Real Estate Fund Closings Tumble 27% as Global Headwinds Mount

The number of unlisted real estate funds reaching a final closing fell 26.6 percent year-on-year to 118 in the second quarter of 2022 amid geopolitical volatility and higher capital costs, according to Realfin.

Despite fewer funds wrapping up their commitments, total capital raised at final closing grew 2.4 percent from year-earlier levels to $42.1 billion as global investors showed a greater desire for riskier strategies, Realfin said in its State of the Market global real estate report released this week.

Investors remain committed to international and multi-region strategies and have even increased their appetite for new manager relationships since the Ukraine conflict began, the data provider said. Still, the proportion of unlisted real estate funds achieving at least 100 percent of their target equity size fell to 76.6 percent from 86.5 percent in the January-March period, marking the first decline on a quarterly basis since the last three months of 2020.

“The first half of 2022 was dominated by the gathering pace of inflation, rising interest rates, the Russian invasion of Ukraine, an energy and supply crisis and the predictably disproportionate impact on emerging markets,” said Realfin CEO Riz Malik. “These headwinds are clearly starting to have an impact in the private real estate funds market.”

Asia’s Post-COVID Lag

North America led all target geographies in the second quarter with 68.9 percent of the capital raised, well ahead of Asia Pacific (14 percent), Europe (10.3 percent), multi-region (5 percent) and the rest of the world (1.8 percent). Nine of the top 10 final closings by size were for North American strategies, with the only other fund focused on Europe.

In the year to date, North American strategies have racked up $97.6 billion in total fundraising, more than half again as much as the combined haul for Europe ($41.2 billion) and Asia ($20.9 billion).

Nick Lord, head of intelligence and external relations at Realfin, said limited partners have been putting funds to work in the US on post-COVID strategies such as hospitality and even offices.

“Asia seems to be nine to 12 months behind those kinds of reopening, post-pandemic investments,” Lord told Mingtiandi on Friday.

The number of global real estate transactions involving a fund or direct investor fell 7.2 percent year-on-year to 1,753 in the second quarter, but the total value of those deals rose 22.4 percent to $90.7 billion, Realfin said.

Unlisted real estate assets under management climbed 18.7 percent to $1.69 trillion for the full year of 2021, and dry powder held by unlisted real estate vehicles edged up 1.8 percent to $409 billion at the end of June 2022 compared with 2021 year-end levels.

Giants League Table

For the five-year period to 2022’s second quarter, Singapore’s GLP led all fund managers in capital raised for Asia Pacific strategies with $17.3 billion, followed by Hong Kong-based PAG ($10 billion) and Australian firm Charter Hall ($8.2 billion).

In terms of capital raised for all real estate strategies during the five-year period, GLP’s $24.4 billion ranked a distant second globally to US private equity titan Blackstone’s $55.8 billion, as Canada’s Brookfield Asset Management placed third with $21.5 billion.

JLL led all global brokers in the first half of 2022 with $27.7 billion in capital advised, outshining CBRE ($25 billion) and Cushman & Wakefield ($16.7 billion), according to Realfin data.