Real Estate Spotlight

Volume 10, Issue 2 Welcome to the latest edition of Real Estate Spotlight, the monthly newsletter from Preqin providing insights into real estate performance, investors, deals and fundraising. Real Estate Spotlight uses information from our suite of Real Estate Online services. Subscribe to receive your free edition of Real Estate Spotlight every month:

Real Estate Spotlight March 2016

2

Feature Article: Are Co-Investments Here to Stay? In this extract from the newly-launched Preqin Special Report: Real Estate CoInvestment Outlook, we take a look at fund manager and investor appetite for co-investments.

6

Lead Article: Investment Consultants’ Views on Real Estate in 2016 In an exclusive excerpt from the 2016 Preqin Global Real Estate Report, we present the results of our investment consultant survey, which looks at their views and recommendations for 2016.

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Preqin Industry News Featured Publication

We take a look at recently closed funds and investors targeting new fund commitments.

11

On the Network 2016 Preqin Global Real Estate Report

ISBN: 978-1-907012-89-1 $175 / £105 / €150 www.preqin.com

We examine the activity of investors on Preqin Investor Network to see which regions and fundraising target sizes are of current interest to investors, as well as which institutional investor types have been proactively looking at private real estate funds on the Network in January.

The Facts: Public Market Equivalent

12

Conferences

14

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2016 Preqin Global Real Estate Report www.preqin.com/grer

Contact Us Preqin operates from offices in New York, London, Singapore, San Francisco and Hong Kong. For our office addresses and contact details, please visit:

Upcoming real estate conferences around the world that Preqin will be attending in the near future.

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Feature Article

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Are Co-Investments Here to Stay?

Are Co-Investments Here to Stay? In this extract from the newly-launched Preqin Special Report: Real Estate Co-Investment Outlook, we take a look at fund manager and investor appetite for co-investments. Recent years have seen an increase in investor appetite for exposure to real estate through alternative routes to market to traditional commingled funds. Co-investments have emerged over recent years due to the many benefits on offer to both investors and fund managers. In order to find out more about this growing area of the asset class, we have surveyed 75 active real estate fund managers to better understand the changing levels of co-investment participation, with this information enhanced by a survey of 100 institutional investors, as well as data taken from the in depth profiles of more than 5,100 institutional investors featured on Preqin’s Real Estate Online.

Fig. 1: Fund Managers’ Views on the Importance of Being Open to Offering Co-Investment Rights for a Successful Fundraise

6% Vitally Important

29% 29%

Very Important

Fund Manager Perception of Co-Investments Quite Important

Discussions surrounding the disintermediation of real estate are becoming more common, and increasing numbers of institutional investors are exploring alternatives to pooled fund commitments. Reflecting this trend, the majority of real estate fund managers feel that it is important to offer potential investors co-investment rights when seeking new commitments, and that this increases the chances of a successful fundraise (Fig. 1). Given this, it is perhaps unsurprising that 57% of fund managers expect to offer more co-investment opportunities to investors in 2016 than they did in 2015, while just 2% expect to offer fewer.

Fig. 2: Fund Managers’ Perceived Benefits of Offering Investors Co-Investment Rights

We asked real estate fund managers what they perceive to be the positives and negatives of offering LPs co-investment rights. Just 6% of respondents stated that there are no benefits in offering LPs co-investment rights (Fig. 2). The survey revealed that the most important benefit for fund managers is that it helps build a stronger relationship with their investors, with co-investments likely to help establish longterm partnerships, while access to additional capital is also an important consideration for a large proportion of firms.

Builds a Stronger Relationship with Investors Access to Additional Capital for Deals Improves the Chance of a Successful Fundraise Opportunity to Better Manage Risk Opportunity to Enhance Product Differentiation

Not Important 35%

Source: Preqin Fund Manager Survey, H2 2015

82% 71% 49% 37% 15%

Benefits the Asset

Co-investments do present managers with challenges however, with the additional costs associated with reporting or setting up special purpose vehicles named by 44% of firms as a downside (Fig. 3). The potential for a deal to be delayed, the problems associated with the timing or rights of co-investors and the loss of control of an investment were also named as important considerations.

15%

Other

2%

None

6% 0%

20%

40%

60%

80%

100%

Proportion of GP Respondents


Fig. 3: Fund Managers’ Perceived Disadvantages of Offering Co-Investment Rights Additional Costs/Resource

Fig. 4: Proportion of Investors Offered Co-Investment Opportunities by Fund Managers, 2014 vs. 2015

