The 2008 Preqin Private Equity Real Estate Review - Sample Pages The 2008 Preqin Private Equity Real Estate Review - Sample Pages 2008 Preqin Ltd 1
The 2008 Preqin Private Equity Real Estate Review - Sample Pages Contents 1. Executive Summary 7 2. Data Sources 13 3. History of Private Equity Real Estate Industry 17 - History and evolution of the industry, growth of funds on the road, growth of the mega fund and average fund size 4. Listings of Private Equity Real Estate Funds Closed: 2007-2008 25 5. Overview of Current Private Equity Real Estate Fundraising Market 57 - Momentum in fundraising market, success in achieving target, fundraising by geographic focus and manager location, fund size, property focus, targeted returns, use of leverage, manager experience, funds on the road, interim closes, geographic focus of funds in market, overview of core-plus, value added opportunistic, mezzanine / debt and distressed fundraising market 6. Overview of Private Equity Real Estate Fundraising by Strategy 65 - Overview of core-plus, value added, opportunistic, fund of funds, mezzanine/ debt and distressed 7. Listings of Private Equity Real Estate Funds on the Road 77 8. Review of Placement Agents 85 - Why placement agents are used for fundraising, factors determining use of placement agent services 9. Overview of Fund Terms and Conditions 91 - Management fees, hurdle rates, carried interest, fee rebates to investors, manager commitments, key man provisions, no-fault divorce clauses 10. Listings of Private Equity Real Estate Fund Terms and Conditions 99 - Key terms and conditions for 127 real estate funds 11. Overview of Universe of Real Estate Firms 113 - Real estate fi rms by region and country, fund manager experience, largest fi rms 12. Private Equity Real Estate Fund Performance Analysis 123 13. Regional Focus: Key Facts and Figures 131 - Asia, Central and Eastern Europe, Central and South America, China, India, Middle East, North America, Scandinavia, UK, Western Europe 14. Top 50 Private Equity Real Estate Firms 141 15. Private Equity Real Estate Firm Preferences 145 - Matrix showing fi rm preferences by location, strategy and property type 16. Private Equity Real Estate Firm Profiles 151 - Detailed profi les for over 350 fi rms managing private equity real estate funds 17. Review of Investors in Private Equity Real Estate Funds 409 - Why investors are attracted to private equity real estate, make-up of investor universe, strategy preferences, investor size and appetite, 18. Profiles for Key Investors in Private Equity Real Estate Funds 418 - Detailed profi les for over 250 investors in real estate funds 19. Index 579 - Private Equity Real Estate Fund Managers - Investors - Figure Index 20. Other Publications 599 - Other Preqin Products 2008 Preqin Ltd 2
1. Executive Summary - Sample Pages Executive Summary The month of September 2008 has brought changes altering the entire face of the global fi nance industry. At the time of writing there exists a dark cloud of uncertainty casting a shadow over the global real estate industry, with the private equity sector failing to escape the negative effects of the turmoil in the markets. Activity within the sector is low, with fund managers fi nding it very challenging to raise vehicles as investors remain reluctant to make new long-term commitments in the current environment. In the midst of such a turbulent atmosphere it is very diffi cult to make predictions about how the real estate landscape is likely to evolve following this crisis, however, in the process of carrying out the research and analysis for The 2008 Preqin Private Equity Real Estate Review, certain trends and facts have emerged that provide some important clues as to the future of the private equity real estate industry. The fi rst three quarters of 2008 have seen signifi cant levels of capital being raised, and although there is evidence of a slowdown in Q3, it is still likely that 2008 overall will achieve the same record-breaking aggregate commitment levels experienced by the industry in 2007. However, although the headline capital levels being raised are broadly similar to recent years, the composition of the market in terms of fund strategy has changed considerably. As Fig. A shows, there has been a considerable shift towards private equity real estate funds focusing on debt, with debt funds raising 101% more in 2008 than Fig. A: Change in Capital Raised by Fund Type Fig. B: Average Fund Sizes Variations for Funds Closed 2000-2008 Fund Type Change in Capital Raised between Q1-Q3 2007 and Q1-Q3 2008 Core-plus -15% Value Added -30% Opportunistic +5% Debt +101% 2008 Preqin Ltd 3
