According to a report from the Amsterdam-based European Association for Investors in Non-listed Real Estate Vehicles (INREV), valued-added funds are currently better at placing capital than core or opportunity vehicles.
“The value-added funds are intruding more into the core fund area with the use of leverage,” said the group’s spokesman, Steve Hays of Bellier Financial Marketing in Amsterdam. “Opportunity funds have to be more innovative to reach their returns of 18.5 percent.”
The study compared the funds’ un-invested capital ratio, which indicates how much capital a fund would have to put to work to reach its pre-defined target for gross assets under management.
Using this methodology, value-added funds have an un-invested capital ratio of 42 percent in 2007, down from 53 percent in 2005.
Opportunity funds had a ratio of 63 percent in 2007, up from 51 percent two years ago. However, INREV points out that because these vehicles start with a blind pool of capital, as opposed to the existing portfolios that many core and value-added funds begin with, an opportunity vehicle might be doing a good job getting 40 percent of its capital deployed.
The organization also said opportunistic vehicles are increasing looking to invest in operating companies with real estate assets to hit their target returns, as opposed to pure property plays.
For core funds, the ratio jumped to 45 percent in 2007 versus the 43 percent seen in 2005. The survey looked at 128 funds that launched in the past five years with €49.2 billion ($37.8 billion) in gross asset value, compared with 84 funds with €28.5 billion in gross asset value in 2005.
The study also found it was easier to for country-specific funds in the UK and France to put capital to work, as opposed to pan-European vehicles. The Eastern European countries and industrial sector also saw higher un-invested capital ratios, which INREV chalked up to illiquidity in Eastern Europe and a less mature sector in the case of industrial funds.