real estate spotlight october 2010
TRANSCRIPT
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The private equity real estate market has
seen a dramatic change in its fortunes
over the past two years. Prior to 2008,
fundraising was increasing year-on-
year, investors were rushing to commit
to new funds and returns were strong.
The past two years, however, have been
characterized by poor performance,investor inactivity and slow fundraising.
There are some signs the market may
be improving, but in a turbulent market,
predicting when this will happen is a
difficult proposition.
Investor Attitudes
Fundraising has been slow throughout
2009 and 2010 to date, with quarterly
totals ranging from $7.6 billion to $15.4
billion. In comparison, quarterly totalsranged between $24.2 billion and $43.8
billion during the period 2007 to Q3
2008. The primary driver behind the slow
fundraising has been investor inactivity and
caution. Preqins recent real estate investor
survey found that just 24% of investors
made a real estate fund commitment in H1
2010.
During the boom years, investors
were continually receiving returns from
their existing private equity real estate
investments, which they were then re-
investing in new funds. As a result of
the economic downturn, investors are
receiving far fewer distributions from
their existing funds and therefore are notinvesting new capital at the same rate. In
many cases, investors have large amounts
of capital committed to funds that remains
uncalled. For other investors there is
no urgency to commit. With uncertainty
surrounding future real estate valuations,
institutions do not feel they are missing
opportunities by staying on the sidelines.
The same survey does, however, give
indications of a possible improvement in
fundraising in the future. 42% of investors
surveyed are planning to make new
commitments in the next 12 months, while
another 19% indicated they would consider
doing so. This does not suggest that a
dramatic upturn in fundraising is imminent,
but does suggest that quarterly fundraising
totals will begin to increase over the
coming year.
Performance
Performance for private equity real estate
funds has been severely impacted by
the economic downturn, with funds of
2006 and 2007 vintages most adversely
affected. Two-thirds of 2006 vintage
funds and 79% of 2007 vintage funds
are currently producing negative IRRs.
Recent performance is not showing any
signs of a quick reversal of fortunes, and
real estate has lagged behind other assetclasses which have seen a rebound in
performance.
As Fig. 2 illustrates, recent performance
for private equity real estate funds has
been mixed. 2007 vintage funds, although
deep in the red, have seen performance
improve over recent quarters. 2005 vintage
funds, in contrast, have seen declines
Just 24% of investors made a
real estate fund commitment
in H1 2010.
54
73
6661
3431
27
37
20 21
33.9
43.8 42.1
20.4
15.2 14
8.5 10.2
15.4
7.6
0
10
20
30
40
50
60
70
80
Q12008
Q22008
Q32008
Q42008
Q12009
Q22009
Q32009
Q42009
Q12010
Q22010
No. ofFunds
AggregateCapitalRaised($bn)
Source: Preqin
Fig. 1: Quarterly Private Equity Real Estate Fundraising,Q1 2008 - Q2 2010
-0.5
-0.4-0.3
-0.2
-0.1
0
0.1
0.2
0.3
0.4
0.5
0.6
1 2 3 4 5 6 7 8 9 10
Vintage 2000
Vintage 2001
Vintage 2002
Vintage 2003
Vintage 2004
Vintage 2005
Vintage 2006
Vintage 2007
Vintage 2008
Source: Preqin
Fig. 2: J-Curves - Annual Median Net IRRs by Vintage Year
MedianNetIRR(%)
Investment Year
The private equity real estate market has experienced dramatic change over the past two years, Andrew
Moylan looks at what this means for the future of the asset class.
What Now for Private Equity Real Estate?
Feature What Now for Private Equity Real Estate?
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in the median IRR in recent quarters.
Clearly with many funds still suffering, fund
managers will be concentrating on asset
management and restructuring debt, with
the aim of turning the fortunes of their
funds around.
A Crowded Market
The aggregate target of funds in market
has fallen steadily since Q1 2009, but
there are still 400 funds in market,
targeting aggregate commitments of $129
billion. Between January and September
2010, 47 funds were abandoned or placed
on hold, highlighting that fundraising
remains an extremely challenging
prospect. While for some firms fundraising
has proven to be impossible, there are
signs for others of an improvement in
fortunes. In 2009, just 15% of funds met
or exceeded their fundraising targets, with
85% falling short. Between January and
September 2010, however, 19% of funds
to close have done so on target, while
24% have exceeded their targets.
