Get Ready for More Real Estate Investment Competition

An excerpt from the newly released 2015 Preqin Global Real Estate Report presents some

impressive numbers and real estate investor attitudes. Titled Investor Appetite for Private Real

Estate in 2015, we find that investors are quite pleased with their 2014 performance and intend

to commit to real estate again this year with enthusiasm.

In quarter 4 of 2014, Preqin interviewed more than 100 private fund investors to determine their

current preferences and concerns, as well as their appetite for real estate in 2015. Some

highlights include:

Almost 80% of institutional investors active in the private real estate market are looking

to invest more into the asset class this year than they did in 2014.

The remaining group intend to maintain their current level of investment.

While 14% of real estate investors felt that their 2013 investments exceeded their

expectations, that number jumped to 33% for 2014.

Performance was named by 37% of those surveyed as the key issue in their 2015 real

estate investment decisions.

Asia-based investors are indicating strong interest, with 76% stating that they are likely to

make new commitments in 2015.

Asia and Pacific based institutions were the most active investors in 2014, with the relative

percentage of area institutions indicating a commitment to private real estate as follows:

1. Asia and Pacific based – 71%.

2. North America based investors – 47%.

3. European investors – 40%

4. Other areas – 33%.

Size appears to matter when it comes to institutional private real estate investment. Larger firms

are more involved than smaller institutions. In 2014, 69% of investment firms with assets of $10

billion or more committed to private real estate. This trend is expected to hold firm or increase

in 2015.

In terms of investor size, the larger institutions are again more likely to be active in 2015, with

64% of respondents that have $10 billion or more in total assets expecting to make, or

considering making, new fund commitments in 2015, compared to 45% of those that have less

than $10 billion under management.

The numbers above are about the intention to commit funds to private real estate. How much

money is the next question? A significant 79% of institutions active in the private real estate

market are indicating that they will deploy more money in 2015 than they did in 2014. None of

the respondents indicated that they planned to invest less this year. The majority of firms are

expecting to commit in two or more funds, while a third are indicating they will invest through

four or more funds. The percentage of investors favoring the top three strategic vehicles:

Core – 51%

Opportunistic – 47%

Value added – 56%

As far as issues and concerns cited by those surveyed, they indicated that though performance

has been good, it is still the top issue:

Performance 37%

Investment Opportunities 27%

Economic Environment 25%

Fees 22%

Transparency 19%

Liquidity 15%

Regulations 15%

Exit Opportunities 12%

Volatility 5%

Consolidation 3%

Other 27%

Investors are happy with returns, intend to commit more funds to private real estate, but are still

cautious. The private real estate investment market should do quite well in 2015, but small

investors will again be competing a bit with the major players. The rules haven’t changed

however. Sharpen your pencils or update your spreadsheets. You’ll need to be even more

careful with your due diligence.

The small investor actually has some advantages over the institutions in real estate. Marketing

can be very effective locally, attracting distressed sellers. The nimble small investor can

cultivate relationships to get advance notice of local foreclosures as well. 2015 looks like it’s

going to be another great year for real estate investment.

Preqin is a supplier of data, analysis and intelligence services to the alternative assets industry.

For more information about Preqin, visit their website at www.preqin.com.