Market Insights: Real Estate Private Equity

Testing times for U.K. Private Equity

There has been notable turbulence in the private equity market which has been further accentuated by challenging capital raising conditions. Off the back of the Covid-19 rally, the first 6 months of 2022 saw the continuation of the record-breaking deal activity of 2021, until a series of three-quarter-point interest rate spikes caused banks to pull back from funding leveraged transactions. Given the slowing rate of deal activity over the first six months of 2023, it is important that private equity funds manage their existing portfolios intelligently and maximise value from their existing assets. The uncertain future of the market has led to increased competition among managers for fundraising. Most Limited Partners (LPs) are committing money to larger, better-known managers, leaving midsize generalist funds struggling to raise capital. As history demonstrates the steadying of macro-economic conditions should bring energy back to dealmaking, if the uncertainty continues, so will the reluctance to commit.

Investment away from the UK market

Contrary to the market decline in the UK, elsewhere there are promising investments taking place. With the aim to expand its presence in the Irish student housing market, Harrison Street recently partnered with Elkstone to develop more than 1,500 purpose built student beds in Ireland by 2028.

KKR are also looking to expand their European core-plus real estate strategy into the Nordics. Having already invested over €6bn since 2007, KKR have acquired a residential portfolio in Finland comprising of 1,200 residential units, two thirds of which reside within the countries three largest cities.

Positive developments are being made across the DACH region, too. In Germany, Round Hill Capital has partnered with Auxenia to expand their housing strategy within the German senior living sector. The €32m transaction was undertaken with the aim to construct a significant portfolio of senior living facilities in Germany.

Similar investments can be seen down under as Brookfield breaks into the Australian build-to-rent market with a A$400m project. With a vacancy rate of less than 1% in Brisbane, this 560-apartment asset in the inner-city suburb of Hamilton should prove a fruitful investment.

Overseas investors in the UK market

Despite the spike in interest rates in the latter half of 2022, the global real estate sector was still able to raise €246 billion of new capital, a mere €8 billion decline from the record high in 2021. Whilst central banks in the US and Europe tighten monetary conditions, Asia Pacific investors are more under-allocated to real estate, enabling them to become the primary source of capital within the sector. In 2022, Asia Pacific investors contributed 35% of total capital raised, with sovereign wealth funds and government institutions having a combined share of more than 15%.

Growth sector – taking a step into infrastructure

Arch Street Capital Advisors, a leading real estate investment and advisory firm, has recently announced its entrance into the infrastructure sector, seeking passive infrastructure investments across various sectors and geographies. These investments are aimed at supporting economic growth, promoting sustainable development, and improving quality of life for communities. Arch Street is allocating between $200-800 million on an all-cash basis for these investments, providing all operational risk is borne by the investment grade counterparty who must also lease or contract the assets for a duration of 20 or more years.

James Hill is a Consultant in Beaumont Bailey’s Investment practice, where he focuses on senior level hires across the Real Estate Private Equity market. His role consists of identifying and engaging with investment leadership for specific search mandates, market mapping and supporting clients with senior talent needs.

If you would like to get in touch with James, please send him an email on: james.hill@beaumontbailey.com