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Investors Demanding More Transparency from Real Estate Private Equity Funds

October 31, 2012
Still having a tough time getting bank financing for your CRE deals? You're not alone.


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According to Ernst & Young, real estate private equity fund managers around the world continue to face challenges stemming largely from ongoing illiquidity within the capital markets. This has left few able to secure bank financing and stifled deal flow, according to Global Market Outlook: Trends in Real Estate Private Equity, published by E&Y.

Based on a survey of 300 global real estate funds, the report found that private equity funds have slowed their deployment of capital and fund-raising activity.

While the lack of available bank financing has had a dampening effect on real estate funds, Mark Grinis, global real estate fund practice leader at Ernst & Young, points out that other challenges have also hampered investors ability to navigate out of the recession.

Among the challenges outlined in the report: Tougher regulatory requirements imposed on fund managers - such as the Alternative Investment Fund Manager Directive (AIMFD) in Europe and the Dodd-Frank Act in the US; and Tighter 'regulation' from investors in the form of calls for greater transparency and oversight on their investments.

Real estate fund managers highlighted several key challenges for them to get a new fund to its first close, 52% responded that investors required greater due diligence before committing to the fund. Fifty-four percent of respondents also cited agreement on deal terms and fees as the biggest stumbling block.

According to Grinis, these challenges have caused short-term pain for many fund managers, however the outlook for most from this structural change is a much more efficient, transparent and scalable platform from which to build future growth.

"This is a period during which creative investors can thrive," Grinis said. "Real estate fund managers that can successfully navigate the current changes, including demands from investors for greater transparency and lower fees, and who can devise and offer creative niche solutions for investors moving forward will have a key differentiator in the next phase of market growth," he adds.

As evidence of these trends, the report cites the role fund managers are playing in the U.S. market to take advantage of investment opportunities in the single-family residential market, and the growing appeal of senior debt funds.


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