Private real estate funds in Europe are reducing in number, according to the European Association for Investors in Non-listed Real estate Vehicles (INREV).
The sector association reported the highest yearly liquidation of funds in a decade, accounting for 72 percent of a 48-strong sample. That was comfortably the preferred method of fund termination, INREV said, with 28 percent of respondents choosing instead to roll over or extend their funds beyond their original life expectation.
INREV predicted most of the resultant capital would return to the private real estate market, but a smaller proportion than before would be recommitted to funds. Henri Vuong, INREV’s director of research and market information told PERE the capital would, however, most likely find its way back into private real estate investments via other vehicles.
She said: “Having the numbers to capture that trend is a little bit difficult because it’s a very private market. But we know from conversations with our members that there’s a lot happening in the separate account and JV space.”
This prediction chimed with a prior INREV survey released in January which found that two-thirds of respondents intended to increase their engagement with separate accounts and joint ventures.
According to Vuong, there was a correlation between the performances of funds raised immediately before the global financial crisis and the high levels of liquidation requests seen today: “If we go back 10 years there was a big peak in fund launches with fund launches going back to 2005 to 2007. Now we’re seeing a peak in terminations last year, this year and also next year.”
“At that time, it was a really exciting time for the market and the funds were targeting larger sizes, partly boosted by high prices in the period. Now, 10 years on, the managers are choosing to terminate.” Accordingly, funds in these vintages that are performing well are seeing higher demands for extensions or rollovers. INREV revealed in its study how extending funds had delivered an average return of 8 percent versus -6 percent returned by liquidating funds.
Overall, INREV predicted as much as €11 billion of net asset value (NAV) would return to the market over the next two years as a result of funds being terminated, with more than half coming next year.