INREV: €65bn in equity available annually until 2014

The latest survey by INREV reveals that available capital for non-listed real estate funds in Europe is waning. Despite a gloomy big picture, largely dominated by evaporating debt sources, equity availability should grow.

There will be at least an estimated €65 billion of available unleveraged equity for real estate investments in Europe annually until the end of 2014.

That was a key finding from the latest research by INREV, the European Association for Investors in Non-listed Real Estate Vehicles, published today.
In its third INREV Capital Sources Survey, the 359-member association of non-listed fund managers and investors found that equity allocations to non-listed real estate funds should grow, 75 percent of those surveyed said. The growth stems from a combination of uninvested equity already allocated to non-listed real estate, allocated but unplaced institutional capital and “changes in investor behaviour”, INREV explained.
INREV said the geographical source of much of this capital is the UK, Germany, the Netherlands and France. However, the association also pointed out that much of this capital also is focussed on domestic investing and, relevant to private equity real estate firms, less focused on value-added or opportunistic investing.
Nonetheless, Lonneke Lowik, director of research and market information at INREV, said: “…even if fundraising remains competitive, new capital is coming to the sector. That in itself should be seen as a positive.”
While equity sources were showing indications of increasing, INREV highlighted a tougher time for non-listed funds when it came to raising financing for investments and summarised that, in all, available capital was reducing as a result of the financial crisis. A large reason for that was that debt markets for real estate investments had “taken a battering” and, as a result, there had become a funding gap “as lenders seek to de-leverage and restore their loan books to 2004's pre-boom levels.”
There have been a number of large loan dispositions in Europe in recent months, often to the benefit of private equity real estate firms still with available equity. This week alone, UK bank Lloyds Banking Group selected Lone Star as preferred bidder for a £900m (€1.06 billion; $1.4 billion) UK loan book secured against UK commercial property, and last month Spanish bank Santander selected Morgan Stanley Real Estate Investing as its preferred bidder for a book once valued at €3 billion.
Such de-leveraging, INREV found, has led to stricter loan criteria and higher-cost margins instigated for fresh loans. The association also pointed to “impending” incoming regulation from Basel III, the global regulatory standard on bank capital adequacy and liquidity, as responsible for the consolidation and constriction of the lending market.
The survey  also revealed that approximately 10 percent of fund managers have failed to secure refinancing on at least one asset due to the withdrawal of bank lenders from the market.

Brenna O’Roarty of RHL Strategic Solutions, which was commissioned to conduct the survey, said: “Like investors, lenders have lost their appetite for risk. In rationalising their loan books, they are focusing not merely on reducing the size of their real estate exposure, but on increasing the quality of it by focussing on high-quality underlying assets in prime capital cities and core markets.”