

Hermes Real EstateUnidenti! ed Seller/s 600 EUR Augsburg, Germany Feb-17

Rathbone Square Mixed UseDeka Immobilien

Investment, West InvestGreat Portland

Estates435 GBP London, UK Feb-17

PwC Building O" ce Manulife Real Estate DBS Bank 747 SGD Singapore Feb-17

One Vanderbilt Mixed UseHines, National Pension

ServiceSL Green Realty 525 USD New York, NY Jan-17


9


INSTITUTIONAL INVESTORS

Private real estate investors are increasingly favouring core

funds over other strategies: in Q1 2017, 52% of fund searches

were for core funds, up from 41% at this time last year (Fig. 13).

With many investors looking to real estate to generate income,

core vehicles are now the most targeted strategy, ahead of value

added and opportunistic funds, which fell from representing

61% of fund searches in Q1 2016 to 38% and from 50% to 37%

respectively. Distressed funds have also fallen out of favour, with

just 3% of fund searches targeting these vehicles, down from 11%

in Q1 2016.

Europe remains the most targeted region, with 52% of fund

searches for Europe-focused vehicles, while the proportions

targeting North America and Asia-Paci� c fell from 46% to 34% and

from 28% to 15% respectively (Fig. 14). Investors are increasingly

looking to diversify their holdings outside these regions, with the

proportion of fund searches targeting the Rest of World region

increasing from 1% to 8%, and the proportion targeting funds

with a global mandate increasing from 34% to 39%.

The trend towards greater capital concentration in the private

real estate asset class continues, as investors increasingly look to

commit larger sums of capital to fewer funds. Thirty-one percent

of investors plan to commit $300mn or more over the next 12

months (Fig. 15), compared with only 13% this time last year.

Meanwhile, the proportion of investors that plan to commit

to three or fewer real estate funds in the next 12 months has

increased from 41% to 72% over the same time period (Fig. 16).

41%

3%24%

14%

17%

Less than $50mn

$50-99mn

$100-299mn

$300-599mn

$600mn or More


Fig. 15: Amount of Capital Investors Plan to Commit to Private Real Estate Funds in the Next 12 Months

41%

27%

20%

11%

50%

61%

52%

24% 21%

3%

37% 38%

0%

10%

20%

30%

40%

50%

60%

70%

Co

re

Co

re-P

lus

De

bt

Dis

tre

sse

d

Op

po

rtu

nis

tic

Va

lue

Ad

de

d

Q1 2016

Q1 2017


Pro

po

rtio

n o

f Fu

nd

Se

arc

he

s

Strategy Targeted

Fig. 13: Strategies Targeted by Private Real Estate Investors in the Next 12 Months, Q1 2016 vs. Q1 2017

46%

57%

28%

1%

9%

34%34%

52%

15%

8% 7%

39%

0%

10%

20%

30%

40%

50%

60%

No

rth

Am

eri

ca

Eu

rop

e

Asi

a-P

aci

fic

Re

st o

f

Wo

rld

Em

erg

ing

Ma

rke

ts

Glo

ba

l

Q1 2016

Q1 2017


Pro

po

rtio

n o

f Fu

nd

Se

arc

he

s

Region Targeted

Fig. 14: Regions Targeted by Private Real Estate Investors in the Next 12 Months, Q1 2016 vs. Q1 2017

29%

43%

14%

14%

1 Fund

2-3 Funds

4-9 Funds

10 Funds or More


Fig. 16: Number of Private Real Estate Funds Investors Plan to Commit to in the Next 12 Months



DRY POWDER

The amount of dry powder held by private real estate funds

continued to break records in the quarter, reaching $247bn

as at March 2017, marking a $10bn increase from $237bn in

December 2016 (Fig. 17). Dry powder levels have now increased

82% from the $136bn held by private real estate funds in

December 2012.

North America-focused funds accounted for most of the growth

in dry powder over the quarter, with dry powder focused on the

region increasing by $9bn from $133bn in December 2016 to

$142bn in March 2017 (Fig. 18). Other regions have maintained

dry powder at similar levels to recent quarters, with $63bn held by

Europe-focused funds, $32bn by Asia-focused funds and $9bn by

funds focused outside these regions.

Value added and debt funds have seen the greatest increase in dry

powder over the quarter, from $55bn to $60bn and from $35bn

to $39bn respectively (Fig. 19). Opportunistic funds continue to

hold the greatest amount ($103bn) of dry powder, up slightly

from $102bn in December 2016, while core ($19bn), core-plus

($13bn) and distressed ($13bn) funds also hold similar levels of

dry powder to those seen at the end of the year.

