A large minority of investors in European non-listed real estate funds have had an asset repossessed from the fund since the second half of 2008 due to a loan default, according to a debt study published by sector organisation Inrev.

A large minority of investors in European non-listed real estate funds have had an asset repossessed from the fund since the second half of 2008 due to a loan default, according to a debt study published by sector organisation Inrev.

A survey of investors and fund of funds carried out for a three-part debt study, indicates that 28% of fund investors and 24% of fund of funds have invested in a fund that defaulted on a loan, resulting in repossession of a property. The debt study consists of a survey of investors, fund of funds, fund managers and interviews with six property lenders.

By vintage, funds launched in 2006 and 2007 when capital inflows were at their highest are viewed as having the greatest potential debt problems.

More than half of investors in European non-listed real estate funds have been asked to inject new equity in a fund since the second half of 2008 due to debt issues. According to the study, 54% of investors and 63% of fund of funds managers have been asked to commit fresh equity to a fund they are invested in. Inrev said that at 50%, a higher proportion of fund of fund managers have been asked but have not committed new equity compared to one third of investors.

One fifth of investors and 13% of fund of funds managers have committed new equity in response to a request from the fund manager. The study found that 38% of investors and fund of fund managers had not been asked to commit new equity to fund investments. Asked about re-arranging financing terms, 76% of investors and 82% of fund of funds managers said their funds had done so with an existing lender. A further 56% of investors and 47% of fund of funds have invested in funds which have refinanced with a new lender.

Asked about their two-year outlook for debt financing, the majority of respondents from all groups predicted less reliance on debt. This view was expressed by 88% of investors, 82% of fund of funds managers and 64% of fund managers. Most said they also expected lower average levels of debt in funds. On average investors will seek funds with lower levels of debt than before the downturn.

The bankers who took part in the study cited a 'high standard of professionalism' among funds in dealing with debt issues. However, they suggested funds could improve by being more pro-active.