The rationale for using pooled funds versus alternative approaches, such as joint ventures, was discussed at this year’s INREV conference in Berlin.
The debate around traditional fund vehicles versus more direct means of accessing real estate has been a continual feature of property conferences since the onset of the financial crisis.
But the conversation seems to be getting more nuanced. An either-or argument has been replaced with an emerging consensus that the universe of investment structures is destined to be a more diverse one.
Charles Balch, head of real estate finance at Deutsche Pfandbriefbank, told delegates that the market looked “exactly like it did in 2005 to 2007”. During that earlier period, he said, the closed-ended fund model made a “strategic error” – raising capital but not spending in time, resulting in a loss of control on “entry price”.
He said: “It took two to three years to spend that money and by then, the market had changed.”
In a poll of conference participants, 55% said that learning the lessons of past errors was the main way to regain confidence in fund vehicles.
In a presentation on the benefits of investing in non-listed core real estate funds, Andrew Baum said spreading investments across several funds, via a multi-manager approach, was preferable for investors with €100m to €200m to allocate.
The choice between joint venture routes, club deals or blind-pool funds – such as the large vehicles launched by Blackstone in recent years – raised issues of control.
Speakers discussed how to exit joint ventures. “Joint ventures are always a trade-off,” Helaba Invest head of real estate Thomas Kallenbrunnen said on a panel regaining faith in funds. “Investors want corporate governance and more rights. And blind pools aren’t flavour of the month.”
Fellow panelist Marleen Bosma-Verhaegh, senior real estate fund manager at Blue Sky Group, said having the “flexibility to react” was key for those entering join ventures.
With capital coming from a smaller amount of investors, there were clear implications for the sector, LaSalle Investment Management global chief executive Jeff Jacobson said.
Consolidation in the fund management industry would result in more large funds emerging, said Michael Bruhn, head of real estate at Denmark’s PFA Pension.
Nick White, managing director at Morgan Stanley, agreed that the overall trend of large players would continue, with space for vehicles offering niche strategies.