Preqin’s Real Estate Online contains extensive information on 131 funds which are focused solely on niche property types. Vehicles that solely target niche property have raised USD11.1 billion since 2009. Fundraising was slower prior to 2013 with USD3.4 billion raised in the period, whereas since the start of 2013, more than double (USD7.7 billion) this amount has been raised, demonstrating increased interest from both investors and fund managers in these sectors. 2015 represents an all-time high for solely niche-focused fundraising, with six funds closing on USD3.2 billion to date, already exceeding the previous peak in 2013.
In April 2015, Kayne Anderson Capital Advisors raised USD1 billion for Kayne Anderson Real Estate Partners IV, making it the largest niche-focused fund to reach a final close. The value added vehicle targets medical, self-storage, senior home and student housing assets across the US. Another major player in the sector, Harrison Street Real Estate Capital, held a final closed for its fifth offering in January on USD850million, and raised an additional USD160million for a sidecar co-investment fund.
Of the 60 closed-end private real estate funds that have solely targeted niche property between 2009 and 2015, the most prominent property types were student housing, senior home and self-storage. The largest proportion (29 per cent) of vehicles with a specific niche property type targeted student housing, with the growth in demand driven by the growing number of students in the US and Europe, creating strong appetite for the sector.
An ageing population also means a growing number of firms are seeing attractive opportunities in senior housing; 24 per cent of niche-focused private real estate funds to close over the past six years have exclusively targeted the property type, raising USD2.3 billion, 32 per cent of the total capital raised for niche property over the time period. Additionally, there have been a significant number of niche-focused funds targeting self-storage assets, although fundraising figures have not been very large for this group, raising only USD400million.
Funds in Market
The number of niche-focused private real estate funds in market has fluctuated between 2013 and 2015, most likely due to the fundraising successes of 2013 prompting more fund managers to consider more specialist funds focused on niche assets. In May 2013, only 11 funds were in market, targeting an aggregate USD2.4 billion, while May 2014 saw 27 funds in market targeting USD7.4 billion in capital commitments.
Of the 24 funds in market in May 2015 there emerges a clear preference for value added strategies. These vehicles make up one-third of all niche funds in market and 40 per cent of the capital being targeted. The number of value added vehicles in market suggests that managers see a market for the redevelopment, rehabilitation and renovation of niche assets. Geographically, North America and Europe are the most widely targeted regions, but there are a handful of funds targeting Asian markets, including Asia Investment Partners, which is seeking JPY 30 billion for its senior home-focused AIP Japan Fund VI.
The strength of fundraising in 2015 reflects investors’ desire for access to more specialised real estate exposure. In a very competitive deal environment, fund managers are seeking more attractive investments from less saturated markets, while investors seeking further portfolio diversification are attracted to a sector which has generated strong returns. With demographic trends making niche real estate very attractive, the sector is likely to see further growth in the coming years.
Source: Hedge Week