“Lots of real estate fund managers see potential once-in-a-lifetime investment opportunities coming,” Clerestory principal and co-founder Tommy Brown commented.

However, Clerestory observes that capital-raising has slowed considerably in recent months: “Anecdotal evidence suggests it’s only some well-established managers who have raised their target equity amounts quickly from existing investors. Many managers appear to have struggled to close a third or half of their anticipated equity raises, and some may become distressed targets themselves – especially if they are facing issues such as eroding loan-to-value ratios or debt coming due.”

Clerestory’s update on the real estate opportunity funds universe, carried out in August and September, identified 140 small-cap (SC) opportunistic funds seeking to raise approximately $65 billion in capital. A total of 47 large-cap (LC) funds seeking to raise $90 billion in capital were identified.

Clerestory defines SC-Opportunistic™ funds as those raising less than $1 billion of equity and LC-Opportunistic™ as those raising more than $1 billion.

Some 47 small-cap and 20 large-cap opportunistic funds representing $64 billion in equity had their final close during the past six months. The small-cap funds in the market tend to be first-time or second-time vehicles, which are more regionally focused. Clerestory has observed over the past year that large cap funds are also becoming more regional.

Clerestory also observed a proliferation of Asian fund managers aiming to capture perceived investor demand for real estate across the continent: 67 funds seeking to raise approximately $46 billion of equity. Among funds focused on Asia, 26 are India-specific and looking to raise approximately $111 billion of equity, while 10 are China-specific and are aiming for $6 billion.

In Latin America, an additional five funds have come to market, primarily focused on Brazil and Mexico. In aggregate, they are seeking to raise $3.6 billion in capital.

Clerestory principal and co-founder Joanne Douvas noted: “Our research indicates that institutional investors are not generally focused on new fund commitments for the remainder of this year. Instead they are evaluating their existing portfolios in anticipation of investing new capital on a limited basis in 2009, after market volatility subsides.

“Those institutions encumbered with a ‘denominator’ problem – where there is an unintended increase in the investment allocation to real estate, in a portfolio created by the relatively further fall in values of assets such as equities and bonds – could find themselves sidelined,” Douvas concluded. “Their inability to increase real estate investments next year may mean they are missing a colossal buying opportunity created by widespread market distress.”