Slows Deals Process

Proportion of Investors Offered Co-Investment

44% 41%

Differences in the Terms or Rights of Co-Investors

39%

Co-Investors Have More Control over the Investment

39%

Negative Impact on Relationships with Other Investors

20%

Other

7%

None

14% 0%

10%

20%

30%

40%

50%


Real Estate Spotlight / March 2016

9%

61-80%

9%

6%

41-60%

0%

31-40%

0% 0%

41%

5% 2014

21-30%

14% 12%

11-20%

14% 12%

1-10%

0%

2015

9%

0%


2

81-100%

41%

29% 0%

10%

20%

30%

40%

50%



© 2016 Preqin Ltd. / www.preqin.com

Feature Article

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Fund Manager Activity Nearly two-thirds (63%) of real estate fund managers surveyed offer co-investment rights to their investors, and a further 25% are considering doing so in the future. No respondents had previously offered co-investments in the past that do not offer them any longer. Just 12% of firms do not expect to offer coinvestments, reflecting how prevalent these structures are within the real estate fund market. The most common point at which investors are offered coinvestment rights is during the fundraising process or during the bid for deals. It is rarer for fund managers to offer them at final close of the fund, with only 3% of respondents doing so.

their investors has risen considerably. In 2014, 9% of real estate firms were offering more than four out of five investors co-investments – this rose to 41% in 2015. Fig. 5 shows the average proportion of deals completed in 2014 and 2015 that included LP co-investors by deal size. The overall trend is that smaller deals (those less than $500mn in size) are more likely to include an LP co-investor. Our survey results show that there have been slight changes within each size bracket moving from 2014 to 2015, with the most notable shift in the category of deals worth $50-99mn. Of all $50-99mn real estate deals completed by respondents in 2014, 47% of these included LP co-investors, compared with just 21% in 2015.

In order to track the changes and developments in the private equity real estate co-investment space, we asked fund managers about their activity in 2015 compared to 2014, with the results clearly illustrating the growth of co-investments in a relatively short period of time. Fig. 4 demonstrates that GPs are generally offering an increasing proportion of their LPs co-investment opportunities; between 2014 and 2015, the proportion of fund managers offering 0-40% of their LPs co-investment opportunities has dropped, and in turn, the proportion offering these opportunities to more than 80% of

Investor Relationships

Fig. 5: Size of Deals Completed that Included LP Co-Investors, 2014 vs. 2015

Fig. 6: Fund Managers’ Observations of Capital Typically Co-Invested Alongside Fund Commitments by Their LPs

Preqin’s survey results highlighted the differing experiences real estate firms have when offering co-investments. For example, the largest proportion (41%) of fund managers stated that the capital co-invested by their investors typically equates to 1-20% of the LP’s original fund commitment (Fig. 6). However, for 7% of surveyed fund managers, the co-investment capital equated to more than 100% of their investors’ original fund commitments.

Average Proportion of Deals Including Co-Investors

60% 50%

53% 50%

47%

47% 43%

40%

10%

2014

30%

27% 21%

21%

1-20% of Fund Commitment

7%

27% 21%


2015

20%

41%


14%

10%

61-80% of Fund Commitment $1bn or More

$500-999mn

$100-499mn

$50-99mn

Less than $50mn

0%


17% 10%

More than 100% of Fund Commitment

Deal Size


Fig. 7: Requirements for Investors to Qualify for CoInvestment Rights


Fig. 8: Investors’ Perceived Benefits of Co-Investing

60% Proportion of GP Respondents

51%

Exposure to Attractive Assets

51% 41%

40%

Better Returns 32% 27%

30%

24%

More Control over Investments

10%

Opportunity to Put More Capital to Work Strengthen Fund Manager Relationships Gain Knowledge of Industry Sector

LP Bite-Sized Requirements

No Requirements, Offered to All Investors

LP Reliability

Previous Expression of Interest in Co-Investments

Size of Fund Commitment

Speed at Which Investor Can Decide on Co-Investment

42%

Reduced Fees

20%

0%

36% 25% 19% 14% 8%

Other

28% 0%

10%

20%

30%

40%

50%

Proportion of LP Respondents


3

44%

50%


Source: Preqin Investor Survey, H2 2015


Feature Article

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There can be a number of prerequisites for investors when qualifying for co-investment rights. The largest proportion of fund managers rated both the speed at which the LP can evaluate and agree to co-investment and the size of the fund commitment as high importance, with over half of respondents stating this as a requirement to qualify for co-investment rights (Fig. 7). The competitive bidding process and the fact that several co-investors may be waiting on one another’s decisions means that there is some pressure on timing, with fund managers often looking for a verbal commitment from investors within as little as two to three weeks.

Fig. 9: Investors’ Views on the Performance of Their Co-Investments Compared to Their Fund Investments Significantly Better Returns from CoInvestments 20% 35% Similar Returns from CoInvestments and Fund Investments

Investor Activity

20%

Of more than 100 investors surveyed by Preqin in H2 2015, one-third had some interest in co-investments, perhaps illustrating the barriers to entry to some institutional investors that lack the internal resources to manage capital invested in these structures.