1. Executive Summary - Sample Pages in the same period of 2007. Opportunistic fundraising has also been strong, experiencing a 5% rise between 2007 and 2008. Investors have clearly been concerned over the ability of the core-plus and value added markets to create strong returns in the current market, and we have seen a 15% and 30% fall in commitments gained by these fund types between the two time periods. Fig. C: Growth of Funds on the Road Another important trend affecting the fundraising market has been the continued importance of very large funds to the overall fundraising market. Fig. B shows how the average size of private equity real estate funds has been increasing steadily in recent years, growing from only $425 million in 2005 to $934 million in 2008. This growth in fund size is likely to alter the dynamics of the market in terms of the size of deals and underlying investments that are being fi nanced. With investors increasingly showing faith with the larger vehicles that will be making larger underlying investments, smaller developers may fi nd it increasingly diffi cult to fi nd backing from the private equity sector in coming years as they increasingly fi nd themselves falling below the radar of the larger managers. It is also important to note that with deals becoming harder to fi nance, larger fund sizes may also be due to managers requiring more capital to complete deals using lower levels of leverage. The story of the real estate fundraising market has been a shift towards fewer funds of larger size managing to achieve a fi nal close - a situation that has kept the overall capital levels at comparable levels to the record climate of 2007. However, this changing composition of closed funds has not been refl ected by a change in the types of funds on the road seeking capital. There are still many smaller fund managers out there looking for capital, with a total of 181 funds with a target smaller than $500 million in size currently on the road. As Fig. C shows, the size of the fundraising market has continued to grow, and as of September 2008 there are a total of 379 funds seeking an aggregate $228 billion. With institutional investors seeming to favour the larger vehicles, this has led to a signifi cant build up of smaller vehicles in the market. With so 2008 Preqin Ltd 4
1. Executive Summary - Sample Pages many funds now in fundraising mode, this has increased the level of competition amongst fund managers to previously unseen levels. Are all these fund managers going to be able to raise capital in the current environment? Fig. D: Current Allcoations of Investors in Private Equity Real Estate Funds Fig. D shows the current situation of institutional investors with regards to their private equity real estate allocation based upon a survey carried out by Preqin. A sizeable 67% of investors are still short of their allocation to real estate, and so are likely to be making new investments in the coming months. There is no evidence that a large number of investors have turned away from the sector as a result of the tightening credit situation, and investors remain confi dent towards real estate private equity in the long run. Real estate funds are a long term proposition, and have performed extremely well in recent years. The institutional investors that are active in this market make commitments with a long term outlook, and as such are not easily deterred as a result of changes in the economic climate. However, although there is no evidence that investors are turning away from the sector, there is a strong suggestion that the current situation is serious enough to lead to new investment decisions being delayed until the long term global outlook becomes more clear. With major banking institutions failing, and with takeover bids and government intervention becoming commonplace, investors have been left unable to take faith in long term investments generally. The willingness to invest remains, but no due diligence process will allow for new investments to be made in vehicles that could conceivably fail if they have no way of fi nancing their deals if the credit markets were to seize up entirely. The long terms outlook remains uncertain, and so it would be foolhardy to predict how the private equity real estate market will be affected beyond suggesting that these fi rms will be increasingly turning to mezzanine fi nancing and other less conventional lenders in the coming months. There is even the possibility that some of the cash rich sovereign wealth 2008 Preqin Ltd 5
