Asia-Pacific real estate funds are set for a peak in expiries next year, according to a report by CBRE.
Its Great Wave of Fund Expiration report estimates that, based on the typical fund life of eight years, around 84 Asia-Pacific funds will terminate between 2013 and 2016.
Disposition activity is expected to peak between next year and 2016, when around 50 funds with a gross asset value (GAV) of around $40bn will expire.
According to CBRE’s research, the shortfall between the potential liquidity of funds ending their lifespan and the market’s ability to absorb their assets will be around $10bn in the coming two years. However, the wave of potential disposals by funds will not exert a significant shock to the regional real estate market.
Ada Choi, senior director of CBRE Research, said only a “handful” of fund managers have fully divested their positions well ahead of the fund life, recording “significant returns during the investment period”.
The disposal process, Choi said, typically starts two to three years prior to termination date, and has been underway in Asia Pacific since 2010. Around 91% are closed-end funds with a fixed-life span.
CBRE said fund activities from 2005-08 created a “high water mark for capital raising and investment”, with around $91bn of capital raised by private real estate funds in the region during the period, almost triple the $32bn raised in the following four years (2009-2012).
The capital raised in 2005-08, CBRE said, created a large pool of liquidity in the Asia Pacific direct investment market, as well as record investments. Private equity funds purchased $32bn of assets in 2007 alone.
Funds were, the report found, primarily focused in the opportunistic risk segment, with a strong preference for assets in the major Asia-Pacific markets of Australia, Japan and China.
Given historical disposition levels and current investment appetite, CBRE forecasts that the market will only be able to absorb around 75% of the liquidity created by closed-ended funds’ disposals in 2015 and 2016.
Around of 65% of assets available for disposal by real estate funds entering termination are in China, Japan and Australia. CBRE says funds will have to contend with a slower sales market and strong competition from property companies disposing of assets in China, as well as an acceptance that disposals in Japan may have to be made at prices below cost.
In Australia, opportunistic funds will, the firm said, have to deal with a “mismatch between the quality of assets and the current strong investment appetite for high-quality core product”.