As shown in Fig. 9, of those real estate investors surveyed, 40% have seen their co-investments outperform their private real estate fund returns, including a fifth that have significantly better returns. While the majority of investors have seen better returns, one in 10 investors has seen their fund investments outperform their co-investments. The results of our survey indicate that co-investments typically have lower fees than those seen in the usual fund arrangements (Fig. 10). The majority (58%) of fund managers offer coinvestment opportunities with a reduced management fee, with an additional 19% offering no management fee. A similar trend is seen for carried interest rates too. A quarter of firms charge no carry, whereas 44% offer a discounted carry structure to the standard fund commitment. More often than not, LPs are seeing reduced and more favourable fee arrangements on their co-investment commitments when compared to their fund commitments.

Fig. 10: Discounts Offered to Co-Investing LPs Compared to Usual LP Fund Commitment


70% 58%

50%

44%

40% 32% 30% 23% 20%

24%

19%

10% 0% No Fee

Reduced Same Fee No Carry Fee

Management Fee

Reduced Carry

Same Carry

Carried Interest


4


5%

Slightly Lower Returns from Co-Investments Significantly Lower Returns from CoInvestments

5% 15%

Too Early to Tell

Source: Preqin Investor Survey, H2 2015

Outlook The responses across both surveys convey the widely positive outlook many active in the real estate industry have for co-investments at present, with strong recognition of the benefits such investments can bring to both investors and fund managers. While there is strong interest in these structures, there remain a number of challenges that can prevent institutional investors from being able to participate in co-investments. However, given the prevailing view among fund managers that offering co-investments is important to the fundraising process, and the growing demand for more exposure to attractive assets from investors, it seems GPs and LPs will continue to work to overcome these challenges, and we are likely to see this structure become ever more common in the coming year.

Fig. 11: Proportion of Investors that Actually Co-Invested with the Fund Manager after Being Offered the Opportunity, 2014 vs. 2015 Proportion of Investors Offered Co-Investment that Actually Co-Invested

For those that do make co-investments, the key motivation is gaining more exposure to attractive assets, which was mentioned by 44% of respondents (Fig. 8). A large proportion (42%) of surveyed investors also stated better returns as a perceived benefit of co-investing, as well as the opportunity for lower fees than in the traditional commingled fund model.

60%

Slightly Better Returns from Co-Investments

6%

81-100% 61-80%

0%

41-60%

0%

31-40%

0% 0%

11-20%

6% 2014 6%

21-30%

17% 11%

0%

1-10%

2015

11% 28%

6%

11%

0%

39% 0%

20%

40%

61% 60%

80%




2016 Preqin Global Alternatives Reports PRIVATE EQUITY | HEDGE FUNDS | REAL ESTATE | INFRASTRUCTURE

The 2016 reports form the most comprehensive review of the alternatives investment industry ever undertaken: Improve your presentations, marketing materials and company reports.

2016 Preqin Global Infrastructure Report

Understand the latest trends. 2016 Preqin Global Hedge Fund Report ISBN: 978-1-907012-90-7 $175 / £105 / €150 www.preqin.com

Access analysis and statistics on fundraising, performance, deals, investors, fund managers and much more.


2016 Preqin Global Real Estate Report

ISBN: 978-1-907012-88-4 $175 / £105 / €150 www.preqin.com


2016 Preqin Global Private Equity & Venture Capital Report ISBN: 978-1-907012-89-1 $175 / £105 / €150 www.preqin.com


Read contributions from some of the industry’s leading figures. ISBN: 978-1-907012-87-7 $175 / £105 / €150 www.preqin.com


Also in this series: The 2016 Preqin Global Private Debt Report and the 2016 Preqin Global Natural Resources Report are due for release in March 2016.

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Lead Article

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Investment Consultants’ Views on Real Estate in 2016

Investment Consultants’ Views on Real Estate in 2016 In an exclusive excerpt from the 2016 Preqin Global Real Estate Report, we present the results of our investment consultant survey, which looks at their views and recommendations for 2016.

Recommended Allocations

100% 90%

22%

17%

6%

6%

13%

43%

70%

Exceeded Expectations

65%

60% 50%

4%

21%

80%

58%

40%

Met Expectations

78%

75% 73%

30%

52%

20% 10%

19%

0%

Fallen Short of Expectations

29% 9%

8%

Fig. 2: Investment Consultants’ Recommended Allocations to Alternative Asset Classes

Fig. 3: Investment Consultants’ Recommendations for 2016 Compared with 2015

3% 6% 20%

11% 8% 25%

9%

3% 3%

6%

15%

23%

21%

8% 40%

24%

Private Debt

Source: Preqin Investment Consultant Survey, November 2015

More than 20% 8%

16-20%

Increase Allocation to Real Estate

11-15% 33%

57%

36%

27%

57%

61%

6-10%

Hedge Funds

14%

12%


Keep Allocation to Real Estate the Same

1-5% 0%

Natural Resources

24%

Private Debt

19%

Infrastructure

11% 3%

Private Equity

52%

Real Estate

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Natural Resources

As shown in Fig. 5, the majority of surveyed investment consultants will continue to advise their clients to invest in the more developed and liquid real estate markets of North America and Europe, with no consultants recommending a reduction in capital to vehicles focused on those areas. Fundraising has been strong for Europe-focused funds in 2014-2015 and consultants continue to see attractive opportunities in the region. The majority of investment consultants will not recommend investment in Latin America-, Africa- and Middle East-focused real estate in 2016.

