The strong trend towards club deals and joint ventures in real estate investment will reverse to a certain extent, Matthias Thomas, chief executive at INREV, the European Association for Investors in Non-Listed Real Estate Vehicles, told members of the press in Frankfurt.
Many institutions have chosen this form of investment in recent years because “they wanted to get more control over the products they had allocated money to”, he said.
“But if you want to have influence and control over the investment,” he added, “then you need HR resources, as well as market knowledge.”
He said many smaller institutions were looking into club deals and joint ventures and “trying it out”, but he questioned whether they would continue to invest in these vehicles.
However, Thomas acknowledged that club deals and joint ventures were an “established way of investing” and said larger institutions such as major Versorgungswerke had “definitely” established the necessary know-how for such vehicles.
According to INREV’s 2014 investment intention survey, the trend towards joint ventures and club deals continues, but “interest levels have now passed their peak”.
Nearly 40% of investors in Europe expect to increase allocations to these investment vehicles compared with almost 50% in 2013 and well over 65% in 2011.
“Larger investors are looking at club deals and joint ventures, while smaller investors remain committed to funds,” INREV noted in a report on the survey.
Thomas said the reason for investors wanting more control in real estate vehicles was a “certain level of disappointment with managers and co-investors” during the financial crisis.
“One problem was the style drift – i.e. you think you invest in core, but, over time, the fund drifts towards value-add,” he said.
However, he added that, for him, “core” can only ever exist at a certain point in time, as any real estate asset goes through different risk stages during its lifetime.
“So, in fact, ‘core’ can only ever be established on a fund level, never for a single asset,” he said.