Europe ‘Destination of Choice’ for Real Estate Investors

This year has seen the most money in seven years dedicated to private real estate funds targeting Europe.

The private real estate sector has experienced near-record levels of fundraising for European funds in 2014 so far, according to Preqin.

The research firm reported that €21 billion ($26 billion) has been invested in real estate funds focused on Europe, which is the highest level of fundraising since 2007. Such funds now have a record €52 billion of cash ready to deploy, up 44% since December 2013.

During a period in which Europe’s economy is stuttering and the European Central Bank is battling to restore inflation, appetite for the continent’s real estate has exploded. Preqin reported that 44% of all capital raised globally for private real estate funds was for Europe-focused products, compared with just 17% in 2013.

Andrew Moylan, head of real assets products at Preqin, noted “the return of many of the largest US private equity firms” to Europe. Steve Schwarzman’s Blackstone was the most successful, raising €5.1 billion for Blackstone Real Estate Partners Europe IV in March, a record for a dedicated European private real estate fund. Blackstone has since sought an extra €1.5 billion from existing investors.

Another US firm, Lone Star Funds, raised €7.2 billion for its Lone Star Fund IX in July, half of which is to be invested in Europe.

European real estate funds“Over half of the capital that has been raised this year has come from non-Europe-based managers, with the likes of Blackstone Group, Lone Star Funds and Starwood Capital Group all targeting European opportunities,” Moylan said. “With many commentators highlighting the wealth of distressed opportunities across the continent, this large amount of capital does have the potential of driving up asset valuations and ensuring that deal-making is highly competitive.”

Europe-focused funds also reached their fundraising targets quicker than North American funds, Preqin said.

The private real estate sector faces issues, however: According to a separate research paper from Preqin from October, there are fewer managers running larger funds. Despite the strong appetite in Europe, globally it is taking managers longer to raise money from investors, the company reported.

“Capital is likely to remain concentrated among larger, more experienced managers, as many investors remain focused on firms with a proven strong track record,” said Olivia Harmsworth, associate commercial manager for real assets at Preqin.

“Standing out from the crowd is consequently still very difficult for managers, meaning that those without a prior track record to demonstrate to investors will need to be able to successfully articulate how they are best placed to find value in the current market.”

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