Global Market Overview - Swisslake Capital AG

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					1   Asia Pacific Market Overview
     Swisslake Real Estate Private Equity Funds Market Report 2011




Table of Contents
Global Market Overview                            p.5
    Market overview
    Fundraising
    Average fund size
    Fund structures
    Risk-return profiles
    Geographical allocations
    Sector allocations


Europe Overview                                  p.14
    Market overview
    Fundraising
    Average fund size
    Fund structures
    Risk-return profiles
    Geographical allocations
    Sector allocations


North America Overview                           p.23
    Market overview
    Fundraising
    Average fund size
    Fund structures
    Risk-return profiles
    Sector allocations


Asia Pacific Overview                            p.29
    Market overview
    Fundraising
    Average fund size
    Fund structures
    Geographical allocations
    Sector allocations


Rest of the World                                p.35


Appendix: Definitions                            p.38




2                                                                    Asia Pacific Market Overview
Global Market Overview

Global economic growth has been significantly undermined by the outbreak of the financial crisis in the euro zone.
Even prosperous countries such as China and India had to reduce their growth forecasts, as well as their predictions
for the upcoming years. There are multiple reasons behind the slowdown and are not solely based on the
dependencies of the economic relations with European trading partners. Despite strong activity in the segment of
risk-averse properties that resulted from high demand, the real estate industry depicts an overall mitigated picture
as the increasing restrictions on lending from banks significantly slowed transactions from mid-year. The system
threatens to entangle itself in its heterogeneity, as efforts of central banks to avoid liquidity shortages, remain
stuck at the level of credit institutions and have limited or no results for end-users. Due to a very strong first half
year in 2011, the real estate industry was still able to draw a positive result and the year end. The confidence of
private equity real estate fund managers also picked up in terms of an increasing business activity, as particularly
evidenced by the target equity volumes of funds launched in 2011. The outlook for the year 2012, partly due to
the shortage on the credit markets, is relatively bleak and poses great challenges for the industry.



Following a strong start to the year the                    the beginning of 2011 left many market
market    recovery    remains     below                     participants believe that a new property boom was
                                                            in the making. In particular, due to the loss of trust in
expectations
                                                            currencies, many investors tried to “salvage” their
                                                            savings by buying into income-producing real estate
The consequences of the financial and economic
                                                            (particularly residential), which resulted in prices
crisis continue to be felt worldwide. After numerous
                                                            overheating in the segment. But at the end of the
attempts to heal their respective economies and
                                                            day, property valuation and property rights
banks through additional borrowing, many countries
                                                            matters. Accordingly, listed real estate funds in
felt the counter-effects of this "transfer system" as a
                                                            2011 were clearly not the winners, and
boomerang. Without the solidarity pact, many
                                                            experienced significant turnover declines. According
countries are faced with the potential to become
                                                            to the latest forecasts, this trend is likely to persist in
illiquid and certain governments that were hailed as
                                                            2012. Notwithstanding the reluctance of banks to
the crisis winners back in 2009 and 2010, are
                                                            finance commercial properties, the financing of
currently struggling to restore confidence in the
                                                            small-scale home ownership remains more flexible -
world’s leading currencies. Other exogenous shock
                                                            not least because of the broader risk mitigation.
factors such as the nuclear disaster at Fukushima
have in contrast had minor impacts when looking
                                                            Private equity real estate funds have recovered
back at the entire year 2011.
                                                            from the aftermath of the financial crisis in 2011.
                                                            The valuation of funds that were launched prior to
Real estate markets were almost untainted by the
                                                            the crisis and bought assets at the peak of the
world events until mid-year 2011. The f light to
                                                            market has for the most part recovered. On the
real asset values that took place in many markets at
                                                            investors’ side, an increase in confidence in terms of




  5                                                              Swisslake Real Estate Private Equity Funds Report 2011
investments in private equity real estate funds has                                                    catching-up to be done. The significant increase in
been recorded. Accordingly, more funds were                                                            the target equity volume is strongly backed by the
raised than in the previous year.                                                                      return of mega funds (more than USD 1bn target
                                                                                                       equity per fund), which were for the most inactive in
                                                                                                       2010.
Number of funds launched and target equity p.a.

