Hospitality and Infrastructure Gaining Momentum in the Real Estate Equity Fund Market

Asset classes such as hospitality and infrastructure have gained momentum, though office, retail, multifamily and industrial properties continue to attract the lion's share of fund capital, according to a survey of the nation's institutional real estate private equity sector by Ernst & Young.

"More than 75 percent of respondents indicated that they believe the opportunistic return potential for infrastructure investments is 'fair or better' in today's market," says Gary Koster, Americas Leader for Ernst & Young Real Estate Fund Services, "indicating that more large institutional investors may allocate funds for the sector in the near future. The search for higher risk- adjusted returns has led sponsors to investigate new asset classes and geographic locations."

Koster says that real estate fund sponsors participating in the Market Outlook- Trends in the Real Estate Private Equity Industry survey, representing more than 285 investment funds, raised in excess of $23.5 billion in the first six months of 2007. Another $35 billion was planned to be raised by new funds that were being formed at the time of the survey. Koster says, however, that the shifts in the world's capital markets increase the likelihood that some portion of this fundraising will be deferred.

Koster says that it is clear that real estate private equity funds have been the dominant players on the real estate transaction landscape. Regardless of how the third- and fourth-quarter figures pan out, says Koster, the huge amount of capital raised in the first half of 2007 has already positioned funds with a very sizeable war-chest with which to seek out and acquire new assets over the next 12 to 18 months.

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