Although it is clear that not every fund in
market will be raised successfully the
aggregate target of all funds in market
is more than two and a half times the
amount of capital raised in 2009 the
paralysis in the fundraising market that
was evident a year ago appears to be
easing. Firms raising funds thatfit with therevised aims of the institutional investor
community have been successful in
raising new funds.
A Changing Approach
The changing nature of the real estate
market has led to dramatic shifts in the
strategy preferences of institutional
investors and the strategies of funds
which are being launched. The rise in the
appeal of core funds has been marked,
with 86% of investors now having a
preference for this type of vehicle.
Fundraising for value added vehicles has
declined significantly. Value added funds
were responsible for 32% of capital raised
in 2007, but only accounted for 17% of
capital raised in January to September
2010. Opportunistic strategies have seen
a smaller proportional decline. Many
investors have also seen the appeal of
distressed opportunities and real estate
debt. Debt funds accounted for 24% of
capital raised in January to September
2010, with distressed funds accounting for
25%.
Between January and
September 2010, 47 funds
were abandoned or placed
on hold.
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8%4% 3% 5%
32%
26% 27%17%
49%
50%41%
29%
3%
4%
5%
25%
8%16%
24% 24%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2007 2008 2009 Jan - Sep 2010
Debt
Distressed
Opportunistic
Value Added
Core-Plus
Source: Preqin
Fig. 3: Annual Breakdown of Capital Raised by Strategy, 2007 - September 2010
ProportionofCapitalRaised
Feature What Now for Private Equity Real Estate?
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Dry Powder
While fundraising may be slow, this has not
had a significant impact on the amount of
capital that private equity real estate fund
managers have at their disposal to make
new investments. As of September 2010,
these firms had $174 billion in uncalled
capital. If real estate fund managers feel
there are excellent opportunities available
(and that remains a big if), they are in a
good position to take advantage. North
America-focused funds have $98 billionof capital to call up, Asia and Rest of
World-focused funds have $39 billion and
Europe-focused vehicles have $37 billion.
It is obvious to all within the private equity
real estate industry that a return to the
fundraising levels of 2006 and 2007 will not
happen quickly, if ever, but there are some
encouraging signs for fund managers.
Many investors that spent much of the past
two years on the sidelines are showing
signs of returning and do plan to make new
commitments in the next 12 months.
Fund managers still have $174 billion of
uncalled capital available to invest and,
despite fundraising remaining slow, some
strategies are appealing to investors and
capital is being raised for these funds.
While most institutions do not feel they
will be adversely affected by delaying new
commitments at present, if the number of
transactions taking place picks up, fund
managers call up capital and investors
receive distributions from their existing
investments, then institutions are likely to
return to the market in greater numbers.
Fund managers that have adapted to
the changing attitudes of the institutional
investor community and successfully
conveyed how they intend to overcome
market conditions have shown that it is
possible to raise capital for new funds.
The information contained within this article is based on data from The 2010 Preqin PrivateEquity Real Estate Review. Now in its fifth year, the Review is the most trusted guide to thePERE industry available today. This publication includes 280 profiles of the most active investorsin private real estate funds, profiles of more than 360 profiles of the leading private equity realestate firms and detailed analysis including examinations of investors, fundraising, performance,dry powder, placement agents and fund terms and conditions.
The 2010 Review is currently available with a 25% off pre-publication special offer, making copies available for just: $995/595/715!For more information, including sample pages and details on how to order your copy, please visit:
www.preqin.com/rer
Data Source:
The 2010 PreqinPrivate Equity Real Estate Review
Some strategies are
appealing to investors and
capital is being raised for
these funds
Feature What Now for Private Equity Real Estate?
Download Data
Dr. Peter Linneman
Professor of Real Estate, Finance
and Business PolicyWharton Business School
Henry Cisneros
Former Secretary of Housing and
Urban Development
United States Government
Marc WeissChair, Real Estate Investment
CommitteePartners Group
Michael Leven
President and COOLas Vegas Sands
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Detailed analysis examining the history and development of the industry,fundraising trends, performance analysis, fund manager universe, institutionalinvestors, service providers, fund terms and conditions and much more
All areas of the market covered, from small regional funds to globalmega funds; separate analyses conducted for core-plus, value added,opportunistic, debt and distressed funds throughout Review
Profiles for 360 firms, including direct contact details, firm investmentstrategies, fund details and more.
