Private-equity funds that purchase real estate were unable to invest as much as US$80 billion due to difficulty in finding deals, and some of that may be lost if it is not spent this year, according to a report by London-based research firm Preqin Ltd.
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The figure includes about half the money it raised in 2007, when a record 280 funds accumulated US$124 billion, said the research firm.
Its report said that property funds have to put money to work for an average of three years.
“Many fund managers are now approaching the end of their investment periods with large amounts of capital yet to be invested,” said Mr. Andrew Moylan, an analyst at Preqin. “The rate at which fund managers have called capital has dropped significantly in recent months.”
The scarcity of debt financing, declining property values and the inability of several banks to realize the losses, which would result from unloading their holdings caused a drop in sales.
Funds that do not invest their capital will face the risk of losing management fees, which are typically one percent to two percent of the money pledged.
Several funds will negotiate to increase their deal-making and lengthen the investment periods as property markets stabilize, said the report.
“There is growing optimism amongst those in the real estate industry,” said Preqin. “Many are anticipating that 2010 will see far more deals being done.”
Preqin projects that funds raised in 2007 have US$12 billion of unspent capital for Europe, US$39 billion for North America and US$17 billion for Asia and the rest of the world.