Infrastructure

As shown in Fig. 4, higher risk/return profile strategies will be increasingly recommended by investment consultants in 2016, directing more capital towards value added (25% of respondents) and opportunistic strategies (20%). Twenty percent are also advising an increase in allocations to real estate debt strategies in 2016. Concerns over pricing for prime assets may be affecting some consultants’ appetite for core real estate, with 14% advising their clients to invest less capital in core real estate strategies in 2016 than they did in 2015. Perhaps unsurprisingly, given their

Hedge Funds

Regional Allocations

Private Equity

Strategy Allocation

Real Estate

own expertise in fund selection, real estate funds of funds remain the least recommended strategy among investment consultants: 55% did not recommend the strategy in 2015 and will do the same in 2016.

Proportion of Respondents

Just 3% of consultants do not recommend a property allocation for their clients, with the majority (57%) of respondents recommending that investors place between 6% and 10% of their total assets in real estate (Fig. 2). The 86% of consultants that recommend at least a 6% allocation to real estate is far higher than any other alternative asset class, although almost one-quarter of consultants advise a hedge fund allocation of more than 15%. Only 9% recommend a real estate allocation on this level. One-third of respondents recommend clients increase their real estate allocation in 2016, while only 8% advise a lower level of real estate exposure (Fig. 3).


6

Fig. 1: Investment Consultants’ Views on the Performance of Alternative Assets in 2015


Investment consultants are vital gatekeepers of investor capital, with 60% of institutional investors using an investment consultant to advise on, or to actively manage, their exposure to real estate. In Q4 2015, Preqin conducted interviews with more than 40 consultants to discover their views on the market and their outlook for 2016. Overall, investment consultants are largely satisfied with the returns their clients have received from their alternative assets investments in the past year. More consultants felt real estate returns had exceeded expectations than any other alternative asset class, although the proportion stating returns had not met expectations was higher than for private equity and private debt (Fig. 1).

58%

Reduce Allocation to Real Estate



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Investment Consultant Outlook for 2016

Routes to Market Interestingly, investment consultants appear to be recommending a return to the commingled fund model in 2016 (Fig. 6): 40% of surveyed consultants will advise their clients to invest more capital through pooled funds. Reflecting the higher barriers to entry for investors, half of respondents will not be advising clients to invest in separate accounts and direct investments over 2016. However, of those consultants that will recommend these structures, none will recommend less investment in separate accounts and only 5% will advise less direct investment. More liquid structures such as REITs look to be out of favour among consultants: 20% of respondents suggested they will recommend clients invest less in this structure over the next year. Fund Selection When conducting due diligence on fund managers, consultants look most closely at the firm’s experience and expertise with the relevant strategy, and the track record of the team managing the fund, with 90% and 80% of respondents respectively stating these factors to be the most important (Fig. 7). Having a successful track record at firm level, a competitive fee structure and people on the ground in markets they will invest in were also key considerations, with 60% each stating these factors as very important. Key Issues

Fig. 4: Breakdown of Investment Consultants’ Recommendations for 2016 by Strategy Value Added 5% Opportunistic

Regulation was not considered an important issue by many consultants (23%). When asked specifically about the impact of regulation on their business, views were mixed: 38% felt it had been negative, 30% felt it had had no impact and 32% said it had positively impacted them.

45%

Debt

20% 19%

Core-Plus

19%

Secondaries 5%

55% 45%

Core

0%

25% 35% 14%

67%

15%

Fund of Funds 5% 5%

10% 5% 10%

62% 50%

35% 30% 20%

5%

14%

30%

Distressed 5% 10%

5%

45%

5%

55%

40% 60% Proportion of Respondents

80%

100%

Did Not Recommend in 2015, but WILL Recommend in 2016 Invest More Capital than in 2015 Invest the Same Amount of Capital as in 2015 Invest Less Capital than in 2015 Did Not Recommend in 2015, and WILL NOT Recommend in 2016


Fig. 5: Breakdown of Investment Consultants’ Recommendations for 2016 by Region North America

Macro issues are an important consideration for consultants, with 72% considering the economic environment and potential impact on real estate markets as a key issue, while 67% stated the current availability of attractive investment opportunities was a concern (Fig. 8). Interestingly, while institutional investors are largely satisfied with the fees they are paying fund managers (see page 77 of the 2016 Preqin Global Real Estate Report), 45% of consultants consider fees as an important issue.