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FirmTotal Capital Raised for Private Equity Real
Estate Funds in Last Ten Years (mn)Firm Headquarters
Niam 990 Sweden
ICECAPITAL Real Estate Asset Management 800 Finland
CapMan Real Estate 683 Finland
Sveafastigheter 330 Sweden
BPT Asset Management 285 Denmark
EVLI Property Investments 235 Finland
Andersson Real Estate Investment Management 228 Sweden
Orkla Finans 200 Norway
Genesta Property Nordic 176 Sweden
Nordic Real Estate Partners 162 Denmark
Source: Preqin
8
7
8
7
4
3
0.8 0.60.9 1.1 0.7
0.2
0
1
23
4
5
6
7
8
9
2005 2006 2007 2008 2009 Jan-Sep2010
No. ofFundsRaised
Aggregate
CapitalRaised(bn)
Source: Preqin
Fig. 1: Fundraising by Scandinavia-Based Firms,2005 - September 2010
7
1.3
0
1
2
3
4
5
6
7
8
No. of Fu nds in Market Aggregate Target (bn )
Source: Preqin
Fig. 2: Funds on the Road Managed by Scandinavia-Based Firms
5
2
0.9
0.4
0
1
2
3
4
5
6
Denmark Sweden
No. ofFirms
AggregateTarget(bn)
Source: Preqin
Fig. 3: Capital Targeted by Scandinavia-Based Firmsby Manager Location
Fig. 4: 10 Largest Scandinavia-Based Firms by Capital Raised for Private Equity Real Estate Funds in the Last 10 Years
Data Source:
www.preqin.com/reo
Real Estate Online
Preqins industry-leading product Real Estate Online featuresdetailed profiles on 25 Scandinavian Fund Managers.
For more information please visit:
Scandinavian Fund Managers
Fund Managers Scandinavian Fund Managers
Download Data
Kamarl Simpson examines fundraising by Scandinavian Fund Managers.
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Insurance companies are significant
investors in real estate, and as of September2010, the average real estate allocation
of these institutions is approximately $1.9
billion. The average target allocation to real
estate is approximately $2.4 billion.
39% of insurance companies that invest in
real estate have total assets of less than $10
billion. 35% have assets of between $10
billion and $49.9 billion. 10% have $50-99.9
billion in assets under management, while
13% of insurance companies have assets
of between $100 billion and $399.9 billion.Only 3% have over $400 billion under
management.
In terms of overall allocations to real estate,
34% have less than $500 million invested
in property. 18% have $500-999 million,
and 29% have real estate portfolios worth
between $1 billion and $3.99 billion. 6% have
over $10 billion in the real estate asset class.
Key Facts:
Insurance CompaniesAverage Allocation to Real Estate:$1,865mn (8.8% of Total Assets)
Average Target Allocation to RealEstate:$2,430mn (10.2% of Total Assets)
Source: Preqin
Fig. 3: Breakdown of Insurance Companies by Region
50%
80%
48%
0%10%
20%
30%
40%
50%
60%
70%
80%
90%
North America Europe Asia and Rest of World
Source: Preqin
Fig. 4: Unlisted Fund Location Preferences of InsuranceCompanies
ProportionofInsuranceCompanies
Source: Preqin
Fig. 1: Breakdown of Insurance Companies by Size
Source: Preqin
Fig. 2: Breakdown of Insurance Companies by Overall Real EstateAllocation
Insurance companies account for a significant proportion of the private real estate investor universe,
Forena Akthar examines the investment preferences of these institutions.
Insurance Companies
Investors Insurance Companies
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Of the insurance companies that invest
in private real estate funds, 80% have a
preference for Europe-focused vehicles.
This is no surprise considering that 62%
of insurance companies that invest in real
estate in general are based in Europe.
R+V Lebensversicherung is one Europeaninsurance company which was active in
private real estate in H1 2010. The 60
billion German insurer plans to invest
between 200 million and 300 million in
unlisted funds in the next 12 months. Half
of the insurance companies that commit to
unlisted property funds target North America-
focused funds and 48% are interested in
funds investing in Asia and Rest of World.
NLI International is a Japan-based insurer
that commits to private equity real estate
funds and it is advised in-house.
With regards to the fund strategies that
insurance companies are attracted to, value
added and opportunistic funds are the mostprevalent, with 68% having a preference
for opportunistic funds and 72% having an
interest in value added vehicles. 56% and
40% of insurance companies favour low-risk
core and core-plus strategies respectively.