                                         Number of funds              Target Equity (USD bn)
450
                                                                                                       The main reason behind the resurgence of mega
400
                    355           366
                                                389
                                                                                                       funds lies in the fact that many of these vehicles
350
      309
                                                              294                                      were still investing capital commitments raised
300
250                                     228.7         229.5
                                                                            212
                                                                                         239           during the years 2007 and 2008 and is
200
                          161.6                                                                        attributable to the conflict linked with the launch of
150         130.4
                                                                    113.6                      120.0
100                                                                               74.2                 subsequent products. In addition, the increase of the
 50                                                                                                    availability of suitable investment opportunities
  0
       2005          2006          2007          2008          2009          2010         2011         ultimately led to the increased investment activity of
                                                                                                       these funds.

This is an important sentiment-indicator and is also
reflected in the behavior of private equity real                                                       Number of funds launched and target equity per quarter
                                                                                                                                                   Number of funds              Ø 2005-2010
estate funds. The return of the mega funds was of                                                      160

significant importance for the year 2011. Many                                                         140   134
                                                                                                                   117
                                                                                                       120
large fund managers such as Blackstone, Brookfield,
                                                                                                       100                                        89
Starwood, Blackrock, RREEF or Fortress launched                                                         80               66   72        71   69
                                                                                                                                                                           79

                                                                                                                                   65                  58             58         63
new funds in 2011, documenting the beginning of a                                                       60
                                                                                                                                                            44
                                                                                                                                                                 52                   52
                                                                                                                                                                                           45
                                                                                                        40
new cycle.                                                                                              20

                                                                                                         0
                                                                                                             Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Although, predictions based in our half-year report                                                                 2008                2009                2010                 2011

assumed growth rates of more than 20% in terms of
the number of funds launched were not entirely met,
values for the entire year of 2011 were                                                                This development is an indirect consequence of the
satisfactory. A total of 239 funds were launched                                                       fact that banks have stepped up their handling with
worldwide with a target equity volume of USD                                                           borrowers in respect to bad credit exposures and
120.0 billion. This is in terms of the number of funds,                                                have increasingly become aggressive. The time of
an increase of 12.7% compared to last year.                                                            the so-called "extend and pretend" phase seems in
However, in terms of target equity volumes, our                                                        light of stricter requirements of regulatory
expectations have been larger surpassed, as target                                                     authorities, as well as Basel III to be over. The
equity was 61.7% above levels recorded in the                                                          heterogeneity of the year 2011 - with its ups and
previous year. Nevertheless levels remain                                                              downs - can be slightly better perceived in the
significantly away off peak values from the years                                                      quarterly analysis. The significant increase of fund
2007 and 2008, when target equity volumes                                                              launches through the mid-year of 2011 correlated
reached USD 230 billion, almost twice as much as                                                       mainly with the expectation of a recovery of the
current volumes. In other words there is still a lot of                                                world's major economies. Accordingly, private




  6                                                                                                           Swisslake Real Estate Private Equity Funds Report 2011
Fundraising Europe:        fewer                                        fund   raised by the 12 Western European funds. The
closings - more equity raised                                                  largest allocation is intended for investments in
                                                                               Germany (USD 2.8bn) and France (USD 1.6bn). UK
                                                                               funds topped the list in 2010 with USD 2.6bn of
In addition to weak launch figures, fundraising
                                                                               equity raised and a market share of 37.6%, only
numbers were also disappointing in 2011. Although,
                                                                               managed to raise USD 1.4bn in 2011 and
funds raised in aggregate USD 9.5bn of equity,
                                                                               accordingly lost market shares to the Western
reflecting a 37.5% increase (+ USD 2.5bn)
                                                                               European strategy. Pan European funds were able
compared to 2010, values remain far off those
                                                                               to raise USD 1.9bn in 2011 reflecting an increase
recorded in 2007-2009. A total of 21 funds held a
                                                                               compared to the USD 1.3bn raised in 2010 and
final closing in 2011 which is significantly less than
                                                                               thus slightly gained market shares (2010: 19.3%;
the 29 funds in 2010 (-27.6%). The higher average
                                                                               2011: 19.9%).
volume of funds that held a final closing is mainly
due to the successful fundraising of three funds:
Europe ECE Shopping Center Fund (USD 995mn),                                   Geographical allocation of funds closed (in % of equity)
the Pramerica Real Estate Capital 1 debt fund (USD                                                                           2010    2011

750mn) and the AltaFund by Altarea Cogedim                                            West
(USD 810mn).                                                                            UK

