Only $18 billion of real-estate funds closed during the last 2019 quarter, the smallest amount for a three-month period since the first quarter of 2013, according to data firm Preqin. By comparison, the total was $47 billion in the third quarter of 2019 and $35 billion in the fourth quarter of 2018, Preqin said. Analysts caution against putting too much weight on one quarter’s results.
Typically when institutions invest in real-estate funds they are shooting for returns in the midteens or even 20% range. But reaching those goals has become much harder at this stage of the economic cycle, partly because values of many properties have plateaued.
The biggest funds, such as those managed by Blackstone Group Inc. and Brookfield Asset Management Inc., have benefited from this trend. During the recovery they have increasingly vacuumed up the bulk of the capital that institutions have wanted to invest in real estate.
Some private-equity executives predict that fundraising will rebound in 2020. With interest rates low and stocks at record levels, real estate still looks attractive to many institutions, they point out.
But institutions are less likely to sign up with funds that rely heavily on rising values to produce high returns. Rather, they are looking for strategies tied more to increasing cash flows through rising rents and cutting costs.