The European real estate market is expected to see over €8bn assets released back into the sector as funds reach their end of life this year and the next, according to a report.
According to INREV’s Funds Termination Study 2020, 21 funds, worth €3.8bn plan to terminate in 2020, with a further 14 funds with €4.7bn in net asset value (NAV) expected to terminate in 2021. Between 2020 and 2023, 57 funds with a total NAV of €12.4bn, are expected to terminate.
The real estate association’s study, which includes 265 closed-end vehicles managed by 92 managers, revealed that 94.7% of the respondents indicated that current market circumstances are the main issue affecting fund termination decision, followed by quality of the portfolio (63.2%) and the relation between current performance and target performance.
Funds expected to terminate in 2021 are the largest in size — with an average €334.8m, in comparison with those terminating in 2020, 2022 and 2023, with a combined average of €185.7m NAV.
INREV’s five-year analysis revealed that funds with a planned termination date in 2022 recorded the highest average annual return of 9.3%, while those scheduled to terminate in 2020 and 2021 generated average annual returns of 3.9% and 8.3%, respectively.
“The performance of funds on schedule to terminate in 2020 is notably weaker when looked in the long-term context as well, and this may well be down to the sectoral mix of the underlying vehicles as retail strategies dominate the termination landscape in 2020 with close to 80% share of the single-sector funds by NAV.”
INREV said among termination options, liquidation remained as the preferred option by most, regardless of the fund style.
“Nonetheless, respondents indicated that other options like extension, rollover into a new structure and ‘other’, including an IPO, sale or merger, were increasingly considered.”
According to INREV, most of the funds due to terminate between 2020 and 2023 have the provision to extend their termination date and given the current market conditions it is likely those due for a termination in 2020 to be exercising that option.
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