As our research this year shows, private equity real estate investment continues to fuel real estate markets around the globe.
Practitioners report that there are “a lot of private equity and investor funds with money floating in the real estate market” looking for opportunities to invest, which is perhaps unsurprising given the record $695 billion in capital under management to be deployed. Sources now relate that private equity’s activity in the market has grown to the point that “funds and private equity, rather than banks” are the predominant market players.
A sign of private equity’s intent regarding real estate investment comes in Blackstone’s recent commitment of $20.5 billion into the largest ever commercial real estate fund. As such, real estate lawyers the world over have been kept busy with real estate transactions and development projects.
In Europe and the US, private equity activity has reportedly generated “unprecedented transaction volume over the past 18 months”, with both commercial and private real estate seeing investment. However, this activity comes with some warnings from market commentators. In the US, sources caution that there is “a lot of investment that is not being adequately supervised”, adding: “For example, there are building projects that are not being adequately managed.” This is manifesting in significant delays and disputes in the space.
Those in traditional western commercial centres also report that there is “more money for investment than AAA investment opportunities”, prompting an exodus of capital that is looking abroad for “greater investment opportunity”.
In Europe, “there are some troubling signs” in the real estate space. One such sign is the reported “ease with which you can borrow money”. It would appear that greater confidence in the real estate market and historically low interest rates has created a situation where “credit quality has now deteriorated, and more and more risk is being taken with potentially serious consequences if lending goes unchecked”.
As one practitioner relates, “We are not at 2008 levels yet, but there are early signs of trouble ahead, including an increasing number of foreclosures.”
Legal professionals also drew our attention to the influx of real estate lawyers into the space, recruited in order to take advantage of the hot market. This has, however, led to complaints of “rookies in the marketplace” who are not best placed to advise clients on complex matters.
In conclusion, while it is the case that private equity continues to drive the real estate market, investors and legal practitioners should be wary of the music ending, and of lawyers who are jumping on the bandwagon without the necessary real estate expertise.