Big Real Estate Funds Keep Getting Bigger
Blackstone, Brookfield Dominate Fundraising
Private equity funds increased their dominance in commercial real estate investing last year, pulling in $151 billion – an all-time high. Their success is forcing some smaller players to rethink their strategies.
Preqin, the private equity data provider, reports that about 44% of all capital raised was amassed by the 10 largest funds. That flow of money left smaller funds scrambling, and many investment vehicles struggled to reach their fundraising goals. Only 295 achieved a final close, the lowest in a decade.
"So-called mega funds continue to dominate the field as the big continue to get bigger," Gianluca Romano, a managing director in JLL's Capital Markets group, wrote in a company analysis of the data. The rising competition for available capital could mean more funds fail to reach their final close this year, he added. Some small and midsized fund managers are pursuing the strategy of becoming sector or geographically focused, with varying success.
All told, the money raised in 2019 rose by 2%. That adds to a $319 billion cash stockpile targeting global commercial real estate investments. The new funds, combined with the dry powder, equates to about $1.5 trillion of buying power, according to Morgan Stanley Research data.
Just two funds dominated the fundraising landscape in 2019. Blackstone Real Estate Partners IX secured $20.5 billion to become the largest private real estate fund on record. Brookfield Strategic Real Estate Partners III, which vacuumed up $15 billion, became the third-largest such fund.
Fund managers were not afraid to put their capital to work last year either. They even whittled down the amount of their dry powder by $12 billion.
Private equity funds completed 4,538 purchases in the United States last year totaling $73 billion, the highest total this century, according to CoStar data. Those numbers were up from 4,023 transactions totaling $62.5 billion in 2018.
Blackstone dominated here too, completing its $18.7 billion purchase of Global Logistics Properties’ 179 million-square-foot U.S. industrial portfolio.
As 2020 gets underway, there are 918 funds targeting an aggregate $281 billion, an all-time high for both figures.
The good news is investor appetite remains healthy. About 93% of investors surveyed by Preqin reported they plan to either maintain or increase their allocation to real estate beyond 2020.
Blackstone also dominated another fundraising sector last year – nontraded real estate investment trusts. Its Blackstone Real Estate Income Trust raised $8.7 billion. That was out of a total on all nontraded REITs raising $11.8 billion, according to investment banking firm Robert A. Stanger & Co.
Moreover, Blackstone has picked up the pace this year.
Blackstone REIT reported $1.85 billion in fundraising for the month of January out of a total raised by the industry of $2.4 billion, according to Stanger. That prompted Stanger to increase its projection this year for nontraded REIT fundraising to $20 billion.
Overall, private equity fundraising has started off this year too in similar fashion to 2019 with big funds pulling in the lion's share. In January, a total of 23 U.S. private equity real estate funds reported raising $1.81 billion in new funds, according to CoStar data.
One fund contributed to about 58% of the total. Oaktree Capital Management raised about $1.05 billion for its Oaktree Real Estate Opportunities Fund VIII. The fund invests in debt secured by properties.