Debt and distressed strategies are appealing
to 28% and 21% of insurance companies
that invest in private funds.
Data Source:
Real Estate Online
The information in Investor Spotlight is taken from Preqins Real Estate Online Product. There
are currently profiles for 146 insurance companies with an active interest in real estate.
To find out more information about this product, or to arrange a demo, please visit:
www.preqin.com/realestate
Download Data
Half of the insurance
companies that commit to
unlisted property funds target
North America-focused funds.
72%68%
56%
40%
28%
21% 21%
0%
10%
20%
30%
40%
50%
60%
70%
80%
ValueAdded
Opportunistic
Core
Core-Plus
Debt
Distressed
FundofFunds
Source: Preqin
Fig. 5: Strategic Preferences of Insurance Companies
ProportionofInsurance
Companies
Insurance CompaniesFund ManagersInvestors
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October 20th, 2010
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Fundraising PERE Fundraising
Source: Preqin
76
273
381 376 383 378400
33
127
228
173147 134 129
0
50
100
150
200
250
300
350
400
Jan-2007
Jan-2008
Jan-2009
Jan-2010
Apr-2010
Jul-2010
Sep-2010
No. ofFunds
AggregateTarget($bn)
Source: Preqin
Fig. 2: Real Estate Funds on the Road over Time
NorthAmerica
EuropeAsia and Rest
of WorldTotal
Number ofFunds
216 103 81 400
AggregateTarget Size($bn)
66.5 36.0 26.6 129.1
Average Target
Size ($mn)
323 391 363 347
Fig. 1: Real Estate Funds on the Road
Source: Preqin
Recently Closed Real Estate Funds
TA Realty Associates IX
Strategy: Core-Plus, Value Added, Debt, DistressedGeographic Focus: USProperty Types: Industrial, Office, Residential, RetailTarget IRR (Net): 15-17%Final Close (mn): 1,850 (Aug-2010)Placement Agent: Not UsedLaw Firm: Goodwin ProcterSample Investors: Amherst College Endowment, City ofLakeland Employees Pension and Retirement System, City
of Phoenix Employees Retirement System, City of QuincyContributory Retirement Board, Essex Regional RetirementBoard, Fairfield Employees Retirement Fund, Illinois MunicipalRetirement Fund, Los Angeles City Employees RetirementSystem, Maryland State Retirement and Pension System,
Montana Board of Investments, Montgomery CountyEmployees Retirement System, New Jersey State InvestmentCouncil, Vermont Pension Investment Committee
Gateway Capital Real Estate Fund III
Strategy: OpportunisticGeographic Focus: Greater ChinaTarget IRR (Gross): 20+%Final Close: 374 USD (Aug-2010)Placement Agents: Morgan Stanley Global Financial Sponsors
GroupLaw Firm: Baker & MckenzieSample Investors: Harvard Management Company
Download Data
Fig. 3: 10 Largest Real Estate Funds on the Road
Private Equity Real Estate Fundraising
Fund Manager Target Size (mn) Strategy
Lone Star Fund VII Lone Star Funds 4,000 USD Debt and Distressed
Lone Star Real Estate Fund II Lone Star Funds 4,000 USD Debt, Distressed and Opportunistic
Aberdeen European ShoppingProperty Fund
Aberdeen Asset Management: PropertyDivision
1,500 EUR Core-Plus and Value Added
Carlyle Realty Partners VI Carlyle Group 2,000 USD Debt and Opportunistic
MacFarlane Urban Real Estate FundIII
MacFarlane Partners 1,500 USD Opportunistic
PS Fund IV Asia Fund Select Pacific Star Financial 1,200 USD Core, Core-Plus and Value Added
UK Property Income Fund Legal & General Property 700 GBP Core and Core-Plus
AG Core Plus Realty Fund III Angelo, Gordon & Co 1,000 USD Core-Plus and Debt
Aetos Capital Asia IV Aetos Capital Asia 1,000 USD Debt, Distressed and Opportunistic
Forum Asian Realty Income III Forum Partners 1,000 USD Opportunistic
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Nicholas LoupChief Executive, Asia PacificGrosvenor, Hong Kong
Andrew OksnerManaging DirectorInvestments Real EstateGroupAjia Partners, Hong Kong
Masayuki YokotaHead of Asset Finance,Listing DepartmentTokyo Stock ExchangeInc, Japan
Tomoyuki YoshidaPresidentGE Capital Real Estate,Japan
Come face-to-face with the best of class whose invaluable perspective and intellectualforesight are reshaping the Japanese property landscape.
