A Better 2024
Real asset fundraising is expected to perform far better in 2024 than it did last year. Following a poor performance in 2023 amid global macroeconomic and geopolitical instability, cash-raising is projected to improve, according to industry analysts, while finding the right deals and selecting the right manager will remain critical.
The situation is even more complex as many banks have significantly tightened their commercial lending standards, thereby constricting liquidity, in the wake of higher interest rates and regional banking woes.
Liquidity
Greater agreement on where assets should be priced is required for greater liquidity to return to the market. Investors will be looking for a better 2024, when pricing finds a floor and the market returns to a more regular level of activity, according to MSCI’s 2024 Trends to Watch in Real Assets report.
Of course, clarity on the direction of US monetary policy is key. A stable interest rate environment will aid in the acceleration of fundraising and transaction initiatives. As a result, the spread between bid and ask prices should narrow. However, until that happens, fundraising is expected to favor more established managers with broader platforms.
Platform
Since launching its seventh flagship European real estate fund in April 2023, Blackstone has raised at least $4.3 billion, with more than $3 billion of commitments secured in the third quarter of 2023 alone, while Artemis Real Estate Partners closed its Artemis Fund IV on $2.2 billion in the second quarter, exceeding its $1.5 billion target.
Prominent real asset investment managers have also had the size and assets to implement new strategies. Real estate debt is one area where activity has increased significantly, both in terms of fundraising and investment tactics. For example, Bain Capital and TPG announced new dedicated real estate debt strategies in 2023, while PIMCO closed its second CRE debt fund on $3 billion in October.
“In a trend that mirrors developments in other alternative asset classes, investors will commit the capital they do have available to bigger managers with large investment platforms to mitigate downside risk in a still choppy deal market,” wrote Anita Lyse, Global Sector Head, Real Assets at Alter Domus, a tech-enabled fund administrator specializing in alternative investments.
Optimism
According to Lyse, citing PERE, real estate fundraising fell 38% to $92.8 billion in the first nine months of 2023, from $150.4 billion in the same period in 2022. With the present pace, real estate fundraising could reach its lowest yearly level since 2012.
Meanwhile, higher capital costs and conservative underwriting will continue to be prominent in 2024, according to JLL analysts in their Global Real Estate Perspective November 2023 report, as companies rethink post-pandemic office requirements, logistics operators reorganize warehouse portfolios in response to consumer spending challenges, and investors delay capital-allocation decisions.
Nonetheless, there is a degree of optimism that the market landscape for real asset investment strategies and fundraising levels will grow in 2024, albeit at a slower pace than in the last bull market of 2021 and early 2022.
It remains to be seen when and how this occurs. It’s possible that rising distress is driving sellers to the market. Alternatively, borrowing rates may finally begin to decrease more sharply, restoring confidence in potential buyers. Nevertheless, the abrupt market changes experienced in the past 12 to 18 months have “shifted the playing field,” according to MSCI.
All of this might change as we enter the second quarter of 2024, assuming: liquidity recovers, which is largely dependent on interest rates heading lower.