25% 20%

19%

Europe

81% 48%

32%

Asia 5% 10%

50%

Latin America 5% 10% Africa 5% 10% Middle East 5%5% 0%

4%

5%

33%

30% 52%

24%

62%

29%

62%

20%

40%

60%

80%

100%

Proportion of Respondents Did Not Recommend in 2015, but WILL Recommend in 2016 Invest More Capital than in 2015 Invest the Same Amount of Capital as in 2015 Invest Less Capital than in 2015 Did Not Recommend in 2015, and WILL NOT Recommend in 2016


Fig. 6: Breakdown of Investment Consultants’ Recommendations for 2016 by Structure Commingled Fund Separate Account Direct Investment

40%

50%

10%

40%

10%

Joint 5% 10% Venture 0%

10% 50%

35%

REIT 5%

Fig. 7: Investment Consultants’ Perception of the Most Important Factors When Selecting Real Estate Managers

5%

45%

50% 20%

15%

30%

70%

90%

40%

60%

80%

15% 5%

60%

Attractive Fund Terms/Fees

60%

Firm Presence in Markets They Are Looking to Invest in

60%

40% 40% 35%

55%

40%

5% 5%

100%

Did Not Recommend in 2015, but WILL Recommend in 2016 Invest More Capital than in 2015 Invest the Same Amount of Capital as in 2015 Invest Less Capital than in 2015 Did Not Recommend in 2015, and WILL NOT Recommend in 2016



10%

80%

Sizeable GP Commitment to Fund

20%


7

Experience/Expertise with Fund Strategy Successful Performance Track Record at Team Level Successful Performance Track Record at Firm Level

Returning Investor Base

45%

Firm Success Raising Capital with Previous Funds

35% 0%

25%

45% 45% 50%

10% 20%

75%

100%

Proportion of Respondents Very Important

Somewhat Important

Not Important



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Investment Consultant Outlook for 2016

The factors that investment consultants view as the biggest challenges for their business in 2016 highlight the concerns regarding the pricing of real estate assets and the impact this has on their ability to source attractive opportunities for their clients (Fig. 9.9). Additionally, meeting client performance expectations and attracting new clients are significant challenges for many consultants.

Fig. 8: Investment Consultants’ Perception of the Most Important Issues in the Real Estate Market Economic Environment

72%

Investment Opportunities

67%

Performance

60%

Fees

Outlook

45%

Exit Opportunities

Overall, investment consultants’ outlook for real estate in 2016 remains positive, with the majority of consultants advising clients to maintain or increase their allocation to the asset class over the coming year. Higher risk/return profile strategies in the more developed and liquid markets continue to feature heavily in the investment advice provided by consultants, with many looking at the commingled fund model as the optimal route to market.

44%

Liquidity

26%

Transparency

23%

Regulation

23%

Volatility

19%

Consolidation

14% 0%

20%

40%

60%

80%



2016 Preqin Global Real Estate Report This article is an extract from the 2016 Preqin Global Real Estate Report, the most comprehensive review of the industry available today.

Fig. 9: Investment Consultants’ Views on the Biggest Challenges Affecting Their Business in Relation to Their Activity in Alternative Assets

Assembled by our dedicated teams of multilingual analysts based around the world, this report enables professionals to understand the latest trends, access valuable historical data and discover the most important players in every area of the industry.

Identifying Attractive Investment Opportunities Meeting Client Performance Expectations

66% 49% 37%

Attracting New Clients

31%

Adapting to Regulatory Changes

Topics covered include:

29%

Competition with Other Consultants

• • • • • • • • •

Fundraising Institutional investors Fund managers Performance Industry AUM and dry powder Commentary from key industry figures Placement agents Investment consultants Regional breakdowns

29%

Client Pressure on Fees 2016 Preqin Global Real Estate Report

20%

Increased Liquidity Demand Increased Demand from Investors for Sophisticated Products

9% 6%

Retaining Clients

3%

Other

0%

20%

40%

60%

80%

Proportion of Respondents ISBN: 978-1-907012-89-1 $175 / £105 / €150 www.preqin.com



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Key Facts 310

8

57%

32%

Proportion of investment consultants advising a real estate allocation of 6-10% of total assets.

Proportion of investment consultants advising clients to invest more capital in Europe over 2016 than in 2015.


Number of investment consultants advising on real estate that are profiled on Preqin’s Real Estate Online.


The 9th Annual

BRITISH GRI

2016

3-4 MAY LONDON

Connec ting British & Global Real Estate Leaders PARTICIPANTS INCLUDE:

DAVID BENNETT-REES

IAN BAGGETT

PAULINE BRADLEY

ROBERT HARPER

JOHN SLADE

Chairman FREEMASONS PENSION SCHEME

Chairman ADDERSTONE GROUP

CEO GREYFRIARS

Senior Managing Director BLACKSTONE

CEO UK BNP PARIBAS REAL ESTATE UK

CHARTERED LAND • CHEERGREY PROPERTIES • UK & EUROPEAN INVESTMENTS • IVANHOÉ CAMBRIDGE • BAUPOST GROUP WELLS FARGO • AVIVA INVESTORS • ATLAS RESIDENTIAL • PRAMERICA REAL ESTATE INVESTORS • ROUND HILL CAPITAL

+44 20 7121 5060 | [email protected] | www.globalrealestate.org/British2016

Preqin-Real-Estate-Spotlight-British-GRI2016-Ad.indd 1

2/24/2016 11:16:39 AM

Reference Discount Code “PQ10” for 10% Discount

The forum is the premier venue for in-house financial professionals to hear best practices and industry developments from a wide spectrum of real estate industry peers. The day and a half program features insights from senior financial officers at real estate developers, lenders, REITs, and operating companies, giving attendees an opportunity to glean insight from throughout the industry.

