Market conditions underscore challenging year ahead for non-listed real estate funds (EUR)

INREV - European Association of Investors in Non-listed Real Estate Vehicles (NL)Company

Market conditions underscore challenging year ahead for non-listed real estate funds (EUR)
Friday 30 January 2009 Challenging market conditions are set to be a major obstacle for investors looking to allocate to non-listed real estate funds this year, according to INREV Investment Intentions Survey 2009.
The results of the fifth Investment Intentions survey, which gauges trends for the non-listed property funds industry for 2009, show that 53% of investors and 85% fund of funds managers cited market conditions as the main obstacle to investing in non-listed real estate funds. This option was also chosen by 37% of fund managers. Market conditions are also reflected in changes to investors’ allocation intentions to non-listed property funds and their risk appetite as well as respondents’ views on the outlook for the market. Few respondents saw any prospects for an upturn in European real estate in 2009 with fund managers (54%) and fund of funds managers (54%) mainly looking to 2010 as the year most likely to show the first signs of a recovery. Investors are more pessimistic with the majority (60%) thinking that market sentiment will only start to improve in 2011. Intentions by investors to increase allocations to non-listed real estate over the next two years have fallen to 63% compared to 82% last year. However, this is in a context of investors’ reducing allocation expectations across all the real estate investments sectors except direct real estate. This more conservative view may be reflective of investors’ concerns about the denominator effect across a multi-asset portfolio. There has also been a marked shift since the 2008 survey with investors reducing their risk appetite with 37% now favouring core as a preferred investment style compared to 5% in 2008. This has been at the expense of value added funds (26% down from 59% in 2008), although the preference for opportunity funds has remained static at 37%, indicating that many investors are still looking to higher risk/return opportunities despite the market volatility. “There is little surprise that the challenging market conditions continue to be a major concern for our members heading into 2009. Issues outlined by members that they are still addressing include concerns over debt and refinancing, lack of liquidity in the markets and the consequent valuation issues stemming from that, “ said Andrea Carpenter, Acting CEO, INREV. The results of the survey also highlighted some important key issues for the non-listed property markets for 2009. In investors’ eyes, the lack of alignment of interest has overtaken transparency and the availability of market information as a major obstacle for investors. Half of investors cited this issue reflecting how alignment structures have been tested as the market has headed into a downturn. Alignment of interest is also perceived as a key issue for investors by fund managers (46%) and fund of funds managers (38%), but in their view transparency and the availability of market information is still the main obstacle. In a continuing trend from the 2008 survey, corporate governance and the adoption of the INREV Guidelines continue to rise up the agenda of survey respondents. When selecting the most important criteria for fund selection, almost 40% of fund of funds managers noted corporate governance while 10% of investors (up from 3% in 2008) cite the adoption of the INREV Guidelines as an important criteria. In terms of the relative change in importance of this last category, the results showed that 73% of investors, 82% of fund of funds managers and 83% of fund managers now see the adoption of the INREV Guidelines as more important than last year. “While the industry is managing the immediate consequences of the market conditions, it is also important to address long-term improvements to transparency in the market such as improving alignment of interest structures and supporting implementation of the INREV Guidelines,” said Georg Allendorf, Managing Director of RREEF, and a member of the INREV Management Board. The UK was the preferred location of all respondents, overtaking France and Germany as top choices for investors’ and fund managers/fund of funds manager respectively in 2008. This is the result of the UK being the first European property market to react to the global financial and economic crisis and therefore likely to be the first to bottom out. The UK was also prominent in the combined sector/location choices of respondents with UK office and retail dominating the results. Fund managers mirrored these choices with the addition of German residential. “Market conditions are clearly stamped on this year’s results but perspective is vital as there are positive aspects for the industry. Allocations show that investors remain committed long-term to non-listed real estate and the preferences for the UK and the opportunity style investments show that investors and fund manager view the market as holding opportunities,” said Carpenter. Source: Madano Partnership

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