€13bn wave of terminations by 2021 to put further pressure on markets

The INREV Funds Termination Study 2019 reveals that 50 European closed-end non-listed real estate funds are scheduled to terminate by 2021, releasing a potential €13.2 billion of assets back onto the market. By 2028, 97 funds are expected to have terminated, representing €23 billion of net asset value (NAV).

Most terminations are likely to take place in 2020, accounting for a total of 23 funds. Those funds terminating in 2021 show the strongest 12-year annualised performance with average returns of 5.6%. They are also the largest funds terminating over the coming three-year horizon, each with an average NAV of €578 million, representing a total of €5.6 billion. 

Most of the funds with a single country strategy terminating between 2019 and 2021 (50% of the total), are focused on the UK. The timing coincides with, but isn’t necessarily driven by, Brexit, says INREV. Over the same period, single sector-focused funds could bring €9.7 billion of assets back onto the market. Almost 41% of these vehicles are retail funds, collectively accounting for €4.4 billion. 

Core funds dominate terminations between 2019 and 2021, representing 44.0% of the total for this period, while 42.0% are value added and 14.0% are opportunity. 

Of the funds expected to terminate in the next three years, around half have vintages dating back to between 2010 and 2013 and 25% pre-date 2008. This indicates that most were launched at the beginning of the recovery from the financial crisis and very few during the crisis. Nearly 90% of the cohort have leverage levels below 60%.

Combining core and value-added styles, funds terminating between 2019 and 2021 overwhelmingly selected either liquidation or extension as their preferred option. Similarly, almost all funds (93.8%) cited the terms set out in their original fund documentation as the main reason for terminating, followed by current market circumstances (81.3%).

Lonneke Löwik, INREV’s CEO, commented: “These data add colour to the general picture that we have come to recognise. There are no shocks, but the volume of retail assets expected to be offloaded is surprising. The study results also raise an interesting general question about how managers will deal with the challenges of bringing assets to market at a time when pricing looks set to come under increasing downward pressure.”