GLOBAL - Institutional investors believe the ongoing financial crisis will be a major obstacle for investors looking to allocate to non-listed real estate funds this year and do not expect property markets to start recovering until 2011, according to the INREV Investment Intentions Survey 2009.

The fifth investment intentions survey, which draws responses from 114 respondents, found the main issues facing investors and fund managers were concerns over debt and re-financing, a lack of alignment between the different parties and the consequent valuation problems.

Speaking at the INREV Winter Seminar 2009, Van Stults, managing director and founding partner of Orion Capital Managers, said: "Debt availability continues to be highly constrained and I think will be highly constrained for a very long period of time. There is no doubt that the only way to keep the overall situation under bay is to shrink the balance sheet."

"It's going to be a very long haul before there is any sort of recovery or positive mood," he added.

The number of investors intending to increase their allocations to non-listed real estate over the next two years has dropped from 82% last year to 63% and may reflect investors' concerns about the denominator effect in their multi-asset portfolios.

Investors are also becoming more cautious, with 37% listing core as their preferred investment style compared to only 5% in 2008 and 26% choosing value-added funds, down from 59% last year.

Opportunistic funds, however, remained the same as last year at 37%, which suggests investors are looking for risk-return opportunities despite the volatile markets.

The United Kingdom was the favoured location because of its repricing, overtaking France as the top choice for investors in 2008. Germany and Russia were also favoured locations, while Nordic regions waned in popularity.

Andrea Carpenter, acting chief executive officer of INREV, said: "Allocations show that investors remain committed long-term to non-listed real estate and the preferences for the UK and the opportunity style investments show that investors and fund managers view the market as holding opportunities."

Retail was the preferred sector for investors at 47%, followed by office and diversified.

More than half of investors (53%) cited challenging market conditions as the main obstacle to investing in non-listed real estate. 85% of fund of fund managers and 37% of fund managers shared the same view.

"While the industry is managing the immediate consequences of the market conditions, it is also important to address long-term improvements to transparency in the market such as improving alignment of interest structures and supporting implementation of the INREV Guidelines," said Carpenter.

Of the fund-of-fund managers, 40% cited corporate governance as the most important criteria for fund selection, while 10% of investors said the adoption of INREV guidelines was the most important criteria.

More than half of the investors said a lack of alignment between investors and fund managers was a bigger obstacle than transparency and the availability of information.

"Close communication is absolutely essential," said Alistair Evans, chief operating officer at Hermes Real Estate.

"I firmly believe that with better governance we will see improved performance," he added.

Angela Crawford-Ingle, co-chair of the INREV reporting committee, said property like-for-like analysis, post balance sheet events and voids disclosure must also be improved.

According to Crawford-Ingle, performance data and benchmarking is becoming increasingly important and needs speeding up, while financial statements should provide consistency of net asset value (NAV).

The majority of investors, 60%, believe market sentiment will not start to improve until 2011, while more than half of fund managers (54%) and fund-of-fund managers (53%) hold a more optimistic view and think we will see sings of recovery in 2010.

The index included responses from 30 institutional investors, 13 fund of fund managers and 71 fund managers.

INREV currently has 319 members, of which 61 are investors with over €135bn of real estate assets under management.

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