1. Executive Summary - Sample Pages funds of the Middle East, China and other regions might conceivably enter this space. One thing that is clear though, is that real estate fundraising is set to enter its most challenging era of all time. The very biggest fi rms may be able to gather commitments from previous investors, but many of the mid-sized and smaller funds that constitute a higher risk in the eyes of investors will fi nd conditions to be extremely tough. It is likely that although headline fundraising fi gures will continue to remain high, the number of funds closing will still leave a lot of medium- and smaller-sized funds on the road looking for capital. With so many funds out there seeking capital, the funding available to them from investors will be spread extremely thinly, and only those that are extremely focused will be successful in raising the capital that they targeted at launch. Indeed, many fi rms will fi nd conditions too challenging, and will shelve their fundraising efforts until the market becomes more settled and investors more receptive to making new investments. In market conditions such as these, access to a good source of market intelligence is vital for all industry professionals in establishing exactly who else is actively managing funds, what their strategies and strengths are, and who is investing at the moment. The 2008 Preqin Private Equity Real Estate Review is focused on providing a complete overview of current conditions, along with the vital intelligence to help achieve success in these tough times. For those involved with the investment decision making process, it is also a powerful tool in helping to evaluate all the many managers and strategies out there. For those developers that are interested in seeking investment from private equity funds, the review is the ultimate source of fi rm and contact information, while legal fi rms stand to benefi t from the fund terms and conditions analysis and listings that the Review contains. One thing that is clear from conversations that Preqin s analysts have held with institutional investors in recent times has been the level of importance that they attach to a fund manager s investment strategy including a means by which they will negotiate the conditions that have been aroused by the change in the global economy. It is those fund managers that are able to best convey a strong strategy for dealing with the credit crunch that will achieve the backing of investors in today s market. 2008 Preqin Ltd 6
3. History of the Private Equity Real Estate Market - Sample Pages History of the Private Equity Real Estate Market Fig. 3.1: Number and Aggregate Value of Funds Raised 2000 - Q3 2008 Review of the Unlisted Real Estate Market Real estate investments take many forms and are a key component of any institution s portfolio. Institutions can invest into direct property, listed securities and also unlisted real estate funds in order to gain access to the real estate market. Unlisted real estate funds are a popular source of investment for institutions and have grown signifi cantly in recent years, allowing investors to get easier access to a portfolio of properties which have also yielded attractive returns. According to fi gures from the Preqin Real Estate Online Database, the unlisted real estate market has raised over $700 billion in equity from institutional investors, and with leverage has contributed well in excess of $1 trillion dollars to property projects all over the globe. Of the equity raised by unlisted real estate funds, private equity real estate funds account for over $500 billion, which accounts for approximately two-thirds of the unlisted real estate market. History of the Industry Recent years have seen private equity real estate funds grow from being a niche sector in the real estate asset class to being an important and essential component of any institutions investment portfolio. Fig. 3.1 shows yearly fundraising since 2000 and demonstrates the increasing appetite for private equity real estate funds among investors. The greatest change occurred between 2004 and 2005 when the amount of capital raised by real estate funds over doubled. Each year has broken records and despite recent market conditions, fundraising for private equity real estate still remains strong with 2007 seeing 184 funds raise an aggregate $107 billion and 2008 set to raise a similar amount to 2007. 2008 Preqin Ltd 7
5. Listings of Distressed PE Funds Closed: 1995-2008 - Sample Pages Fund /Firm Name Fund Final Close Close Target (mn) (mn) Date Placement Agent Strategy Legal Structure Geographic Preference Property Preference Alpha Asia Macro Trends Fund 1,500 USD 1,200 USD Jul-08 Value Added China, Hong Kong, Apartment, Office, Retail OPERF, Oregon State Treasury, IVG Alpha Investment Partners India, Japan, South Korea, Singapore, Taiwan, Vietnam, Asia Immobilien Apollo Europe Real Estate Fund III 1,400 USD Mar-08 Opportunistic LP Europe Retail, Senior Home NY State Common Retirement Fund, Apollo Real Estate Advisors Pennsylvania Public School Employees' Retirement System, Profimex Apollo Value Enhancement Fund VII 500 USD 758 USD Jul-08 Value Added LP US Hotels, Industrial, Land Pennsylvania Public School Employees' Apollo Real Estate Advisors Development, Multifamily, Office, Retail Retirement