Tuesday, May 4, 2010

Real estate funds unable to invest US$80b: research firm

(SEATTLE) Private-equity funds that buy real estate have as much as US$80 billion they have been unable to invest because of the difficulty in finding deals, and some of that may be lost if it's not spent this year, according to a report.

The figure includes about half the money raised in 2007, when a record 280 funds gathered US$124 billion, said Preqin Ltd, a London-based research firm.

Its report said that real estate funds have an average of three years to put money to work.

'Many fund managers are now approaching the end of their investment periods with large amounts of capital yet to be invested,' Andrew Moylan, an analyst at Preqin, said in the report. 'The rate at which fund managers have called capital has dropped significantly in recent months.'

Falling real estate values, the scarcity of debt financing and many banks' inability to realise the losses that would result from unloading their holdings caused a decline in sales.

Funds that don't invest their capital face the risk of forfeiting management fees, which are typically 1 per cent to 2 per cent of the money pledged.

Many funds will negotiate to extend the investment periods and increase their deal-making as property markets stabilise, according to the report.

'There is growing optimism amongst those in the real estate industry,' Preqin said. 'Many are anticipating that 2010 will see far more deals being done.'

Preqin estimates that funds raised in 2007 have US$39 billion of unspent capital for North America, US$12 billion for Europe and US$17 billion for Asia and the rest of the world. -- Bloomberg

Source: Business Times, 4 May 2010

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