Private real estate funds raised $27 billion in the second quarter.

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.

Even so, 64% of funds closed either at, or above, their target size in the second quarter, compared with 59% for funds closed in 2014.

Competition Intense

As of July, 417 closed-end private real estate vehicles were in the market, looking to raise $149 billion.

Fifty-six percent focused mainly on North America, with the region also representing 58% of the total targeted capital.

The number of funds focused on Europe and Asia has increased by 31% from the first quarter, with 47 vehicles targeting $10 billion in institutional capital.

Fundraising remains competitive. Fifty-eight percent of vehicles have been raising capital for more than a year, up from 53% the first quarter.

Thirty-eight percent of funds that have not held a final close were launched in the last six months, while approximately 70% of vehicles that have held at least one interim close have been in the market for over a year.

In the next 12 months, 14% of investors plan to commit $300 million or more to real estate funds, while 45% of institutions intend to commit less than $50 million.

And fund managers can find encouragement from the fact that 37% of investors are planning to make four or more new fund commitments in the coming year.

Following are the five biggest closed private real estate funds currently raising capital:

  • Brookfield Strategic Real Estate Partners II, global focus: $7 billion
  • Carlyle Realty Partners VII, U.S. focus: $4.1 billion
  • Oaktree Real Estate Opportunities Fund VII, global focus: $3.5 billion
  • Rockpoint Real Estate Fund V, U.S./Japan/U.K. focus: $2.5 billion
  • AgFe Real Estate Senior Debt Floating Rate Fund, U.K. focus: $2.3 billion

— Check out Top 20 States for Private Equity Investment in 2014 on ThinkAdvisor.