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'Buoyant' private RE fundraising cooling, but value-added strategies still attractive

The previously"buoyant" market for private real estate fundraising moderated a bit inthe first quarter, according to research firm Preqin.

In sum,private real estate funds raised $21 billion during the period — the same amountraised in the 2015 fourth quarter, but the field of closers was considerably smaller.Only 44 closed-end private real estate funds reached the finish line during theperiod, down from 56 in the prior quarter. Closed-end private real estate fundsraised $33 billion and $41 billion, respectively, in the 2015 second and third quarters.

AndrewMoylan, Preqin's head of real estate products, characterized the market as having"healthy momentum," however.

"Whilethere are increasing concerns among some in the institutional community about theoutlook for the real estate market, investors have seen strong returns from theirreal estate portfolios in recent years, and many are maintaining or increasing theircommitments a result," Moylan said in a release.

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Establishedfund managers continue to dominate the market over their newer, less experiencedcounterparts, Preqin said.

"Insuch a competitive market, investors are tending to trust their capital to establishedfirms. Emerging fund managers are likely to find raising capital tough, and shouldprepare for a long fundraising process," Moylan said.

Notably,54% of the funds that reached a close during the first quarter exceeded their targetsize and none of them achieved less than half of their target size.

RockpointReal Estate Fund V, at $3.3 billion, was the largest fund that closed during thefirst quarter.

Mostinvestment strategies saw a year-over-year decline in fundraising. Value-added strategies,however, were relatively attractive, drawing 41%, or $8.7 billion, of investor capitalraised during the first quarter. In the year-ago quarter, value-added funds raised$3.7 billion.

Opportunisticfunds also maintained momentum, raising $8.6 billion during the first quarter afterraising a record $28 billion in all of 2015. Managers pushing opportunistic strategiesheld $101 billion in dry powder at the end of the quarter, more than any other groupand an all-time high for opportunistic fund managers.

Overall,private real estate fund managers' dry powder ticked up to $233 billion in the firstquarter from $210 billion in December 2015. Only those managers pursuing distressedinvestments saw a drop in dry powder during the quarter.

As ofthe start of the 2016 second quarter, there were 489 funds seeking a total of $176billion. At the close of 2015, there were 493 funds targeting $174 billion in themarket.

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