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8/8/2019 Real Estate Spotlight October 2010
12/12
Los Angeles County Employees
Retirement Association issues RFI for
USD 400 million private real estate debt
mandate
The USD 35 billion Los Angeles County
Employees Retirement Association
(LACERA) plans to allocate up to USD 400
million to private real estate debt through
two separate accounts. The pension fund
is looking to hire up to two managers andhas issued an RFI. Responses to the
RFI are due by mid-October 2010, with a
final decision planned for early 2011. The
pension fund plans to supply new debt,
likely to be in the form of A-B structures,
B-notes, mezzanine pieces or preferred
equity on existing core assets, and will
be limited to a mixture of office, industrial,
retail and apartment assets with a focus on
the US.
Allianz Real Estate aims to achieve EUR30 billion allocation to real estate by
2014
The EUR 15 billion asset manager is
looking to double its assets to EUR 30
billion in the next four years. As part of
this on-going plan, it is looking to sell
around 100 German properties by the
end of 2011. It is planning to increase its
allocation to private real estate to 20% of
its overall real estate portfolio by 2013. It is
looking to achieve this through senior debt
investments and joint ventures, as well
as through funds that focus on specialist
sectors, such as logistics. Allianz Real
Estate is also planning to increase its
exposure to the asset class through direct
investments. It is looking to achieve this
through investment in high quality assets
on a global scale but with a focus on
Europe. It is planning to allocate 80% of its
portfolio to Eurozone markets, and is likely
to allocate 10-15% to US markets.
Ohio Police and Fire Pension Fund toplace redemption queue requests
The USD 10.5 billion public pension fund
is to place redemption queue requests for
its investments in RREEF America REIT
II and INVESCO Core Real Estate - USA.
The requests will be made either by the
end of this year or during 2011. It has not
decided how much of its investments in
the funds that it will redeem, but it will not
seek to redeem its entire holding. RREEF
America REIT II invests primarily in core
industrial, office, retail and apartment
properties throughout the US, and
INVESCO Core Real Estate - USA investsin industrial, office, retail and multi-family
properties in major metropolitan areas
within the US. The public pension fund has
a 12% target allocation to real estate.
Chinese insurance companies, such as
China Life Insurance, now authorized to
allocate up to 10% to real estate
Chinas Insurance Regulatory Commission
(CIRC) has published rules that will allowChinese insurance companies to invest
up to 10% in real estate. However, CIRC
has decided that investments in real estate
funds will be capped at 3% of total assets.
Insurance companies in China will also be
prohibited from becoming directly involved
in development projects, and they will not
be able to invest in residential property.
China Life Insurance decided last year that
it would appoint experienced real estate
investment professionals to assist it in
diversifying its portfolio once regulations
were in place.
San Bernardino County Employees
Retirement Association to invest in
global REITs
The USD 5 billion public pension fund
has announced that it will begin investing
in global REITs in order to gain a more
liquid real estate portfolio and is planning
to issue an RFP for managers in Q1 2011
through its advisor Townsend Group. The
pension fund has a target allocation of9% to real estate and a long-term target
of 20% of its portfolio to be allocated to
REITs, 50% to core and 30% to non-core
real estate.
Virginia Retirement System commits
USD 425 million to real estate
The USD 50.1 billion Virginia Retirement
System has committed approximately
USD 225 million to Carson Industrial, a
joint venture targeting industrial properties
in southern California and Houston. The
pension fund also committed USD 200
million to LaSalle Property Fund, a core
fund targeting retail, office, residential andlogistics properties in the US.
Municipal Employees Annuity & Benefit
Fund of Chicago makes additional USD
50 million allocation to core real estate
The USD 4.7 billion Municipal Employees
Annuity & Benefit Fund of Chicago
(MEA&B) has committed an additional
USD 25 million to AFL-CIO Building
Investment Trust and a further USD 25
million to American Core Realty Fund.Both vehicles are open-ended core
funds investing in the US. It had initially
committed USD 15 million to each vehicle.
The pension fund has a target allocation
of 10% to real estate and currently has
around 4.7% allocated to the asset class.
Data Source:
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