Capital, capital everywhere, but no place to invest.
That’s the quandary facing managers of high-yield real estate funds.
By any measure, their industry is booming, with both the number of vehicles and the amount of equity commitments at record levels. But finding suitable investments for all that capital is becoming harder and harder, because the long-running bull market has driven valuations sky-high. As a result, fund managers are lowering their return goals and sitting on an unprecedented hoard of uninvested capital.
Those are key findings of Real Estate Alert’s 22nd annual review of closed-end commingled funds that seek yields of at least 10% by investing in commercial real estate. The review identified a record 488 active vehicles, up 5% from 466 a year ago.
Those funds are managed by a record 392 operators, up from the previous high of 374 last year. They have set an aggregate $339.9 billion equity goal and have already raised $261.3 billion of that amount (or slightly more than three-quarters) — also new highs.
But a whopping 72% of those commitments, or $186.9 billion, is still uninvested. That tally is up 14% from a revised $164.5 billion of dry powder last year and nearly double the $97.9 billion level in 2015.
The reason why is no mystery: Fund managers see fewer opportunities that fit their return goals. “I’ve heard people say there are too many dollars chasing too few deals every year for virtually my whole career and certainly since the market picked up,” said Alan Pardee, co-founder of New York placement agent Mercury Capital. “But we’re at a crescendo now, to be sure.”
Indeed, many pros think that valuations are at or even past the peak in many markets. That sentiment is evidenced by the fact that large property sales across asset classes fell by 10% last year, albeit still logging the third-highest level ever, according to Real Estate Alert’s Deal Database, which tracks sales of $25 million and up.

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