                                                                                     South

Funds closed and equity raised                                                 Pan European

                         Number of funds           Equity raised (USD bn)           Nordics
 80                74                                                                  CEE
 70                            66
                                                                                              0%   10%   20%   30%     40%     50%     60%
 60    57
                                           49
 50

 40
                        30.9        29.0                29
 30
                                                23.1               21
                                                                               In terms of sector allocations, with 11 vehicles
 20         15.7
                                                                        9.5
                                                                               closed, diversified funds were the most numerous in
 10                                                          7.0

  0
                                                                               2011. The 11 funds managed to raise USD 3.8bn
        2006        2007        2008        2009         2010       2011
                                                                               during the year. In contrast to 2010 when the
                                                                               majority of funds that held a final closing were
The average size of European funds closed in 2010                              sector specific funds, in 2011 only office, retail,
was USD 452mn reflecting almost the double of the                              industrial and debt specific funds were able to
average in 2010 (USD 241.4mn), in which many                                   raise equity. Leading the specialized strategies are
funds failed to meet their equity goals.                                       4 debt funds that managed to raise USD 2.3bn and
                                                                               thus positioned themselves with a 24.1% market
In terms of geographical allocation, the 21 funds                              share reflecting the highest share amongst
that held final closing, 12 vehicles are focused                               specialized vehicles. The successful fundraising of
Western Europe. This corresponds in terms of the                               debt funds were backed by investors’ positive
number of funds a 56% market share. Germany,                                   expectations for debt investments as the increasing
France and Nordic countries are amongst the main                               reluctance of banks to finance particular assets in
target markets. A total of USD 5.3bn has been                                  the value-add and opportunistic segment meant…




  15                                                                                 Swisslake Real Estate Private Equity Funds Report 2011
Risk-return profile North America: value-                               Core funds also witnessed an increase as 8 new
add funds again most attractive                                         funds with a target equity volume of USD 6.8bn
                                                                        were launched. This reflects the fact that North
                                                                        American managers and investors are increasingly
Looking at the risk-return profiles of North American
                                                                        looking for security and stable cashflows. The
funds, those with value-add strategies are the
                                                                        market of core funds accordingly grew from 11.2%
leaders in 2011. A total of 55 funds with a target
                                                                        in 2010 to 17.5% in 2011. This is well above the
equity volume of USD 19.6bn have been launched.
                                                                        long-term average of 8.3%. Out of the 8 core
The target equity volume thus increased by 51.4%
                                                                        funds launched this year, 5 vehicles have an open
compared to 2010. Accordingly the market share
                                                                        or semi-open-ended structure. This confirms that
of value-add funds grew from 45.3% in 2010 to
                                                                        fund managers are reacting respond to investors’
50.4% in 2011.
                                                                        demand for liquid fund structures and strategies.
                                                                        Although opportunistic funds lost significantly in
Risk-return profile of launched vehicles                                terms of market shares in 2011 (- 11.4 Pp), their
                                  2010                   2011           target equity volume of USD 12.5bn shows that this
Risk profile              Funds       TE ¹     Funds            TE ¹
Core                        7        3,075       8             6,800    strategy continues to be a driving force on the
Value-add                   40       12,495      55            19,620   North American REPE market. The market share
Opportunistic               42       12,000      44            12,485
                                                                        remained, as in the previous year below the long-
¹ TE: target equity in USD million                                      term average of 44.0%. Most opportunistic funds
                                                                        have either diversified strategies or apply
Most of the newly launched value-add funds are                          specialized investment strategies mostly in the debt
indeed successor vehicles, managed by established                       segment.
fund management companies. Most fund companies
have already launched similar strategies
successfully in the past and can build up a clientele                   North American fund managers more
among the investors. Looking at the sector and
                                                                        optimistic in terms of target leverage
geographical allocation of value-add funds,
noticeable is the fact that the majority of the funds
                                                                        levels
rely on specialized strategies and invest primarily
in residential and office properties in major cities.                   The average gearing level in North America
                                                                        declined This relatively high average level,
                                                                        compared to other regions, results from the fact that
Risk-return profile allocation (in % of equity)
                                                                        value-add and opportunistic strategies form a
                               Ø 2005-2010    2009      2010     2011
                                                                        significant portion of the market. The average
60%
                                                                        value-add fund was aiming to finance at 56.8%
50%
                                                                        and opportunistic funds were aiming to finance at
40%
                                                                        52.1%. Similar to other regions worldwide, value-
30%
                                                                        add funds have a higher gearing level than
20%
                                                                        opportunistic funds…
10%