System, PASERS, Arizona Public Safety Personnel Retirement System ARA Asia Dragon Fund ARA Asset Management 1,300 USD 1,130 USD Jun-08 Opportunistic China, Hong Kong, South Korea, Malaysia, Singapore, Thailand, Asia Office, Residential, Retail Investors CalPERS, Teacher Retirement System of Texas, NJ State Investment Council, Penn Square Real Estate Group AREIM 1 Fund 2,100 SEK Oct-07 Value Added Sweden Office APG - All Pensions Group, ATP Real Andersson Real Estate Investment Management ARES 50 EUR Dec-07 Value Added France Retail, Warehouse / Estate, GIC Real Estate STAM Europe Distribution Ascendas China Commercial Fund 400 SGD 400 SGD Jun-07 Opportunistic China Commercial Ascendas Ascendas China Industrial and Business Park Fund Ascendas 300 SGD 300 SGD Jun-07 Opportunistic China Industrial, Logistics, Warehouse / Distribution Ascendas India Development Fund 500 SGD 500 SGD May-07 Value Added India Industrial, Land Ascendas Development, Office Asia Real Estate Prime Development Fund Pacific Star Holdings 250 USD May-08 Opportunistic SICAV China, Hong Kong, Japan, South Korea, Malaysia, Singapore, Emerging Markets AvalonBay Value Added Fund II AvalonBay Communities 500 USD 333 USD Sep-08 Eastdil Secured Value Added BayNorth Realty Fund VII 472 USD Mar-07 Mezz / Debt, BayNorth Capital Opportunistic and Value Added Private REIT Apartment, Mixed Use, Residential GE Real Estate IVG Immobilien US Multi-family Pennsylvania Public School Employees' Retirement System LP US University of Minnesota Foundation 2008 Preqin Ltd 8
15. Real Estate Firm Profiles - Sample Pages Fortress Investment Group Established: 1998 Tel: +1 212 798 6100 www.fortressinv.com 1345 Avenue of the Americas, New York, NY, 10105, US Raised (mn): 13,838 USD Fax: +1 212 798 6122 Fortress Investment Group is a global alternative investment and asset management firm founded in Contacts 1998. Fortress manages capital for a diverse group of investors including approximately 300 leading Ms. Lilly Donohue Managing Director - ldonohue@fortress.com pension funds, endowments and foundations, financial institutions, funds of funds and high-net-worth Investor Relations individuals. Mr. Chris Linkas Head of Real Estate clinkas@fortress.com All/Any Commercial Education Hotel Industrial Retail Senior Homes Student Housing Land Development Leisure Logistics Medical/Heathcare Facilities Mixed use Multi- Family Office Residential Resorts Warehouse/ Distribution North America Europe Asia & ROW Fund Vintage Status Size Legal Structure Called (%) Fortress Asia Realty Fund 2008 Raising 1,000 USD * Fortress Investment Fund VI 2008 Raising 6,000 USD * Fortress Holiday Investment Fund 2007 Closed Fortress Investment Fund V 2007 Closed 5,000 USD Fortress Investment Fund IV 2006 Closed 3,045 USD Fortress Residential Investment Deutschland 2005 Closed 1,500 USD Fortress Investment Fund III 2004 Closed 2,170 USD Fortress Investment Fund II 2002 Closed 1,250 USD Fortress Investment Fund 2000 Closed 873 USD Global Emerging Mkts Core-Plus Distressed Mezzanine/ Debt Distributed (%) Rem. Value (%) Multiple (X) Net IRR (%) Benchmark IRR (%) Opp. Quartile Value Added Date Reported 89.1 0.0 98.2 0.98 n/m n/m 30/09/2007 45.6 0.1 87.3 0.87 n/m n/m 29/02/2008 95.9 3.2 92.5 0.96 n/m n/m 29/02/2008 59.6 33.5 67.2 1.01 10.4 12.2 3 30/09/2007 117.6 54.5 80.1 1.35 22.1 17.4 2 31/12/2007 196.8 135.6 36.2 1.72 49.8 27.3 1 31/12/2007 120.5 188.9 75.9 2.65 28.7 19.6 1 31/12/2007 2008 Preqin Ltd * = Fund Target 9
16. Overview of Investors in Real Estate Funds - Sample Pages real estate provides and commit accordingly. As has been the growing trend in the last few years, appetite amongst current investors remains healthy, with signifi cant amounts of them having a target allocation that exceeds their actual allocation. Fig. 16.1: Current Allocations of Investors in Private Equity Real Estate Funds It is likely that the aggregate capital committed to the private equity real estate market will continue to rise in the coming years. This is supported by Fig. 16.1, which shows that a signifi cant 67% of investors have yet to meet their set target allocations to the asset class. Only 2% of investors with historic commitments to the asset class are unlikely to consider investments in the next 2 years; a fi gure more favourable for the private equity real estate industry than last year. Furthermore, 28% of investors are at or close to their target allocations, but are investing to maintain. These statistics suggest that spending patterns for private equity real estate investors will continue to bring increased amounts of capital to the asset class. A healthy investor appetite for real estate in general and private equity real estate in particular, is supported by the long-term intentions of investors in the asset class. Arkansas Teachers Retirement System, for