INREV sees wall of fund terminations, many fewer extensions
Non-listed real estate association [[INREV]] sees about €9.61 billion of gross asset value being released back into the market when 34 European closed end, non-listed real estate funds terminate between 2022 and 2024.
What will happen with all this sudden liquidity is unclear, and INREV does not speculate, but decisions not to extend are clearly being influenced by the current darkening economic outlook.
The latest INREV Funds Termination Survey found that 86% of respondents indicated the “no issue, termination as planned” option as the key explanation. INREV said this indicated a shift in preferences for funds’ end of life. Notably, half of respondents opted for ‘liquidation’ as their preferred form of fund termination and a third selected ‘extension’ reversing the order of preference indicated in the previous study.
INREV said that by 2031, 90 funds are due to terminate, representing a GAV of €94.6 billion and equating to 33% of the total INREV Vehicles Universe by number of funds.
In the current batch, 15 funds with a total AUM of €2.4 billion plan to terminate by the end of this year, while six, with a total AUM of €1.41 billion will terminate in 2023, and the remaining 13 with a €5.74 billion AUM will do so in 2024.
INREV also explained that most funds terminating in 2022 had their first close between 2011 and 2013. Those terminating in 2023 and 2024 had a first close between 2014 and 2016. “Clearly, most funds earmarked for termination over the coming three-year period were launched in the upswing of recovery from the global financial crisis,” the association said.
European funds saw improved performance last year
Over half of the funds (53%) set to terminate between 2022 and 2024 are core, while just under a third (32%) are value add. Most have gearing levels of under 40% with only one fund (due for termination in 2022) leveraged at over 60%.
The average performance returns of the terminating funds hit 6% in 2021, up from a low of -2.7% in 2020, reflecting the strong improvement in performance of European non-listed real estate last year.
In terms of their number, 53% of the funds scheduled to terminate in 2022 have a single country strategy. France is the dominant target for the single sector funds. Most terminating in 2023 and 2024, (85% and 77% respectively) are multi-country focused.
Single sector strategy funds dominate with a total €6.65 billion of GAV. Nine out of the in this category 19 are retail sector funds, potentially bringing €2.94 billion of retail assets to the market, followed by office sector funds (four out of 19), representing a possible €1.26 billion.
According to Iryna Pylypchuk, INREV’s director of research and market information, “Most funds are terminating as planned, with significantly fewer extensions than in the past. The latest data underpin the general picture of cautious stability within European non-listed real estate. There is also clear evidence of underlying market conditions affecting termination decisions, with investor liquidity requirements and current fund performance in focus.”
This sounds to REFIRE as if a lot of non-listed fund investors are getting cold feet and would prefer to go into cash while taking a view on the future prospects of European real estate. They are unlikely to be alone.