 0%
             Core               Value-add            Opportunistic




                                                                             Swisslake Real Estate Private Equity Funds Report 2011
Geographical allocation: pan Asian strategy                             especially in terms of the demographic and
on top again; Japan surprisingly attractive                             urbanization trends that remain intact and in India.
                                                                        Fund managers continue to recognize the
The analysis of the geographical allocation shows                       importance of these factors when it comes to
some shifts and new trends compared to last year.                       growth. Although the market share of Indian
The major shift compared to pre-crisis years is the                     focused funds only slightly increased from 13.0% in
emergence and continuous of growth of the number                        2010 to 14.1% in 2011, the target equity volume
of country specific funds. Prior to the crisis, the                     of USD 3.4bn marks an impressive 125% increase
majority of funds applied a diversified strategy                        compared to 2010. Of the 11 fund managers that
focusing on investments in several countries. Out of                    have launched vehicles in 2011, 7 are originally
the 49 funds launched in 2011, only 6 funds were                        from Indian, 3 are from the US and 1 is from
investing in several countries while all other vehicles                 Europe. This is a promising indicator for private
invest in only one country. One of the reasons for                      equity due to the fact that in 2009 and 2010, there
this is the fact that many investors present in Asia                    were only three fund managers of foreign origin.
are already committed to pan Asian funds and are
therefore aiming for enhanced control through                           Geographical allocation (in % of equity)
investments on a country by country basis.                                                         Ø 2005-2010     2009   2010   2011

                                                                        40%

                                                                        35%
Geographical allocation of launched vehicles                            30%

                                  2010                   2011           25%

Region                    Funds           TE ¹   Funds           TE ¹   20%
Australia                   5            1,315     7            2,760   15%
China                       10           3,750     12           3,390   10%
Emerging Asia                -              -       -             -
                                                                        5%
India                       6            1,500     12           3,380
                                                                        0%
Japan                       5            1,900     10           7,800
Mature Tigers               2             390      3             770
Pan Asia                    4            2,650     5            5,800

¹ TE: target equity in USD million


                                                                        Following the earthquake in March 2011 and the
Similar to last year, China and India top the list with
                                                                        terrible consequences that followed for the country
each recording the launch of 12 new funds. China
                                                                        and people of Japan, many thought that the
focused funds are targeting to raise USD 3.4 bn of
                                                                        Japanese real estate markets would take years to
equity. This reflects a 9.6% decrease compared to
                                                                        recover and attract attention. The launch of 10 new
last year’s USD 3.7bn. Accordingly, the market
                                                                        funds with a target equity volume of USD 7.8bn
share declined from 32.6% in 2010 to 14.2% in
                                                                        clearly shows the proactive philosophy of certain
2011. This shows that fund managers have become
                                                                        fund managers and more generally the pace at
increasingly cautious in respect to some segments of
                                                                        which the REPE industry is able to anticipate. With
the Chinese real estate market.
                                                                        those numbers, Japan funds top the list in Asia in
                                                                        terms of the number of funds. The newly launched
Unlike China focused funds, 2011 marked the
                                                                        Japan funds are mainly focused on repositioning
come-back of Indian funds. Fundamentals are strong
                                                                        (value-add) and opportunistic (distressed)…




                                                                              Swisslake Real Estate Private Equity Funds Report 2011
  32
About Swisslake
Swisslake is an independent investment advisory firm specialized in providing real estate investment
solutions to clients globally. Swisslake offers real estate investment advisory services, product
conception and structuring as well investment and asset management to institutional and private
investors as well as financial intermediaries.

Over the years, Swisslake has developed a unique database containing more than 3’196 funds from a
total of 1’252 fund managers (as of 31st December 2011) making it one of the largest real estate
private equity databases worldwide. The database provides the basis for our analysis and is
complemented by our longstanding relationships, daily discussions and meetings with fund managers
from entire globe.




Contact us
Churerstrasse 135
CH-8808 Pfaeffikon/SZ
Tel.: +41 - (0)55 - 417 07 00
Fax: +41 - (0)55 - 417 07 01
Internet: www.swisslake.com
Email: kontakt@swisslake.com




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