Monday, September 26, 2011

Raising Real Estate Funds in Today’s Environment

9/7/2011 | By Carisa Chappell

Successful real estate fundraising is still possible in today’s environment, according to Deloitte & Touche LLP’s Bob O’Brien, vice chairman and U.S. real estate services leader for the firm.

“After a couple of relatively quiet years, fundraising has returned in earnest to the real estate industry,” he said.

During a Sept. 2 webcast, O’Brien discussed keys to success in real estate fundraising. He said they include attracting capital, fund and investment structuring, sourcing and qualifying investment opportunities, operational excellence and investor reporting, and exit strategies.

Lynn Kawaminami, partner at Deloitte Tax LLP, said that as of January 2011, 52 percent of real estate fund investors come from North America, while 35 percent are from Europe. The remaining 13 percent hail from Asia and the rest of the world.

“We’ve seen a fair amount of capital from Canada being invested in the United States over past couple of years,” O’Brien said. “In prior years, we’ve seen countries like Germany and Australia lead the way. So there clearly is a large amount of capital from Canada being targeted to the U.S.”

In terms of sourcing and qualifying investment opportunities, Jeff Daily, partner at Deloitte & Touche LLP, said executing transactions in today’s market requires more research. Assessing the quality of earnings and assets, identifying liabilities, and understand working capital and cash-flow trends are among the due diligence items required, according to Daily.

“Make sure you demonstrate an understanding of the important issues and conduct due diligence effectively,” he said.

Daily added that the complexity of real estate transactions, particularly in dealing with large portfolios, requires investors to navigate different motivations between buyers and sellers, as well as consider the distinct feature of assets.

“As we have seen in the past year, deal activity in the real estate space has largely been driven by distressed investors and a consolidation of public and private companies, including REITs,” he said.

When it comes to exit strategies, Joseph Wisniewski said it’s never too early to consider the exit strategy from a fund.

“At the start of a fund, the exit from the fund should also be considered,” he said.

This means determining whether the fund will be open or closed ended, as well as considering liquidation timing and implications, Wisniewski said. He added that initial public offering (IPO) readiness should be considered early in the process, which includes considering the requirements for qualifying as a REIT.