A new study from the European Association for investors in Non-Listed Real Estate Vehicles (INREV) has found that for the first time in four years, extension has overtaken liquidation as the preferred strategy when it comes to fund termination decisions.
The Funds Termination Study 2017 found a connection between termination status and performance – between 2012 and 2016, extending funds generated 5.3% per annum while liquidating funds delivered returns of -3.1% on average per year.
When asked about the factors affecting termination decisions, more than a third (35.3%) of respondents stated that current market circumstances were the most important driver.
'2017 is the year of extensions, which comes as no surprise as real estate funds in extension have enjoyed far healthier returns than those that have been liquidating over the past five years,' commented Henri Vuong, INREV’s director of research and market information.
'This trend underlines investors’ continued appetite for the sector and confidence in the diversification benefits of real estate.'
According to INREV, a total of 47 European non-listed real estate funds are scheduled to terminate between now and 2019, returning a potential €8.5 bn to the market.
Twenty-seven funds are due to terminate in 2017 alone, representing €5.6 bn of total net asset value (NAV). In 2018, 13 funds totaling €1.6 bn of NAV are scheduled to terminate and a further seven funds, amounting to €1.3 bn, will terminate in 2019.
Fund terminations scheduled for 2017 are almost evenly split between multi country and single country vehicles (59.3% vs 40.7%). Of these, almost half (45.5%) have a UK-focused strategy and account for 80.6% of the overall NAV.
Retail funds make up the largest share of sector-specific vehicles terminating over the coming two years – a potential reflection of investor sentiment as shifting consumer shopping habits continue to drive structural changes in the sector.
Retail funds make up 40% of the single sector funds terminating in 2017, and this trend is likely to continue into 2018 – where retail vehicles will make up 60% of single sector fund terminations.
