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Investors - APRIL 3, 2019

Investors raise €161.7b of capital into global real estate in 2018

by Jody Barhanovich

A record €161.7 billion ($182 billion) of capital was raised for investment into real estate around the world in 2018, according to the Capital Raising Survey 2019, published by ANREV, INREV and NCREIF.

Of the total raised, over half (€85.1 billion [$96 billion]) has already been invested leaving around €76.6 billion ($86 billion) yet to be deployed. This surge in capital flow reinforces an ongoing trend for capital raising, which 71.9 percent of fund managers expect to see continue into the future.

The survey reveals that, globally, a minimum of €154.8 billion ($174 billion) of the new capital was raised for investment into nonlisted real estate vehicles — slightly ahead of the previous year’s tally of €152.3 billion ($170 billion). Most — €69.4 billion ($78 billion), or 44.8 percent — is headed for Europe; a third (or €51.3 billion [$58 billion]) is destined for North America; and €22.5 billion ($25 billion) is targeted at Asia Pacific. The remainder will be divided between global strategies and South American strategies at €10.6 billion ($11.9 billion) and €1.1 billion ($1.2 billion), respectively. This high level of interest in nonlisted real estate is underlined by the rise in the number of these vehicles for which capital was sought — up from 895 in 2017 to 933 in 2018.

There is some domestic bias, on a regional basis. European fund managers earmarked 81.4 percent of new equity raised for vehicles with a European strategy, 8.1 percent for global vehicles and 10.6 percent to be split between North America (7.9 percent) and Asia Pacific (2.7 percent). Fund managers in Asia Pacific plan to deploy 74.9 percent of the capital they raised in their home region.  However, North American fund managers — some of the largest of which have a global reach with operations in all three key regions — will invest the least in their domestic market at 66.2 percent of new capital.

In total, 45.3 percent of all capital raised for nonlisted real estate vehicles was destined for funds; while separate accounts (invested in direct) attracted 21.4 percent. Nonlisted debt products seem to have regained some of their appeal, drawing 13.8 percent of capital — substantially more than the 8.1 percent raised the previous year. Joint ventures and club deals combined accounted for 9.7 percent of total capital raised. This spread reflects the ever-growing range of nonlisted real estate investment products.

Pension funds and insurance companies remained the two dominant sources of capital in 2018. However, while the contribution from pension funds accounted for the lion’s share of the total at 34.9 percent, insurance companies nearly doubled their commitments — up from 13.2 percent in 2017 to 24.5 percent in 2018. Notably, insurance companies accounted for 69.5 percent of all capital raised for nonlisted real estate debt products. Sovereign wealth funds also increased their allocations accounting for 5.6 percent of the total equity raised, though still substantially down on the 10.8 percent reached in 2015 and 8.7 percent in 2016.

Henri Vuong, INREV’s director of research and market information, said, “This survey reaffirms evidence elsewhere that real estate is manifestly more than just ‘flavor of the month’. The continued record-high volumes of capital flow suggest that, despite the challenges of deployment and the approaching late cycle, global institutional investors retain a firm belief in the long-term income and portfolio diversification benefits of this asset class, in general, and nonlisted, in particular.”

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