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$231B Funds from Private Real Estate Available For Spending

Posted by Staff Reporter on Apr 04, 2016 05:39 AM EDT
Sales Of Existing Homes In July Reached Prerecession Levels more big
A for sale sign is seen in front of a home on August 21, 2015 in Miami, Florida. According to the National Association of Realtors, U.S. home resales rose more than expected in July to their highest level since 2007. (Photo : Joe Raedle / Getty Images)

Private real estate funds had acquired more money to spend than ever before. However that was not necessarily positive news for the current real estate market. According to research firm Preqin, as of March, global  private real estate investment funds had $231 billion in capital commitments from fund investors ready for easy spending. This was the highest in history and 10 percent more than December.

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Private real estate's success on one hand will be good for the real estate market. Most private funds had fixed investment periods and are contractually required to use their investors' money before a fixed date which will typically be within five years. The more aggregate dry powder funds available, the more money will head into the property market. And surveys have showed that the U.S. market was still by far the go-to investment destination. Private funds will provide a much-needed boost as economists already began to worry about the possibility of the market slowing down, according to a feature from The Real Deal.

However, there will be a more negative side note. Dry powder had grown in part due to fund managers having an increasingly hard time finding good investments. This was because they were raising huge figures from investors. Andrew Moylan, senior research analyst at Preqin, stated that while there had been strong investments for these firms it was difficult to acquire opportunities in a generally competitive market.

The past eight years had indicated that private funds spent their investors' money faster in boom times. On the other hand, they took longer time to find assets in downturns. Fund managers sat on large heaps of dry powder in 2009 and 2010 even though they raised almost no new money from investors.

Private real estate fundraising totals dropped while dry powder continued to soar. Fund managers took longer on average to use their investors' money. Most observers will see the increasing gap between dry powder and new funds as a sign of crisis or market slowdown, according to a feature from Wall Street Journal.

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