After years of brutal write-downs, opportunistic real estate funds have returned a year of positive growth, recording gains of more than 24 percent in 2010.
The latest fund indices from the National Council of Real Estate Investment Fiduciaries (NCREIF) and consultant, The Townsend Group, reveals that opportunistic strategies returned 6.4 percent in the fourth quarter of 2010, helping push time-weighted returns for 2010 to 24.3 percent. Closed-ended, value-added funds returned 2.9 percent in the last three months of 2010 and a total of 10.4 percent for the year.
The 2010 returns come on the back of two quarters of steadily rebounding real estate valuations and two years of heavy losses for real estate investment managers and their LPs. Opportunistic funds reported gains of 3.7 percent and 2.7 percent in the third and second quarters of 2010, respectively, compared to a loss of 3.9 percent in the first three months of the year.
Over the previous two years, opportunistic strategies have fared poorly, returning -28.6 percent in 2009 and -36.8 percent in 2008. Closed-ended, value-added funds recorded returns of -34.2 percent in 2009 and -19.6 percent in 2008. All returns are gross of fees.
The NCREIF/Townsend index counts more than 70 GPs and 280 real estate funds globally, with almost one in nine vehicles employing an opportunistic or value-added strategy.
The real estate rebound is being greeted with a sigh of relief by many LPs, with Pennsylvania State Employees’ Retirement System acting chief investment officer Thomas Brier saying in March that it was “encouraging to see the real estate asset class beginning to rebound, providing another indication that the economy may be moving toward recovery”. The $25.5 billion public pension saw its real estate portfolio gain 2.3 percent during 2010 and 4.5 percent in the last three months of 2010.