Chart of the Week: Private real estate debt faces uncertainty

Closed-ended fundraising in the asset class fell by 40 percent between 2013 and 2015.

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Closed-ended private real estate debt fundraising has experienced a decline in the last three years, with the amount of capital raised tumbling from $34.1 billion to $20.43 billion between 2013 and 2015 – a 40 percent decrease.

While capital raised by funds in the asset class more than doubled between 2010 and 2015, recent uncertainty in the sector hasled to a dip.

Firms headquartered in the United States and the United Kingdom account for 87 percent of private real estate debt fundraising since 2010, so PDI Research & Analytics has explored the state of the sector in these two countries.

The US could be entering a bubble worse than that of 2006, where the rise in property prices is prompted by a lack of supply and an artificially low interest rate environment, rather than a growing demand for real estate.

These issues are becoming problematic across the pond too. The UK is experiencing a lack of confidence in its real estate market, with the uncertainty surrounding Brexit and the rise in stamp duty. Add to the mix the slowing of the Chinese economy, which has been the driving force of the global recovery of real estate markets since 2008, and the future seems rather bleak.

However, activity is rising in emerging markets real estate finance, suggesting a shift is occurring as investors look elsewhere for value-accretion. As reported by Private Debt Investor this week, India-focused Altico Capital has lent over $86 million across three real estate transactions and South Africa’s Vantage Capital has provided $20 million of funding for a Nigerian property developer.

The recent close of Kotak Mohindra Group’s Kotak/CPPIB Indian Distressed Debt vehicle at $525 million is also an example of growing investor appetite in economies with large populations and increasing wealth.