Call: 1-212-901-0542 | http://www.imn.org/cfowest16 | Email: [email protected]

News

Preqin Industry News

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Preqin Industry News Abbie Smith takes a look at recently closed funds and investors targeting new fund commitments. Recently Closed funds Three private real estate funds have closed in the last month, raising an aggregate $1.2bn. The largest vehicle, Metropolitan Real Estate Partners Secondaries & Co-Investments Fund (MREP-SCIF), raised $550mn, exceeding its initial target size by 22%. MREP-SCIF will co-invest alongside, and make secondary investments in, private real estate vehicles that focus on a diverse set of assets across US property markets. Also to close in February was Townsend Real Estate Alpha Fund II (TREA II), a fund of funds designed to invest in noncore real estate opportunities. Its investment objective is to generate superior risk-adjusted returns through an alphadriven multi-strategy approach targeting co-investments, joint ventures, secondary interests, targeted club and primary fund opportunities. TREA II, managed by Townsend Group, will focus on apartment, hotel, industrial, office and retail property types across European, North American, Asian and global markets. London-based Omni Partners closed its second CMBS debt fund this month, raising £122mn. The Omni Secured Lending Fund II focuses on the short end of the lending market whereby lenders obtain an interest rate premium and demand more security in return for issuing lending decisions quickly. Investor funds are used to finance loans with a maximum duration of 18 months, and are secured against both residential and commercial properties in the UK. Investors Targeting New Fund Commitments Alameda County Employees’ Retirement Association (ACERA) plans to invest $250mn in North America-focused private real estate funds over the next 12 months. It will invest as much as $125mn in core and core-plus strategies, with the remaining capital focused on value added funds. Santa Fe-based New Mexico Public Employees’ Retirement Association will invest up to $240mn across four to six private real estate funds in the next 12 months. The public pension fund will target global value added and debt funds in order to diversify its geographic exposure to the asset class. German asset manager Feri Trust is planning to invest €200mn across eight to 10 private real estate funds in the next 12 months. It will seek core, core-plus, value added, opportunistic, debt and distressed funds that target global markets.

Real Estate Spotlight – March 2016: In Numbers With this month’s spotlight focusing on co-investment activity and investment consultants’ attitudes towards real estate, we take a look at some of the key figures:

44%

Proportion of surveyed investors that feel exposure to attractive assets is a key benefit of co-investing.

63%

Proportion of surveyed fund managers offering co-investment rights to their investors.

32%

Proportion of investment consultants advising clients to invest more capital in Europe over 2016 than in 2015.

57%

Proportion of investment consultants that recommend a real estate allocation between 6% and 10% of total assets.

Launched in February, Fortius Active Property Trust No. 2 is a value added fund targeting AUD 400mn for investment in assets in capital cities and major regional markets on the Australian east coast. Gateway Real Estate Fund V is the largest Asia-focused fund in market, seeking an aggregate $1.5bn. Approximately 50% of the fund will be invested in Greater China, with the other 50% invested elsewhere in Asia, including the ASEAN countries. The fund is the fifth Greater China-focused fund in the series managed by Hong Kongbased Gaw Capital Partners. Do you have any news you would like to share with the readers of Spotlight? Perhaps you’re about to launch a new fund, have implemented a new investment strategy, or are considering investments beyond your usual geographic focus?

Funds Seeking Capital There are currently 497 closed-end private real estate funds in market targeting $170bn in institutional investor commitments, including 12 real estate funds of funds targeting a total of $2.8bn. The largest of these is Sparinvest Property Fund IV, which is targeting €500mn to focus on investing alongside mid-sized local operating partners that primarily invest in the Americas, Asia and Europe.

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Send your updates to [email protected] and we will endeavour to publish them in the next issue.


