EUROPE - Non-listed real estate funds are increasingly extending the life of their vehicles rather than liquidating them in a bid to avoid the forced sale of their assets at current low market prices, the European Association for Investors in Non-listed Real Estate Vehicles (INREV) has found.

INREV's Fund Termination Study 2008 showed of the 25 fund managers it surveyed only 29% of funds due to terminate between 2008 and 2010 are planning to liquidate, compared with 52% of funds in a similar study last year. 

Approximately 59% of the funds - regardless of their maturity date - have decided to continue the life of their fund, and 78% of these are planning to extend the fund while the other 22% intend to modify the vehicle into a new structure.

The report also revealed 70% of fund managers have not yet reached a firm decision on their exit strategies and terminations, said Andrea Carpenter, INREV's research director, who revealed the findings at the EXPO Real property trade fair in Munich this week.

"Currently the flexibility of a one-to-two year extension is attractive from the timing standpoints as it delays the need to decide whether to sell assets into a market where capital values are failing. This is particularly the case of funds in the UK - where the credit crunch has hit hardest so far, and where nearly half the funds surveyed are investing," said Carpenter.

Opportunistic funds seem to be more influenced by the market conditions than rental income-orientated funds, the study suggests. Approximately 43% of the opportunistic funds surveyed plan to continue their vehicles - a move considered rare as they usually liquidate their vehicles as planned and does suggest the funds are trying to avoid the current market prices.

Core funds are showing a similar pattern, as 58% plan to extend or roll-over while only 25% are preparing to liquidate.

This compares with earlier trends as the termination decisions of core funds remained steady between 2006 and 2008, said Lisette Van Doorn, INREV's chief executive.

" Both fund managers and institutional investors view core funds and long-term strategic investors and are therefore more likely to agree to a long extension, or a roll-over, rather than selling their share in one fund and reinvesting the money in another."

Carpenter also warned funds now choosing to continue with their vehicles are likely to face problems with the availability of financing.

"As the price of financing has increased and the availability decreased, some funds may be forced to liquidate instead of continuing," she added.

INREV's Fund Termination Study 2008 surveyed 25 fund managers through a questionnaire and interviews. The funds were made up of 45 European non-listed real estate funds registered in INREV's Vehicles Database which were due to terminate between 2008 and 2010. The gross net value of these was €30bn.