The annual number of global real estate funds that closed fell by 27% last year.
Some 298 funds, totalling $118bn (£92bn) of fundraising, closed in 2018. This compares with $132bn across 406 funds the previous year, reflecting an 11% drop in capital.
Preqin’s 2018 private capital fundraising update showed a consistent decline in capital raised in closed-end private real estate since 2015.
Tom Carr, head of real estate at Preqin, said: “Activity was undoubtedly still substantial, with funds raising more than $100bn for the sixth consecutive year, but the pace of fund closures has notably slowed.”
However, Carr said investor appetite is not slowing, as funders continue to flock to higher-risk asset classes despite concerns of a market correction.
He said: “This is despite many investors we interviewed saying that they were seeking to position themselves in anticipation of a correction and would be targeting these lower-risk strategies in the coming months.”
More than half of investors in Preqin’s survey said they believed the market is due for a correction in the next three years.
Investor focus on higher-risk assets
Two-thirds of the capital that closed was focused on higher-risk opportunistic, at $43bn, and value-added funds, at $36bn, with core and core-plus sinking to just $6.1bn.
The largest funds that closed were from Starwood Capital Group, with $7.6bn of globally targeted opportunistic finance, Blackstone, with its $7.1bn opportunistic fund for Asia and Australia, and Goldman Sachs Merchant Banking Division, with its $6.5bn debt fund.
Funds hit a 10-year high in close times, with the average period to close sitting at 18 months, compared with 14 months in 2010.
Almost half of funds, some 45%, closed above their target. This is the largest proportion recorded by Preqin in the past five years.
Record year opening
This year opened with a record-breaking 674 real estate funds in the market seeking a total of $250bn.
Investor caution in a slower market has driven the number of open funds up, with significant hikes compared with 573 funds targeting a combined $191bn at the start of 2018.
The largest funds include Blackstone’s $20bn global opportunistic fund, Brookfield’s $10bn global opportunistic strategy and Lone Star’s $6bn distressed strategy targeting the US and Europe.
It is the highest total in terms of both number of funds and aggregate capital on Preqin’s records since 2012.
Similarly, at the end of last year, fund managers held record capital totals, with some $295bn in available capital – more than double the $134bn total at the end of 2012.
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