Core segment to remain crowded, INREV panel says

Investors in non-listed real estate funds in Europe are likely to remain focused on the core segment of the market at the expense of value-add and opportunistic styles for many years to come. This was one of the key messages during a panel discussion at a seminar held by the European Association of Non-Listed Real Estate Vehicles (INREV) in Amsterdam on Monday.

INREV’s Investment Intensions Survey 2010, which was presented during the event, indicates 70% of investors in non-listed property funds now favour core-style funds. This is 32 percentage points higher than in the 2009 survey and 65 percentage points higher than in 2008, INREV Research director Lonneke Löwik said.

The focus of most investors is indeed on core property, confirmed Guido Verhoef, head of private real estate at PGGM Investments. ‘One of the explanations is that many investors came into the market, especially the non-listed market when it was still a very young industry, in the last three to four years. They selected value-add and opportunistic funds and burnt their fingers. Being a core investor is still a very good strategy. It used to be okay and I think it will be okay for decades.’

Verhoef said that while 2009 was a disappointing year PGGM had been ‘very well rewarded’ for its traditional real estate strategy of core investment with low leverage.

Jan Meulenbelt, global head of ING’s Real Estate Select fund-of funds, agreed that many investors only want core investment with low leverage and a high level of direct return. ‘But we also see that all investors seem to be targeting the core market so there is hardly any core for sale,’ he warned.

Raymond Satumalay, managing director of ASR Vastgoed Vermogenbeheer, said investors should remember the key reason for getting into real estate in the first place. ‘I think it is mainly for direct returns. The additional capital value growth (more associated with value-add and opportunistic) is nice to have but at the end of the day that is not the major reason you are in real estate.’

The balance of risk-return is critical, Alasdair Evans, chief operating officer of Hermes Real Estate Asset Management, agreed. ‘When we can pick up core assets at opportunistic prices and achieve opportunistic returns, why wouldn’t you do that?’ Evans asked.

‘Should we move up the risk curve and take on leasing and development risk right now? Probably not with the shocks various economies in Europe and elsewhere are likely to face. People are probably not ready to move back up the risk curve yet. Hence we are all buying good solid core real estate and are very happy with those returns,’ he added.