November 12, 2009

Private Equity showing signs of the changing CRE market

Two recent stories highlight the changing dynamics within CRE. The WSJ reported (subscription required) that Lone Star Funds is looking to raise $20 billion and that they were going to be cutting fees by up to 50%. Seperately, National Real Estate Investor's lead article in the current issue reports that PE may have up to $173 billion in purchasing power.

We continue to hear in the marketplace that there is signifcant capital yet to be deployed. The obvious play everyone talks about is distressed, but we hear medical and healthcare just as often. However, with debt still hard to find, it is no surprise that deal volume remains slow. Something has to happen soon though with the amount of dry powder PE firms are building (not to mention REITs, but that's a different post).

The fee cutting also is indicative of the changing market dynamics. Where PE funds perviously made money on management fees in the past, it appears funds will need to be a bit more patient to realize a nice return until exit events.


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