How to Find Capital: Assessing Fund Flows

Assessing commercial real estate (CRE) fund flows is an important aspect of understanding where investment opportunities may lie, whether one is a large investment manager or someone new to the industry. Sourcing capital (finding capital) is a key element of optimizing the real estate investment process given that it is the lifeblood of the business.

Green Street’s regular FlowTracker report is a terrific tool in understanding important trends affected by (and affecting) fund flows. It is important to look at both direct fund flows (private market) and listed market fund flows (REITs). The direct CRE market is far larger than the REIT market and is thus more important. In addition to studying trends in equity capital flows, it is also important to consider debt fund flows.

In summary, fund flows into CRE have been weak for much of ’25 and mixed signals don’t bode well for ’26, which is true for private and public equity fund raising. The debt picture is far more encouraging and should be a foundation for better equity fund flows at some point in the future.

In the private market, closed-end vehicle fundraising is below recent averages, but appears to have found a bottom and is on-pace to exceed ‘24. Similarly, net flows to open-end funds are slightly less negative, but the trend is not encouraging. Fund flows to non-traded REITs, which are vehicles that are not listed on any exchange for trading, is negative, but seems to be bottoming or starting to recover, albeit slowly.  The takeaway is that so-called “dry powder” for the CRE industry – a difficult-to-estimate figure that represents aggregate capital that can be invested into real estate – is running low as transaction volumes are healthy but fundraising activity remains weak.

On the debt side, conditions are more favorable. Access to debt capital is robust, markets are wide open, and spreads remain tight while base rates have recently declined with Federal Reserve rate cuts. In terms of debt capital sources, balance sheet lenders (such as banks, or insurers) have taken some share back from the CMBS market (securitized debt instruments) after some periods of weakness. In addition, lower “real” (after inflation) rates are a fundraising positive for all types of CRE fundraising.

On the listed side, REIT returns have been lackluster vs. broader equities and fund flows have been anemic. The same is true for private CRE returns vs. equities. As a result, many institutional investors may be below their target CRE allocations as the value of other types of assets has outperformed CRE. REITs have the flexibility of being able to issue new equity at any time, but new issuance for the industry has been weak, especially in traditional sectors, where valuations are not conducive to growth. Active REIT funds have trailed benchmarks/passive ETFs year to date and over a 3-year basis. Both active and passive REIT funds have experienced net outflows.

In addition, listed market valuations can be a source of insight into future trends in property values. As of October 1^st, REITs trade at a modest discount to the prevailing value of the real estate held by REITs, particularly in traditional sectors. For example, high-quality apartment REITs trade at a nearly 15% Gross Asset Value discount, or 85 cents on the real estate dollar, or ~80 cents on the dollar after considering debt. These types of signals bode poorly for private-market values looking ahead and may discourage any acceleration in capital formation. By contrast, valuations for some sectors in CRE are more promising: health care (especially senior housing) and net lease (triple-net leased freestanding properties across sectors and geographies but typically covering various forms of retail/service properties) trade at valuation premiums and can grow through acquisitions and issuing equity to fund growth and keep balance sheets healthy.