Euro GPs will extend fund life rather than sell in depressed market

Almost two-thirds of real estate fund managers are contemplating extending the life of their vehicles in a bid to prevent selling into a depressed market, a report by the European Association for Investors in Non-Listed Real Estate (INREV) has revealed.

In their annual study of fund terminations, INREV said 59 percent of managers who ran funds set to terminate over the next two years were opting to continue the life of their vehicles in some form. Of those questioned, 78 percent said they were planning to extend the life of their real estate fund, with 22 percent, particularly core funds, planning to roll the fund over into a new structure.

The report, released at the ExpoReal conference in Munich today, showed that real estate opportunity fund managers – who typically liquidate assets as originally planned – were also planning to extend the life of their funds, with 43 percent expected to use their right to extend a fund's life, usually involving one or two-year extensions.

“The results show that fund managers are considering the range of termination options to work towards the best exit for their funds,” said Andrea Carpenter, INREV research director. The report questioned 25 fund managers.

Carpenter said funds in the UK were being particularly hit by the credit crunch. She told PERE at the conference: “It's a question of timing.”

The report went on to state that refinancing was one of the key decisions for extending the life of a fund, with Carpenter adding that some European funds may be forced to liquidate instead of continuing.

However as real estate prices start to decline amid the credit market dislocation, 70 percent of GPs with funds expected to liquidate in 2009 told INREV they had not yet made a decision on the life of their vehicle – compared with 50 percent in 2007.

Last October, INREV found that 90 closed-ended funds, including core, core-plus, value-added and opportunistic, were set to expire in the next three years.