Preqin quarterly update: real estate Q2 2018

The private real estate industry entered Q2 on the back of the best opening quarter in recent history. Both capital raised and deal flow were strong, and helping to drive investor appetite was the fact that distributions continued to exceed capital calls by a significant margin, demonstrating that the late cycle concerns were merely about perspective. Yes, to invest in this environment still presents significant challenges when valuations are continuing to rise, but many funds are sitting on record levels of dry powder, which means not only can they act quickly but can also effectively drive negotiations for attractive assets. For those that are ready to dispose of property, the demand is there from a wide variety of participants both locally and internationally.

So...

The private real estate industry entered Q2 on the back of the best opening quarter in recent history. Both capital raised and deal flow were strong, and helping to drive investor appetite was the fact that distributions continued to exceed capital calls by a significant margin, demonstrating that the late cycle concerns were merely about perspective. Yes, to invest in this environment still presents significant challenges when valuations are continuing to rise, but many funds are sitting on record levels of dry powder, which means not only can they act quickly but can also effectively drive negotiations for attractive assets. For those that are ready to dispose of property, the demand is there from a wide variety of participants both locally and internationally.

So, has this momentum continued into Q2? In a nutshell, no. Both fundraising and deal flow are not only down on Q1 results but are also relatively weak compared to recent quarterly levels. Even without the level of $1bn+ fundraises we saw in Q1, the average fund size remained high – a reflection of the bifurcation of the fundraising market. Further illustrating this point – despite the decline in aggregate deal value – Blackstone were able to close a deal on Gramercy Property Trust for $7.6bn, representing 12% of the total quarterly value.