The Fundraising Winners & Losers

As one of the largest real estate consultants in the world, The Townsend Group has unrivaled data on global fundraising activities. Key data from its January 2014 real estate fundraising report reveals that some managers are pulling back from raising new closed-ended funds, with the spread between capital sought and capital raised widening. For some who stay the course, there is good news ahead.

Increasing Spread: Capital Sought, Capital Raised

The spread between the amount of capital sought by GPs for closed-ended real estate funds versus that actually raised is getting wider, according to The Townsend Group. Although still in fundraising mode, 2012 and 2013 vintage funds witnessed the largest difference between targeted fundraises and capital raised to date—the worst performance since 2008, and for 2013 vintages, equivalent to raising roughly 25c for every $1 sought.

Commitment Stack: The Where and When of LP Appetites

Less than $60B of real estate capital was raised by closed-ended funds in the past 12 months, however, The Townsend Group details the winners and losers here. Strategies targeting the developed Americas dominate the landscape, as expected, but it is developed Asia strategies that have seen the greatest increase from six months prior. 2012 vintages garnered the strongest appeal among LPs, and opportunistic strategies scooped up a majority of the commitments.

Commitment Powder Overhang

The amount of capital still sitting in closed-ended and open-ended real estate funds has risen by more than 13 percent in the past six months alone, with $82.6B currently residing in closed-ended funds. This “commitment powder” overhang, as one senior Townsend executive described it, is making its mark felt on future fund allocations.

North America Dominates, But Europe’s Influence Grows

With 468 real estate funds in the market, there’s no shortage of competition for GPs trying to raise capital. Developed Americas’ strategies dominate the landscape, with a diversified focus capturing much of the market share. However, since The Townsend Group’s last report in March 2013, it is developed European funds that have undergone a fundamental shift, with the number of closed-ended funds in the market rising 28 percent to 86 in January. Global strategies took the largest hit, declining 71 percent with just 13 funds in the market in January.

Fund Launch Low

Not since 2006 have so few real estate closed-ended funds been launched globally. During 2013, only 230 new vehicles came to market, down 25 percent from 2012 and marking an end to the steady rise in new fund launches following the financial crisis.

(Some) Fundraises Pick Up Speed

Although the number of new funds coming to market has dropped dramatically, there is some good news on the horizon: the number of funds getting to an initial close in less than six months is on the rise, modestly. For 2012 vintage funds, 17 percent of funds came to a first or initial close within six months—the highest figure since 2009. Overall, the outlook is tough, with only a third of funds getting to an initial close within 24 months.

Hitting The Return Hurdles

The Townsend Group presents a breakdown of targeted returns and leverage in U.S closed-ended funds according to real estate sector. Alternative real estate strategies, such as medical office, student housing and senior living, see the greatest spread between net levered IRRs and gross unlevered IRRs, while land/for sale housing and debt strategies predict higher target gross IRRs compared to net IRRs.