Trends in real estate private equity - EY - United StatesFILE/EY-Trends-in-real-estate-private-equity.pdf · Trends in real estate private equity Introduction >an] q]Yjk Y^l]j l`]

Global market outlookTrends in real estate private equity

Contents

Interest rates and cap rate expansion

16

Getting in front of limited partners

6

Outsourcing11

3Introduction

Strategies for growth4

Rethinking joint ventures

8

13

SEC examinations20

Securitization18

Conclusion22

3Trends in real estate private equity

Introduction

interests

Mark Grinis

Howard Roth

Global market outlook


entering a new positive growth cycle, investors have made clear their intentions about how and with whom they will invest capital. Fund managers that continue to struggle in the current fundraising environment will have to

about whether their existing strategies can succeed amid new market realities.

4Global market outlook

Type No. of funds raising Aggregate target capital ($bn)

Table 1. Total alternative private equity fund raising


favoritism towards fund managers with proven track records

their focused investment interests, few managers remain exclusively committed to closed-end

successful managers understand that, to stand out in a heavily saturated market, they have to broaden their services.

Chart 1. Investor hierarchy of needs

Source: EY

Acceptablefees


Emerging manager programsSome investors are taking their own initiative in test-driving new fund managers without taking the risk with large amounts of capital. These “emerging manager programs” are a new trend to watch.

These programs do not appear to favor completely new and inexperienced managers, however; rather, they seem focused on identifying managers with the potential to become the next major global fund manager. They are looking for ones who show a willingness to be closely involved in the real

behalf, and who have solid expertise with a well-developed operating strategy.

the allocations from emerging manager programs may be too

provide a strong launch point.


Joint ventures have long been a staple for doing deals in real estate. Now, as the downturn exposed lapses in due diligence and documentation across the sector, fund managers are taking a closer look at their partnership structures, and putting greater transparency measures in place, particularly around property management practices.

ventures

Source: EY

Table 2. JV terms/fees


Mitigating corruption risks Responding to investor demands


Risk Potential impact Impact detail

Table 3. Cost leakage

Source: EY


Constructing lasting partnershipsWhat enables enduring partnerships is a balance of

be negotiated to successfully close deals. Integrating different businesses — from tax structures to the staff overseeing day-to-day investment responsibilities — is an instrumental part of the deal-making process. Indeed, the joint ventures that appear most mutually rewarding often look like strong business

so meticulously that the reason for the partnership gets buried or lost in the paperwork.

administration services become more sophisticated, fund managers are increasingly outsourcing internal functions.

Trends in real estate private equity

DUE TO BE RELEASED SHORTLY,


Net asset valuesThe EY real estate team has been working for several months

overhaul and upgrade its industry guidelines.

in areas such as the calculation of fund net asset values, expense ratios, annual and interim reporting disclosures, and asset valuations, as well as best practice frameworks for

It is hoped that the new guidelines, due to be released shortly,

basis of discussion with similar standard-setting and fund

Pricing disparities between top international markets and all others continue to widen, and real estate opportunistic

with higher-return

themselves all but priced out of primary cities. In addition to diversifying geographically, managers are extending further on both the risk and creativity spectrums to get deals done.


Chart 2. Funds looking outside gateway markets

Jakarta

Kuala Lumpur

Bangkok

Taipei

LyonIstanbul

AustinCalgary

Edmonton

Portland

Denver

Minneapolis

RaleighCharlotte

Nashville

Mexico City

San Antonio

San Diego

Rio de Janeiro

BrusselsDublin

CopenhagenWarsaw

Moscow

Helsinki

Guangzhou

Melbourne

North AmericaSouth America

Asia-PacEurope

Source: EY



The real estate market is

anticipate continued interest rate rises, many are contemplating their

asset value in light of more expenses, debt and cap rates rising.


19%

14%

11%

8%

5%

2%

0.0%2.0%4.0%6.0%8.0%

10.0%12.0%14.0%16.0%18.0%20.0%

4% 5% 6% 7% 8% 9%

Leve

rage

d IR

R

Exit cap rate

Chart 3. Interest rates and cap rates rising*

Source: EY


The commercial mortgage-backed

comeback in the United States; however, the

estate deals look very

at the head of a wave of “megadeals,” or those


Chart 4. US CMBS issuance

0

250

US$bn

200

150

100

50

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

YTD

2.8 5.313.9 16.0 15.2 15.7

26.336.8

74.3

56.646.9

67.1

52.1

77.8

93.3

168.7

202.7

230.2

12.13.0

12.3

32.7

48.453.8


managers that meet the

million assets under management have now gone through the process of SEC registration, and are now taking steps to prepare for potential examinations.


SEC examinationsThe key issues SEC examiners will look out for in examinations and presence exams include:

•

•

• Fraud

•

• Proof of custody



ContactsConclusion

GlobalMark Grinis

Robert Otremba

Howard Roth

Rick Sinkuler

AmericasViktor Andrade

Thomas Brown

Dovid Frankel

Michael Frankel

Josh Herrenkohl

Mike McNamara

Mike Syers

EMEIAOlga Arkhangelskaya

Rishi Bhuchar

Ad Buisman

Ebrahim Dhorat



Christoph Ehrhardt

Hartmut Fründ

Karl Hamberger

Dean Hodcroft

Michael Hornsby

Ajit Krishnan

Matt Maltz

Jean-Roch Varon

Yousef Wahbah

Doug Bain

Maggie Eather

Shohei Harada

Seng Leong Teh

EY

ey.com/realestate

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Trends in real estate private equity - EY - United StatesFILE/EY-Trends-in-real-estate-private-equity.pdf · Trends in real estate private equity Introduction >an] q]Yjk Y^l]j l`]