2. 2013 Global Real Estate ReportContentsCEO’s Foreword 3Section One: The 2013 Preqin Global Real Estate ReportKeynote Address – Carrie Coulson, Director –Real Estate, MVision5Section Two: Overview of the Private Real EstateIndustryPrivate Real Estate in 2013 – Outlook for theYear Ahead – Andrew Moylan, Preqin7Attractive Relative Returns in a Low ReturnWorld – Greg MacKinnon, Director of Research,PREA8Section Three: Assets under Management and DryPowderAssets under Management and Dry Powder 9Section Four: FundraisingOverview of 2012 Fundraising Market 11Current Fundraising Market 14North American Fundraising 15European Fundraising 16Asian Fundraising 17Rest of World Fundraising 18Section Five: Fund ManagersOverview of Private Real Estate Fund Managers 19Largest Fund Managers League Table 20Fund Manager Investment Criteria 21Section Six: PerformanceExamination of Private Real Estate Performance 23Consistent Performing Fund Managers 26Real Estates Returns for Pension Funds 27Target IRRs 28Section Seven: InvestorsOverview of Real Estate Investors 29Investor Appetite for Private Real Estate 32Strategies and Geographies Targeted in 2013 34Separate Accounts 35Investor League Tables 36Section Eight: Investment ConsultantsInvestment Consultants in Real Estate 37Section Nine: Fund Terms and ConditionsReal Estate Fund Terms and Conditions 39Leading Law Firms Involved in Fund Formation 40Section Ten: Real Estate Debt Fund MarketReal Estate Debt Fund Market 41Section Eleven: Real Estate Funds of FundsOverview of the Real Estate Fund of FundsMarket43Section Twelve: SecondariesInvestor Activity in the Real Estate SecondaryMarket45Section Thirteen: Placement AgentsReview of Placement Agents 47Section Fourteen: Preqin ProductsOrder Forms 49The 2013 Preqin Global Real Estate Report - Sample Pages
3. SectionTwo:OverviewofPrivateRealEstateIndustryalternative assets. intelligent data.2. Overview of Private Real Estate Industry5The 2013 Preqin Global Real Estate Report - Sample PagesPrivate Real Estate in 2013 – Outlook for theYear Ahead- Andrew Moylan, PreqinFundraising remained challenging in2012 as a result of economic uncertainty,a lack of new commitments being madeby investors and a large number offunds on the road. Closed-end privatereal estate funds that held a ﬁnal closeduring the year raised an aggregate$55bn, a small decline on the $57bn thatwas raised by funds that closed in 2011.There were some notable fundraisingsuccesses, with 52% of funds thatclosed in 2012 doing so on or abovetarget, including the $13.3bn ﬁnal closeof Blackstone Real Estate Partners VII,the largest closed-end private real estateever raised.For many ﬁrms however, securingcommitments remained difﬁcult.Fundraising is now a long process, withmanagers spending an average of justunder 18 months marketing their funds.Raising a ﬁrst-time fund is particularlydifﬁcult, with fewer investors nowprepared to invest with new ﬁrms. Just21% of investors will commit to ﬁrst-timefunds, compared with 41% in December2009. More than ever, investors want tosee evidence of a strong track record,and in particular that a ﬁrm performedwell during the downturn, as well as ingrowing markets.While the number of funds in marketdid fall during the ﬁnal quarter of 2012,with 449 funds currently on the roadtargeting an aggregate $147bn in capitalcommitments, the fundraising marketremains extremely crowded. Even withimproving investor sentiment, there willlikely continue to be a signiﬁcant numberof managers falling short of their fundtargets or abandoning their fundraisingefforts altogether.Investor SentimentThere are strong signs that investorconﬁdence in private real estate funds isreturning, with 53% of investors surveyedby Preqin in December 2012 planningto make new commitments to the assetclass in 2013. In a similar study conductedin December 2011, just 36% of investorsexpected to make commitments in thefollowing 12 months. The majority (54%)of investors also expect to commit morecapital to the asset class in 2013 thanthey did in 2012.Real estate remains an important part ofmany sophisticated investors’ portfolios,with 93% of institutional