19

13

39

13

103

60

0

20

40

60

80

100

120

De

c-0

8

De

c-0

9

De

c-1

0

De

c-1

1

De

c-1

2

De

c-1

3

De

c-1

4

De

c-1

5

De

c-1

6

Ma

r-1

7

Core Core-Plus Debt Distressed Opportunistic Value Added


Dry

Po

wd

er

($b

n)

Fig. 19: Closed-End Private Real Estate Dry Powder by Strategy, 2008 - 2017

168176

150161

136

202 195

229237

247

0

50

100

150

200

250

300

De

c-0

8

De

c-0

9

De

c-1

0

De

c-1

1

De

c-1

2

De

c-1

3

De

c-1

4

De

c-1

5

De

c-1

6

Ma

r-1

7


Dry

Po

wd

er

($b

n)

Fig. 17: Closed-End Private Real Estate Dry Powder, 2008 - 2017

142

63

32

90

20

40

60

80

100

120

140

160

De

c-0

8

De

c-0

9

De

c-1

0

De

c-1

1

De

c-1

2

De

c-1

3

De

c-1

4

De

c-1

5

De

c-1

6

Ma

r-1

7



Dry

Po

wd

er

($b

n)

Fig. 18: Closed-End Private Real Estate Dry Powder by Fund Primary Geographic Focus, 2008 - 2017

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11


FUND PERFORMANCE

Closed-end private real estate funds continued to deliver

strong performance in Q2 2016 (the most recent quarter for

which data is available). The net asset value (NAV) of these funds

increased 2.5% over the quarter, marking the 25th consecutive

quarter of increase in NAV (Fig. 20).

The PrEQIn Real Estate Index stands at 104.3 as at June 2016

(rebased to 100 as of 31 December 2007), meaning that the fall

in index points between December 2007 and June 2010 has now

been fully recovered (Fig. 21). Real estate debt, despite being the

most successful strategy over the period since December 2007,

was the only strategy for which the index fell over the quarter,

declining from 122.7 to 122.0.

Real estate funds generated an annualized 14.9% in the three

years to June 2016 (Fig. 22). Recent vintages are proving to be

strong performers, with median net IRRs of at least 13% for all

vintages since 2009; 2011 vintage funds have the highest returns

among recent vintages, with a median IRR of 17.1% (Fig. 23).

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

Top Quartile NetIRR Boundary

Median Net IRR

Bottom QuartileNet IRR Boundary


Ne

t IR

R s

ince

Ince

pti

on

Vintage Year

Fig. 23: Median Net IRRs and Quartile Boundaries for Closed-End Private Real Estate Funds by Vintage Year

0%

20%

40%

60%

80%

100%

120%

140%

160%

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

Residual Value to Paid-in Capital (%)

Distributed to Paid-in Capital (%)

Called-up to Committed Capital (%)


Vintage Year

Fig. 24: Closed-End Private Real Estate – Median Called-up, Distributed and Residual Value Ratios by Vintage Year

104.3

122.0

93.185.3

0

20

40

60

80

100

120

140

De

c-0

7

Jun

-08

De

c-0

8

Jun

-09

De

c-0

9

Jun

-10

De

c-1

0

Jun

-11

De

c-1

1

Jun

-12

De

c-1

2

Jun

-13

De

c-1

3

Jun

-14

De

c-1

4

Jun

-15

De

c-1

5

Jun

-16

PrEQIn Real Estate PrEQIn Real Estate Debt

PrEQIn Opportunistic PrEQIn Value Added


Ind

ex

Re

turn

(Re

ba

sed

to

10

0 a

s o

f 3

1-D

ec-

20

07

)

Fig. 21: PrEQIn Real Estate Index by Strategy, 2007 - 2016

14.9%

17.5%16.7%

12.7%

0%

5%

10%

15%

20%

25%

3 Y

ea

rs t

o M

ar-

12

3 Y

ea

rs t

o J

un

-12

3 Y

ea

rs t

o S

ep

-12

3 Y

ea

rs t

o D

ec-

12

3 Y

ea

rs t

o M

ar-

13

3 Y

ea

rs t

o J

un

-13

3 Y

ea

rs t

o S

ep

-13

3 Y

ea

rs t

o D

ec-

13

3 Y

ea

rs t

o M

ar-

14

3 Y

ea

rs t

o J

un

-14

3 Y

ea

rs t

o S

ep

-14

3 Y

ea

rs t

o D

ec-

14

3 Y

ea

rs t

o M

ar-

15

3 Y

ea

rs t

o J

un

-15

3 Y

ea

rs t

o S

ep

-15

3 Y

ea

rs t

o D

ec-

15

3 Y

ea

rs t

o M

ar-

16

3 Y

ea

rs t

o J

un

-16

Real Estate Buyout Venture Capital Mezzanine


Th

ree

-Ye

ar

Ho

rizo

n IR

R

Fig. 22: Three-Year Rolling Horizon IRRs, 2012 - 2016

-0.4%

0.2%

4.0%

7.3%

4.5%

5.6%

1.5%

2.5%2.6%

2.3%1.9%

2.6%2.6%

1.7%

3.4%3.9%

1.3%

4.5%

1.9%

4.4%

2.4%2.3%

2.3%

3.8%

2.8%2.5%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

2010 2011 2012 2013 2014 2015 2016


Ave

rag

e C

ha

ng

e in

NA

V f

rom

Pre

vio

us

Qu

art

er

Fig. 20: Closed-End Private Real Estate Quarterly Change in NAV, Q1 2010 - Q2 2016

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