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Fundraising Surges Even as Dry Powder Stacks Higher

The high-yield real estate fund universe hit record highs last year, undeterred by the pandemic, the hotly contested U.S. presidential election or uncertainty about property values.

In its 25th annual review of the industry, Real Estate Alert counted a record 565 active commingled vehicles seeking a minimum 10% net return. That’s up 6% from the high-water mark of 533 in last year’s survey and up 21% over the previous cycle’s peak of 466. Those funds are seeking to raise a whopping $490 billion of equity, 19% higher than last year’s peak and a 60% jump over the $305 billion sought in 2009, when the industry was grappling with fallout from the Great Recession.

Managers have raised a record $358 billion of equity, a 16% increase from last year and up 14% from the prior peak of $315 billion in 2019.

“A lot of people postponed fundraises last year when the pandemic hit,” said Walter Stackler, founder of New York placement agent Shelter Rock Capital. “When we got into the fall, our phone and email rang off the hook. … There’s a backlog of managers who are in market or coming to market, and that will reach a crescendo in the summer or fall of this year.”

That’s not to say the fund game is easy sledding for all right now.

The amount of uninvested capital rose to a record high for the fifth year in a row, to $242 billion, and only 113 funds held final closes in 2020, the lowest in a calendar year since 2012. A dozen funds were put on hold or canceled, the highest annual tally since 2014.

Those data points highlight the difficulties of the past year, market pros said. The pension systems, endowments and foundations that drive the fund universe halted commitments — and in many cases, even discussions — in the first half of last year as they focused on triaging existing portfolios.

To wit, U.S. public pension systems pledged $37.1 billion in 2020 to commercial real estate vehicles, including funds. That’s down 22% from 2019 — the biggest year-over-year decrease in a decade — and below the cyclical peak of $49.6 billion in 2018, according to Ferguson Partners research.

Still, meetings between managers and limited partners picked up again in the second half, either in person or virtually. And with investors a year behind in allocating capital, placement agents are hopeful they’ll play catch-up and that this year could see a wave of commitments.

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