investors activein the asset class targeting exposureto property of at least 5% of their totalassets. As well as having the potentialto generate strong returns, real estateportfolios can offer diversiﬁcation, act asan inﬂation hedge, and provide a steadyincome stream; we have seen only avery small proportion of investors scaledown their exposure to the asset class.In the longer term, just 9% of investorsexpect to reduce their allocations to realestate, while 39% expect their allocationsto increase.While a large proportion of investorsfocused primarily on core investmentsfollowing the downturn, many are nowincreasingly looking at opportunitieshigher up the risk/return spectrum.Investor interest in core remainedstrong during 2012, but there was alsoincreased appetite for core-plus, valueadded and opportunistic strategies. Realestate debt is also gaining more interestfrom investors, with a growing proportionbelieving it can add value to their realestate portfolios.The use of separate accounts is alsocontinuing to increase, with someinvestors viewing this as a way to investsigniﬁcant amounts of capital, whileretaining a greater level of control thanthey might have with a commitment to ablind-pool fund. These typically remainthe preserve of larger, more experiencedinvestors however, and many small- ormid-sized investors lack the additionalresources required to invest throughseparate accounts.PerformanceRecent performance of the real estateasset class is also encouraging. Preqin’slatest study of the performance of publicpension funds’ portfolios found thattheir real estate investments generateda median return of 10.0% in the 12months to June 2012, more than anyother major asset class. In each of thenine quarters to June 2012, there wasan average increase in NAV for privatereal estate funds and there are positivesigns for private real estate funds ofmore recent vintages. The median IRR of2009 vintage funds stood at 12.9% as ofJune 2012, with three-quarters of fundsgenerating IRRs of 9.5% or more.This must of course be placed in context;many investors suffered signiﬁcantlosses in 2008 and 2009 and despitethe improvements in recent quarters,many are still disappointed with thereturns they have received. Forty-sevenpercent of investors surveyed by Preqinin December 2012 felt the performanceof their private real estate portfolios hadfallen short of their expectations.Outlook for 2013Fundraising looks certain to remainchallenging in 2013. There are signsof improving investor appetite, witha growing proportion of institutionsexpecting to commit capital to privatereal estate in the coming year; however,a signiﬁcant proportion still do not expectto be active. While a dramatic increasein fundraising is unlikely, 2013 may seemore capital raised than was securedin 2012. Firms marketing new vehicleswill need to demonstrate a strong trackrecord, have competitive fee structuresand an alignment of fund managerand investor interests, and be able toclearly differentiate themselves from thecompetition in order to be successful.
4. SectionFour:Fundraisingalternative assets. intelligent data.4. Fundraising11The 2013 Preqin Global Real Estate Report - Sample PagesThe private real estate fundraising markethas stabilized in recent years, with theamount of capital secured by fundsclosed each year between 2009 and2012 remaining around $50bn. Thereare signs that investor sentiment towardsreal estate is gradually improving, butmany institutions did not commit capitalto the asset class during 2012 and, witha large number of funds on the road,fundraising is likely to remain challengingin 2013.Fundraising by QuarterAlthough 2012 saw a drop in the numberof funds closed to 142 compared tothe 175 closed in 2011 (Fig. 4.1), theaggregate capital raised remained fairlystable, with funds closed in 2012 raising$55bn compared to the $57bn raisedby funds closed in 2011. Fig. 4.2 showsthat Q4 2012 saw the highest quarterlyaggregate capital commitments ($23bn)of any quarter in the past four years;however, it is important to note that thequarter included the $13.3bn close ofBlackstone Real Estate Partners VII, thelargest