example, wants to increase its long-term target allocation to real estate. In Q2 2008, the $13.4 billion public pension fund decided to increase its overall target real estate allocation from 5.5% of total assets under management to 10%. This refl ected a desire to increase its allocation to value added and opportunistic private equity real estate vehicles. The $36.6 billion Maryland State Retirement and Pension System also increased its target allocation to real estate, doubling it in Q1 2008 from 5% of its total assets to 10%. Value added and opportunistic vehicles were set to gain particular attention from the US system. The above examples are not anomalies. Statistics remain positive across the private equity real estate asset class in regards to investor intentions for their private real estate portfolio. Investors are not backing away from private equity real estate vehicles. Rather, as Fig. 16.2 demonstrates, three quarters of investors in the asset class want to increase their long-term private equity real estate allocations. Only 2008 Preqin Ltd 10
17. Profiles of Leading investors in Real Estate Funds - Sample Pages MetLife Insurance Company 200 Park Avenue, New York, NY, 10166-0188, US Tel: +1 800 638 5433 www.metlife.com Insurance Company MetLife Insurance Company invests in real estate directly and through unlisted funds. Approximately 95% of its real estate portfolio consists of direct investments and joint ventures, which it makes both in the US and internationally, in Europe and Asia. The remainder of its portfolio is invested in private equity real estate funds. MetLife began investing in private equity real estate funds in 2001. MetLife invests in all types of closed end real estate funds, having a preference for opportunistic funds. It considers most geographic locations. MetLife is particularly interested in funds targeting emerging markets and mezzanine vehicles. It is focusing on gaining exposure to emerging markets by committing to funds based in India. MetLife will consider first-time fund managers and expects a minimum IRR of 20%-30% from its private real estate related fund investments. Over the next twelve months MetLife is expected to increase its exposure to private equity real estate funds. Total Assets (mn): Preferences 558,600 USD Core-Plus Distressed Mezzanine / Debt Opportunistic Value Added Emerging N.America Europe Asia Global Mkts First-Time Funds Known Fund Investments Fund Name Manager Vintage Fund Size Fund Focus CPI Capital Partners Europe LaSalle Asia Opportunity Fund II Citi Property Investors 2006 LaSalle Investment Management 2006 1,162 EUR 1,000 USD Europe ROW Workforce Housing Fund I Crossbeam Capital 2006 145 USD US LaSalle Asia Recovery LaSalle Investment Management 2002 ROW International II Doughty Hanson & Co Euro Real Estate I Doughty Hanson & Co-Real Estate 1999 632 USD Europe Contact Name Position Email Donald K. Devine MD and Head of International Real Estate Investments ddevine@metlife.com Scott Hirsch Director, Real Estate shirsch@metlife.com David Lindstrom Director of Investments dlindstrom@metlife.com Robert R. Merck Head of Real Estate Investments rmerck@metlife.com Metropolitan Borough of Wirral Pension Fund PO Box No. 2, Birkenhead, Wirral, CH41 6BU, UK Tel: +44 (0)151 242 1309 www.wirral.gov.uk Fax: +44 (0)151 666 3058 Public Pension Fund Metropolitan Borough of Wirral Pension Fund has a 10% allocation to property investments and was underweight as of Q3 2008. Much of this allocation is made up of direct investments in UK property but it has been making an increasing number of investments in private equity real estate funds. The pension fund invests in value added and opportunistic funds. It has a geographically diverse portfolio and will commit to funds on a global basis. It has invested in global funds and in regional funds, including an Asia-focused vehicle as well as UK-focused funds. Its commitment size is dependant on the fund manager and the focus of the fund but is typically between GBP 5 and 10 million. The pension fund will consider all opportunities including funds managed by newly established firms. Between mid-2008 and mid-2009 Metropolitan Borough of Wirral Pension Fund was planning to make further investments in to private equity real estate funds and was likely to do so with a combination of its existing managers and firms it had not previously invested with. Total Assets (mn): 4,200 GBP Target to Real Estate (mn): 420 GBP 10% of Total Assets Preferences Core-Plus Distressed Mezzanine / Debt Opportunistic Value Added N.America Europe Asia Global Emerging Mkts First-Time Funds Contact Name Position Email Susannah Friar Property Manager susannahfriar@wirral.gov.uk Owen Thorn Investment Officer owenthorn@wirral.gov.uk 2008 Preqin Ltd T = Fund Target 11
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