On the Network

News

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On the Network This Month: What Are Investors Searching For? In this feature, we examine the activity of investors on Preqin Investor Network to see which regions and fundraising target sizes are of current interest to investors, as well as which institutional investor types have been proactively looking at private real estate funds on the Network in January. Preqin Investor Network is a unique system designed to help investors source and connect with alternative assets fund managers. Currently over 7,800 individuals across 3,800 institutional investor firms are using the Network to find and reach out to the 2,500+ private equity, private real estate and unlisted infrastructure funds in market. If you would like to find out more, please email: [email protected]. Fig. 1: Breakdown of Private Real Estate Funds Reviewed by Investors on Preqin Investor Network by Primary Strategy, January 2016

4% 2%1%

Fig. 2: Breakdown of Private Real Estate Funds Reviewed by Investors on Preqin Investor Network by Primary Geographic Focus, January 2016

6%

Value Added 8%

9%

Opportunistic 36%

6%

North America

Debt Europe

Core Core-Plus 16%

Distressed

55%

32%

Asia Rest of World

Fund of Funds Secondaries

25%

Source: Preqin Investor Network

Fig. 3: Breakdown of Investors Searching for Private Real Estate Funds on Preqin Investor Network by Type, January 2016


Fig. 4: Breakdown of Investors Searching for Private Real Estate Funds on Preqin Investor Network by Headquarters Location, January 2016

Fund of Funds Manager

3% 3%

Private Sector Pension Fund

6%

7%

Public Pension Fund

4%

7%

Endowment Plan

32%

North America

Insurance Company

6%

Europe

Family Office 6% Foundation 6%

Wealth Manager

54% 32%

Asia Rest of World

Investment Consultant

6% 13%

Sovereign Wealth Fund

7%

Investment Company

11%

Other



In Numbers: On the Network This Month

11

502

Number of private real estate funds currently in market (as at 17 February 2016).

45%

Proportion of all private real estate funds in market reviewed by investors on the Network in January alone.


The average size of private real estate funds in market

$432mn screened on the Network in January.

Some of the largest private real estate funds have signed up to share more information with the Network’s investors. Would you like to join them and have investors contact you for more information? Email us at [email protected].


The Facts

Public Market Equivalent

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Public Market Equivalent Benchmarking private capital fund returns, including those of private real estate funds, against public markets is an important task for portfolio construction. Private capital fund returns, however, are not directly comparable with public market indices, due to the illiquid nature of these asset classes and the irregular timing of cash flows. The development of the public market equivalent (PME) measure of returns provides a more meaningful, like-for-like comparison. PME metrics benchmark the performance of a fund, or a group of funds, against an appropriate public market index while accounting for the timings of the fund cash flows. When PME values are generated for many funds, they can be used as an alternative measure of ranking fund performance, while controlling for broader market behaviour. Preqin’s Real Estate Online features a new PME tool which includes PME benchmarks and individual fund-level PME comparisons, enabling the comparison of private real estate

returns against seven public market indices using a choice of three PME methodologies: Kaplan-Schoar PME, Long-Nickels PME and Capital Dynamics PME+. Fig. 1 gives an overview of these methodologies along with their specific strengths and weaknesses. All of the methodologies utilize the sinceinception cash flow data Preqin holds for over 380 private real estate funds. The charts in this section provide a number of PME benchmarks for these three methodologies. Typically, these show the strong performance of private real estate for 2000-2003 vintage years, with private funds exceeding the returns from public markets as represented by the S&P 500 Total Return Index, and public real estate as represented by the MSCI US REIT Index. For 2005-2008 vintage years, the private real estate benchmarks significantly underperform against public markets in general, while the private real estate and public market returns tend to be similar for more recent vintages.

Fig. 1: PME Benchmarking Methods Offered by Preqin Benchmark

KS-PME (KaplanSchoar)

LN PME (LongNickels)

Capital Dynamics PME+

Metric

Private Capital Outperformance If:

Description of Calculation Calculated by discounting the private capital fund cash flows by the public market index value.

Ratio

Annualized Rate

Annualized Rate

Value above one

Estimated PME IRR < Private Capital Fund IRR

Estimated PME IRR < Private Capital Fund IRR

The discounted distributions plus the current remaining value are divided by the discounted contributions to obtain the ratio. Contributions to private capital fund are converted to an equal purchase of shares in the public index. Distributions represent liquidation of share in public index. IRR calculation uses same contributions and distributions as private capital fund, but with a different final period remaining value. Uses a fixed scaling factor (lambda) to modify each distribution to ensure the PME final period remaining value is the same as the private capital fund remaining value. IRR calculation uses modified contributions and distributions but same final period remaining value.

Strengths

Weaknesses

The calculation looks at the ratio of outflows versus inflows as opposed to generating an IRR, which is time dependent and is easily manipulated.

Ignores the timings of cash flows.

Easy to interpret.

LN PME IRR is directly comparable to the private capital fund IRR, allowing an apples-toapples comparison.

IRR sensitive to early distributions. Large distributions could cause a negative PME final period remaining value, making PME IRR calculation computationally impossible.

As for LN PME, with the added benefit of avoiding a final period negative remaining value, making PME IRR calculation possible in more cases.

PME+ does not match the cash flows perfectly.

