Private equity real estate managers reduce targeted returns

Private equity real estate managers find that asset valuations are the chief concern for their firms, with competition for assets equally daunting.

A poll of 191 global managers by information provider Preqin found that 66% of European private equity houses are finding competition for real estate assets tougher than the previous year.

The firm also said that as demand increasingly outstrips supply for attractive assets, 63% of managers globally have seen an increase in asset pricing.

Due to these challenging market conditions, 51% of private equity real estate fund managers have reduced the targeted returns of the funds, with only 11% increasing their performance objectives.

Within private equity it seems size matters as 80% of managers larger than $5 billion stated investor appetite for real estate had increased, which according to Preqin follows the trend of the largest firms securing a growing proportion of capital.

Environmental social and governance issues are also taken into consideration by real estate fund managers, as 31% consider ESG factors in all their deals. However, just 22% and 37% of managers based in North America and Europe respectively take ESG factors into account, compared to 59% outside these regions.

The Preqin poll regional breakdown is as follows; 62% of respondents from North America, 23% from Europe, 7% from Asia, 3% from Australasia, 3% from Central and South America and 1% from both the Middle East and North Africa and Sub-Saharan Africa.

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