closed-end private real estatefund ever raised. The largest fund inmarket, Brookﬁeld Asset Management’sBrookﬁeld Strategic Real Estate Partnersis targeting a signiﬁcantly smaller $3.5bn.Manager ExperienceMore experienced managers accountedfor a greater proportion of the capitalraised in 2012, with many investorsincreasingly focused on investing withmanagers with a strong track record.Fig. 4.3, which measures experienceby the number of funds a manager hasraised, shows that 46% of capital raisedin 2012 was secured by fund managerswhich have closed 10 or more funds.It is important to note the inﬂuence ofBlackstone Real Estate Partners VII onthis graph, with the $13.3bn committedto the fund included in the capital raisedby fund managers which have closed 10or more funds. Despite this, the numberof funds raised by ﬁrms which haveOverview of2012 Fundraising Market36 3644663340 41584439 40524334 353015 1410131612108121513171381123010203040506070Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q42009 2010 2011 2012No. of FundsClosedAggregateCapital Raised($bn)Fig. 4.2: Quarterly Closed-End Private Real Estate Fundraising,Q1 2009 - Q4 201217%12%27%22%7%10%6%6%14%3%29%46%0%10%20%30%40%50%60%70%80%90%100%2011 201210+ Funds Raised8-9 Funds Raised6-7 Funds Raised4-5 Funds Raised2-3 Funds Raised1 Fund RaisedFig. 4.3: Breakdown of Capital Raised by Closed-End Private RealEstate Funds by Manager Experience, Funds Closed 2011 – 2012ProportionofAggregateCapitalRaisedYear of Final CloseSource: Preqin Real Estate Online Source: Preqin Real Estate Online8194168242298354315182172 17514214 16427610413114052 4657 550501001502002503003504002002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012No. of FundsClosedAggregateCapital Raised($bn)Fig. 4.1: Annual Closed-End Private Real Estate Fundraising, 2002-2012Source: Preqin Real Estate OnlineReal Estate Online providesdetailed proﬁles for over 4,000unlisted real estate funds, includingover 470 private real estate fundsin market.For more information, or to arrangea demonstration, please visit:www.preqin.com/reoData Source:
5. SectionFive:FundManagersalternative assets. intelligent data.5. Fund Managers19The 2013 Preqin Global Real Estate Report - Sample PagesThere has been considerable growthin the number of private real estatefund managers that are active in recentyears, despite the tough fundraisingenvironment. Preqin tracks more than1,600 private real estate ﬁrms, includingmanagers of both closed- and open-ended funds, which between themmanage over 3,800 vehicles. Globally,the private real estate industry employsan estimated 14,500 people.The closed-end fund model is the modelmost widely used by private real estatefund managers. In terms of fund typesmanaged, 83% of ﬁrms only manageclosed-end funds, and 10% manageonly open- or semi-open-ended funds.The remaining 8% are managers ofboth closed- and open/semi-open-endedfunds.North America remains the base forthe majority of private real estateﬁrms, accounting for 55%, as Fig. 5.1shows. Europe is the second mostsigniﬁcant region for such ﬁrms, with29% headquartered in the region; thisis a one percentage point increase froma year ago. Of the remaining ﬁrms, 8%are based in Asia-Paciﬁc, and 3% are ineach of the Middle East and Israel, andAustralasia. The ﬁnal 2% is made up ofAfrica- and Latin America-based privatereal estate ﬁrms.New York and London are the twomost important metropolitan areas forprivate real estate ﬁrms, with 183 and171 ﬁrms respectively headquartered inthese cities (Fig. 5.2). Sixty-nine privatereal estate ﬁrms are headquarteredin Los Angeles, less than half thenumber based in London. US citiesaccount for six of the top 10 locationsfor headquarters of private real estatefund managers, and Sydney, Mumbaiand Toronto make up the remainder.Overview of Private Real EstateFund Managers55%29%8%3% 3%1% 1%North AmericaEuropeAsia-PacificMiddle East & IsraelAustralasiaLatin AmericaAfricaFig 5.1: Breakdown of Private Real Estate Firms by Location of HeadquartersFig. 5.2: Top 10 Metropolitan Areas for Private Real Estate Firms(Based on Headquarters)Metropolitan Area No. of FirmsNew York 183London 171Los Angeles 69Chicago 56San Francisco 42Boston 38Dallas 36Sydney 29Mumbai 24Toronto 1939%32%21%7%0%5%10%15%20%25%30%35%40%1 Fund 2-3 Funds 4-7 Funds 10 or More FundsFig. 5.3: Breakdown of Private Real Estate Fund Managers byNumber of Funds ManagedProportionofPrivateRealEstateFirmsNo. of Funds ManagedSource: Preqin Real Estate OnlineSource: Preqin Real Estate Online Source: Preqin Real Estate OnlineReal Estate Online featuresdetailed proﬁles of over 1,680fund managers from around theworld.For more information, or toarrange a demonstration, pleasevisit:www.preqin.com/reoData Source:
