Managers, many still suffering losses on funds raised from 2005 through 2008 as property prices peaked, are back in the market because some pools are winding down after the typical three-year commitment period, said David Hodes, managing partner at New York advisory firm Hodes Weill & Associates. With firms seeking $150 billion (Dh550.78 billion) for real estate, some are offering lower fees and committing more of their own capital, Preqin said in an August report. “Managers that have performed well on a relative and absolute basis, treated their investors well throughout the financial crisis and demonstrated an ability to invest in this current environment will raise their next round of capital,” Hodes said in an interview. “For many of the others, it is going to continue to be a long, dry season.”
For funds raising $1 billion or more this year, the average management fee has fallen to 1.33 per cent, according to Preqin, less than the industry standard of 1.5 per cent and below the average charged by those funds in 2007 and 2008.
Real estate funds accumulated $135.2 billion in 2007 and $142.4 billion at their 2008 peak, or 21 percent of all private- equity raised that year, before dropping to $50.7 billion in 2009 and $44.2 billion last year, according to Preqin. Funds raised in 2007 faced an average annual loss of 14.2 per cent as of December, and those raised in 2008 were down an average of 2.2 per cent, Preqin reported.
At this time last year 378 private-equity firms sought $134 billion for real estate funds, according to Preqin, with the same number of managers seeking $199 billion in 2009.
Related is almost done raising $1 billion for a distressed real estate fund and has taken control of properties in Manhattan, Chicago and Florida. The developer, hired in 2008 by Deutsche Bank AG to oversee finishing the defaulted Cosmopolitan casino resort in Las Vegas, has told clients that, unlike many private-equity firms, it will manage distressed projects. That will allow it to limit fees by not relying on other operators, the person said.
