Private Real Estate Funds Raised $61 Billion in First Half

Institutional investors remain strongly engaged in the real estate market.

Private real estate funds raised $27 billion in the second quarter, bringing the first-half total to $61 billion and putting this year’s fundraising on track to surpass the $103 billion raised in 2014, according to a new report from Preqin, the alternatives data provider.

However, Preqin’s Andrew Moylan suggested that investors may start to get nervous about how the fund they are investing in now will perform.

“Recent funds are largely performing well, but the challenge for investors will be to separate the managers that are truly adding value from those that look good because of the market,” Moylan said in the report.

The Preqin All Real Estate Index has yet to return to its 2008 peak, but it has increased steadily since the first quarter of 2010, except for a dip in third quarter 2011.

Real estate debt is the strongest performing strategy since December 2007, and has now passed the 100 mark at 103.2.

In the second quarter, private real estate dry powder reached a record $253 billion, Preqin reported.

Competition among fund managers to invest is intense, the report said. Valuations are high, and attractive opportunities are scarce.

Forty-seven percent of funds closed in the second quarter quarter primarily targeted the North American market, although the $11 billion raised for the region was down from $26 billion raised in the first quarter.

The two biggest fundraisers were Europe-focused vehicles — Lone Star Funds and AXA Real Estate — which closed with an aggregate $12.7 billion.

Preqin said the average time to final close continued to rise in the second quarter, with the average fund spending 21 months in market.