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News analysis: Too much ‘boxed up’ money

There is too much confined equity waiting on Europe’s investment market sidelines, according to the head of cross-border capital markets at property services firm Cushman & Wakefield.

The amount of “boxed up” equity in the European real estate investment market is stifling deal volumes, according to a senior executive at property services firm Cushman Wakefield.

In an interview with PERE, Michael Rhydderch, partner and head of the firm’s capital markets cross border team, said GPs had become increasingly unwilling to spend the equity they have raised, particularly for opportunity funds, because the returns available in the market don’t match the conditions agreed with their LPs for raising the money.

Rhydderch said: “If the best risk adjusted deals are in the core or core plus end of the market where you can quite easily underwrite a 12 percent or 14 percent return on very conservative assumptions, isn’t that where the money should be going?”

“The issue we have today is that money is boxed up in parcels, it is pre-packaged and quite a lot is given to people who are told to go out and achieve 20 percent returns.” He said, as a result, many GPs are unable to spend the equity because they are faced with taking a “major bet” or have to seek “broken situation” opportunities, such as distressed assets where the lender has reneged on its loan, which he regarded as currently few and far between in EMEA.

Rhydderch added: “Managers need to be given flexibility in terms of the contact they have with their LPs. They need the ability to go back to them and tell them there are few good 20 percent (return) assets out there at the moment but there are cracking 14 percent (return) deals to be had.”

According to research by Cushman & Wakefield’s rival Richard Ellis, there was €11.5 billion invested in real estate across Europe in the first quarter of 2009, down from €20.6 billion recorded in the fourth quarter of 2008.