7. SectionTen:RealEstateDebtFundMarketalternative assets. intelligent data.10. Real Estate Debt Fund Market41The 2013 Preqin Global Real Estate Report - Sample PagesRecent years have seen debt fundsfeature more prominently in the privatereal estate industry, with many ﬁrmsdiversifying their businesses to includespecialist debt platforms and a growingnumber of fund managers incorporatingthe acquisition or origination of realestate debt into their existing investmentstrategies. As the availability of bankﬁnancing has fallen in the US and Europe,many fund managers, alongside othernon-traditional lenders, are increasinglystepping in to help ﬁll the funding gap.Institutional investors are alsoincreasingly interested in the value thatreal estate debt can add to their existingreal estate portfolios. A growing numberof institutions believe that these fundscan generate returns with a lower levelof risk than equity investments in realestate, and a signiﬁcant number ofinvestors plan to commit to funds with adebt strategy in 2013. Thirty-four percentof real estate investors interviewed byPreqin in December 2012 were targetingdebt funds in the following 12 monthscompared to just 8% in the 12 monthsfollowing December 2011.Solely Debt-Focused FundraisingThe most successful year in terms offundraising for solely debt-focused fundswas 2008, with 33 solely debt-focusedfunds raising an aggregate $13.8bn(Fig. 10.1). Fundraising has beenslower since then and while 2011 was arelatively successful year, with 19 solelydebt-focused funds raising an aggregate$7.8bn, 2012 saw only eight solely debt-focused funds close on an aggregate$2.9bn.Although the proportion of capitalraised by solely debt-focused fundshas ﬂuctuated in recent years, demandfor debt exposure has consistentlyincreased. Fig. 10.3 shows that theproportion of capital raised by fundssolely making equity investments hasdecreased considerably in the last ﬁveyears, with a growing proportion offunds incorporating debt investmentsto some extent. Since 2007 there hasbeen a large decrease in the proportionReal EstateDebt Fund Market1433171219188.8.131.52.07.82.9051015202530352007 2008 2009 2010 2011 2012No. of FundsClosedAggregateCapital Raised($bn)Fig. 10.1: Annual Solely Debt-Focused Closed-End Private Real Estate Fundraising,2007-2012Source: Preqin Real Estate OnlineFund Firm Geographic Focus Size (mn)Blackstone Real Estate Special Situations Fund II Blackstone Group US 2,900 USDFortress Japan Opportunity Fund II Fortress Investment Group Japan 130,000 JPYCRE Senior 1 AXA Real Estate Europe 1,000 EURPramerica Real Estate Capital I Pramerica Real Estate Investors UK, Germany 492 GBPPrudential U.S. Real Estate Debt Fund Pramerica Real Estate Investors US 805 USDM&G Real Estate Debt Fund M&G Investments West Europe 343 EUREuropean Real Estate Debt Fund DRC Capital Europe 300 GBPSelene Residential Mortgage Opportunity Fund II Selene Investment Partners US 476 USDLongbow UK Real Estate Debt Investments II ICG-Longbow UK 242 GBPCornerstone Enhanced Mortgage Fund Cornerstone Real Estate Advisers North America 315 USDFig. 10.2: 10 Largest Solely Debt-Focused Closed-End Private Real Estate Funds Closed, 2011-2012Source: Preqin Real Estate OnlineYear of Final CloseData Source:Subscribers to Preqin’s Real EstateOnline can view detailed proﬁlesfor over 350 ﬁrms globally with aninterest in investing in real estatedebt.For more information, or to registerfor a demonstration, please visit:www.preqin.com/reo
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