Saturday, Aug 14, 2010
Gulf News
The proportion of deals of $1b or more in size has fallen from 17% in 2008 to 12% in both 2009 and the first half of this year
Dubai Times continue to be difficult for the private equity funds to raise cash for the real estate and infrastructure sectors, both of which were star performers before the global credit crisis brought returns crashing to the floor.
The second quarter of 2010 saw 20 private equity real estate funds hold a final close, raising an aggregate $7.3 billion. This was the lowest quarterly fundraising total since the third quarter of 2004, when 30 funds raised $6.1 billion.
On the infrastructure front, the number of deals completed fell in 2009 for the first time since 2004, decreasing by nine per cent from the 217 deals made in 2008.
The figure for the first half of this year suggests that the annual total for 2010 will again be lower than the previous year, unless a significant upswing occurs in the second half.
“The fall in the number of deals can in part be attributed to the lack of available debt to finance traditionally highly leveraged infrastructure deals,” said Richard Stus, the sector analysts at private equity data collator Preqin.
“To compensate for the lack of debt we have seen a decrease in the debt-equity ratio of infrastructure transactions and a reduction in the overall size of deals.
The proportion of deals of $1 billion or more in size has fallen from 17 per cent in 2008 to 12 per cent in both 2009 and the first half of 2010,” Stus said.
Andrew Moylan, who analyses real estate private equity funds for Preqin, points to a severe decline in the performance of such funds since the onset of the economic downturn.
“Although real estate performance is improving, with one-year returns to March 2010 standing at a negative 7.9 per cent compared to a negative 21.3 per cent to March 2009, returns are still in the red,” Moylan said.
“Many other asset classes have seen their performance rebound at a faster rate than real estate.”
Investors feel core real estate may be overpriced and that greater opportunities are to be found in opportunistic, debt or distressed real estate.
“The desire of investors to target lower risk real estate is understandable considering the losses incurred by investments in opportunistic and value-added funds. Given the declines in property valuations, many also see it as a good time to gain exposure to high-quality real estate at a lower price,” he said.
Although infrastructure fundraising has declined in recent years, the number of funds on the road has continued to increase. There are currently 105 infrastructure funds seeking an aggregate $80.8 billion, according to Preqin’s data.
“This is 21 more funds than were fundraising in January 2009, implying that poor fundraising conditions have not deterred fund managers from launching infrastructure funds,” said Stus.
However, the aggregate capital sought as of June 2010 represents a 10 per cent drop on last year’s figure.
AFP
Distressed market
A “bank foreclosure sale” sign is posted in front of townhomes on Thursday in Los Angeles. Investors feel core real estate may be overpriced and that greater opportunities are to be found in opportunistic, debt or distressed real estate.
Many other asset classes have seen their performance rebound at a faster rate than real estate
Andrew Moylan
An analyst
By Yazad Darasha?Business News Editor
Gulf News 2010. All rights reserved.