Source: Preqin Real Estate Online

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Public Market Equivalent

The Facts

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Fig. 2: KS PME: Closed-End Private Real Estate - All Regions (As of 30 June 2015) 1.8

30

If PME value (X) is >1, private real estate has outperformed the public market

1.6

25 Preqin Median Net IRR

20

1.4

% KS PME (X) Using S&P 500 TR

Vintage Year

2012

2011

2010

2009

2008

2007

2006

2005

2001

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

0 2003

0.6 2002

5

2004

10

0.8

2001

PME+ Using S&P 500 TR

2003

1.0

15

2002

1.2

2000

PME Value (X)

Fig. 3: LN PME: Closed-End Private Real Estate - All Regions (As of 30 June 2015)

Vintage Year


Fig. 4: PME+: Closed-End Private Real Estate - All Regions (As of 30 June 2015)


Fig. 5: KS PME: Closed-End Private Real Estate - North America (As of 30 June 2015)

30

1.2

If PME value (X) is >1, private real estate has outperformed the public market

1.1 25

%

Preqin Median Net IRR

15 LN PME Using S&P 500 TR

10

PME Value (x)

1.1 20

1.0 1.0 KS PME (X) Using S&P 500 TR

0.9 0.9 0.8

KS PME (X) Using MSCI US REIT

5 0.8

Vintage Year

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

0.7 2001

0

Vintage Year


Fig. 6: LN PME: Closed-End Private Real Estate - North America (As of 30 June 2015)


Fig. 7: PME+: Closed-End Private Real Estate - North America (As of 30 June 2015)

20

20

18 16 14


15

PME+ Using S&P 500 TR

10

10 8 6

PME+ Using MSCI US REIT

4

%

%

12


LN PME Using S&P 500 TR

5

2 0

Vintage Year

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

Vintage Year


13

2002

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

0




Conferences

Conferences

Download Data

Conferences Spotlight Conference

Dates

Location

Organizer

Family Office Winter Forum

08 March 2016

New York

Opal Finance Group

Investment Consultants Forum

08 March 2016

New York

Opal Finance Group

9th Annual Women's Private Equity Summit

9 - 11 March 2016

California

Falk Marques Group

Crowdfunding & Marketplace Lending Forum For Real Estate (East)

10 - 11 March 2016

New York, NY

IMN

10 March 2016

Los Angeles

CAIA

MIPIM

15 - 18 March 2016

Cannes, France

Reed MIDEM

Real Estate Private Equity Summit

15 - 16 March 2016

New York

iGlobal Forum

Real Estate Investors Summit

29 - 30 March 2016

Miami, FL

Opal Finance Group

AIMA Alternative Investment Management Summit

30 - 31 March 2016

Abu Dhabi

AIMA

Family Office & Endowment Investment Forum

4 - 5 April 2016

Toronto

Opal Finance Group

Real Estate Private Equity Forum on Land & Homebuilding (East)

5 - 6 April 2016

Miami, FL

IMN

FundForum Asia

18 - 21 April 2016

Hong Kong

Informa

IFG Wealth Management Forum

18 - 19 April 2016

Scottsdale, AZ

International Forum Group

The Elite Summit

20 - 22 April 2016

Montreux, Switzerland

marcus evans Summits

Private Wealth Management APAC Summit

25 - 27 April 2016

Kuala Lumpur

marcus evans Summits

3 - 4 May 2016

London

GRI

10 - 11 May 2016

Dana Point, CA

IMN

AltsLA 2016

British GRI Real Estate CFO Forum (West)

Preqin Speaker

Discount Code

10% Discount PQ10

10% Discount Preqin

Amy Bensted

10% Discount PQ10 Amy Bensted

15% Discount FKN2472PNWB

-

10% Discount PQ10

Access Free Conference Slide Decks and Presentations Preqin attends and speaks at many different alternative assets conferences throughout the year, covering topics from infrastructure fundraising trends to alternative UCITS. All of the conference presentations given by Preqin speakers, which feature charts and league tables from Preqin’s online products, can be viewed and downloaded from Preqin’s Research Center Premium, for free. For more information, and to register for Preqin’s Research Center Premium, please visit:

www.preqin.com/rcp

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Conferences

Conferences

Download Data

British GRI Date:

3 - 4 May 2016

Location:

116 Pall Mall, London, UK

Organizer:

Global Real Estate Institute

Information: http://www.globalrealestate.org/British2016

British GRI is a get together of senior international and local real estate investors, developers and lenders. GRI’s discussion format enables you to interact with everyone in the room. Quickly find the right partners for your business, build high value relationships, and continue the conversation afterwards.

4th Annual Real Estate CFO Forum Date:

10 - 11 May 2016

Location:

Dana Point, CA

Organizer:

Information Management Network

Information: http://www.imn.org/cfowest16

We are pleased to bring IMN’s Real Estate CFO Forum back to the west coast for the fourth year in a row. This forum is the premier venue for in-house financial professionals to hear best practices and industry developments from a wide spectrum of real estate industry peers. This event will provide unmatched opportunities for networking and education. Discount Code = PQ10

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