Investors Look to Local Real Estate Expertise

In what is being couched as a sign of the maturation of emerging real estate markets, data show that a growing share of investor capital is finding its way into the hands of local real estate fund managers.

The bulk of the capital raised for private real estate investments in emerging markets in 2011 was attracted by fund managers based outside of North America and Europe, according to newly released data from Preqin, an alternative assets research firm. Fifty-nine percent of the capital raised for emerging market private real estate investments was committed to local fund managers, up from 18 percent in 2005.

The trend reflects the growth of the industry in non-traditional areas, according to Andrew Moylan, Preqin's manager of real estate data.

"The shift towards investors committing to local emerging market fund managers highlights the increasing sophistication of the real estate industry in many emerging market regions," Moylan said. He noted that rapidly growing regions such as Asia have witnessed both an increase in the number of local fund managers launching funds and an increase in the number of domestic and international investors turning to those firms for their local expertise.

The percentage of funds invested with managers in emerging markets in 2011 actually decreased from 2010's level of 77 percent, Moylan, however, said he still expects the overall trend to continue.

"The short-term outlook suggests a challenging fundraising environment for emerging markets, with many investors not actively looking for new investments or focusing on markets closer to home," he said. "In the medium to long term, however, it seems likely that emerging markets-focused offering will become more important to the private real estate market as a whole."

An aggregate total of $7.5 billion was raised in 2011 for private real estate funds targeting emerging markets. That number represents a 14 percent increase from 2010, when $6.6 billion was raised, according to Preqin's data. The majority of the 2011 capital, $4.1 billion, was raised by Asia-focused funds, while funds targeting Latin America raised $3 billion and $400 million was raised for Central and Eastern Europe. Research showed that 33 percent of investors preferred Asia above all other emerging markets, making it the most favored region.