- Venture capital fundraising hit its lowest level in six years during 2019.
- Only 52 funds closed in Q4 2019, a nine-year low.
According to a special report by The Wall Street Journal, venture capitalists are becoming “more discerning” regarding profits on real estate investments due to cooling property value growth.
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During Q4 2018, real estate venture capital fundraising came in at $35B…that figure diminished to $18B in Q4 2019, a decline of -$17B. This $18B in Q4 2019 is the smallest amount of real estate venture capital funding in nine years.
Michael Stark, the co-head of PJT Park Hill Real Estate Group, told The Wall Street Journal. “The market is not providing as many clear opportunities to hit those high return objectives like it once did.”
On the whole, most real estate venture capital firms kept their wallets closed in 2019. except for
- The Blackstone Group that closed a $20.5B fund for commercial and industrial properties that include office buildings warehouses and stores
- Brookfield Asset Management closed a $15B commercial property fund.
On the other hand, many real estate venture capital funds are continuing to find success in the residential rental market. Rent growth increased +5% in the hottest markets during the last part of 2019. Two such firms seeking success in this residential rental market include…
- Bridge Investment Group in Salt Lake City closed a $1.6B fund in 2019 to focus on US development exclusively
- Greystar Real Estate Partners in Charleston closed a $2B fund in 2019. This firm is expanding its involvement in France, Germany, Ireland, the Netherlands, Spain, the UK and Mexico.
Such investments are one thing; overall attitudes and feelings about real estate investments are another. Wealth Front CEO Andy Rachleff recently wrote in a blog post, “Generating a compelling return on an investment property requires significant appreciation. Investing in a risky asset class like real estate requires diversification to generate a higher long-term return because you never know when a particular real estate strategy or type of property will fall out of favor.”
Will such cautiousness fueled by lack of liquidity, lack of guaranteed income, lack of diversity and low returns prevail in real estate investing in 2020? Time will tell.
Thanks to InmanNews’ Marian McPherson and The Wall Street Journal for source data.