Global property services firm CBRE has forecast mass sales from Asian real estate funds over the next two years with approximately 50 funds comprising about $40 billion of assets reaching their termination periods.
In its white paper entitled Great Wave of Fund Expiration, the firm said that 84 Asia Pacific funds were slated to terminate between 2013 and 2016, with a concentration of them terminating in 2015 and 2016. The remaining funds that are set to expire beyond 2016 should offer up a further $15 billion of assets, the firm said.
CBRE said the majority of these funds were raised pre-global financial crisis and with opportunistic investing strategies, 91 percent via closed-ended funds. They largely were raised for investments in Australia, Japan and China, although capital was raised for other Asian markets as well. With a typical life span of eight years many of these funds are now reaching maturity and will require liquidating.
However, CBRE noted that it’s likely there is not enough capital currently live for investing in Asia’s markets to meet the wave of assets that would need to be sold off.
In fact, CBRE said that given historical disposition levels and current investment appetite the market would only be able to absorb about 75 percent of the assets that would need offloading in 2015 and 2016. That would leave a liquidity shortfall of about $10 billion, the firm said. Nonetheless, it said such a shortfall would be unlikely to negatively impact the region’s marketplace.
Nick Crockett, executive director at CBRE’s capital advisors division in Asia, said: “The combined effects of a wave of fund dispositions and a market with a limited capacity to absorb them, has critical implications to fund managers over how they should position their funds and the options they should consider beyond termination. These assets could therefore face difficulties in finding buyers or being disposed of at desirable terms.”
As such, Crockett said investors residing in these funds need to consider their options when addressing their expirations. “We recommend that investors consider options such as extension, as well as secondary trading, exit via IPO and restructuring, all of which can be used to prolong a fund's life beyond its agreed exit date,” he said.
Alive to an increase in such scenarios, certain private equity real estate firms have already identified fund expiries in general as part of the investment thesis for their freshly raised capital, among them Blackstone and Kohlberg Kravis Roberts. Indeed, PERE already has reported on the former looking at expiries in Asia, and the latter doing similarly in Europe.
Accordingly, there have also already been instances whereby one fund manager has acquired assets opportunistically from the manager of another fund reaching its maturity. In one such recent example, Partners Group purchased properties from a fund managed by Niam, the Nordics-focused firm.