Post on 23-Dec-2015
THE PERFORMANCE AND DIVERSIFICATION BENEFITS OF EUROPEAN NON-LISTED
REAL ESTATE FUNDS
PROFESSOR GRAEME NEWELL
University of Western Sydney(g.newell@uws.edu.au)
June 2015
• Significance of unlisted real estate funds
• Focus: Europe
• INREV : Europe : Q1 2010 – Q4 2014
• Risk-adjusted performance
• Portfolio diversification
• Real estate investment implications
PURPOSE OF PAPER
• Access to expert management
• Diversification benefits
• Easier implementation than direct real estate
• Access to new markets
• International diversification
• Access to specific sector
• Risk-return profile
• Stable income return
• Access to leveraged investments
REASONS FOR UNLISTED REAL ESTATE
• Availability of suitable product
• Alignment of interest with fund manager
• Costs
• Current market condition
• Transparency
• Resources required
CHALLENGES FOR UNLISTED REAL ESTATE
• Liquidity
• Alignment of interest with co-investors
• Regulatory issues
• Currency risk
• Availability of debt
CHALLENGES FOR UNLISTED REAL ESTATE
GLOBAL INVESTABLE UNIVERSE OF REAL ESTATE
Source: CBRE (2011)
PLAYERS IN THE GLOBAL REAL ESTATE INVESTMENT LANDSCAPE
Local International
REITs/PCs Unlisted RE funds
Private equity funds Pension funds
Sovereign wealth funds Insurance companies
High wealth individuals
• High transparency (5/9): UK (1), France (5), Netherlands (7), Ireland (8), Finland (9)
• Transparent (13/19): Switzerland (10), Sweden (11), Germany (12), Belgium (15), Denmark (16), Poland (17), Spain (18), Norway (19), Austria (21), Italy (22), Portugal (23), Czech Republic (24), Hungary (25)
• Semi-transparent (8/33): Romania (30), Israel (31), Slovakia (32), Greece (33), Turkey (34), Russia – Tier 1 (37), Croatia (46), Russia – Tier 2 (59)
• Low transparency (5/21): Slovenia (62), Serbia (65), Bulgaria (66), Russia – Tier 3 (70), Ukraine (74)
• Opaque (2/20): Kazakhstan (84), Belarus (94)
EUROPEAN REAL ESTATE MARKET TRANSPARENCY: 2014
Asia-Pacific: $774B; 17% market share
Americas: $1,977B; 46% market share
Europe/MEA: $1,588B; 37% market share
Global: $4,344B
SIGNIFICANCE OF EUROPEAN TRANSACTIONS: 2007-2014
Source: Real Capital Analytics (2015)
# 1 : US : $ 1.8 T @ 41%
# 2 : UK : $ 489 B @ 11%
# 3 : Germany : $ 317 B @ 7%
# 4 : Japan : $ 243 B @ 6%
# 5 : France : $ 190 B @ 4%
EUROPEAN TRANSACTIONS: 2007-2014
Source: Real Capital Analytics (2015)
# 2 : Paris ; office ; $1.8 B
# 4 : London ; office ; $ 1.7 B
# 10 : London ; office ; $ 1.2 B
# 12 : London ; office ; $ 1.2 B
# 14 : London ; retail ; $ 1.1 B
MAJOR GLOBAL TRANSACTIONS : 2014
RANKING OF THE MAJOR GLOBAL COMMERCIAL REAL ESTATE MARKETS:
TRANSACTION VALUECity 2014 2013 2012 2011 2010
New York 1 1 1 1 3
London 2 2 2 2 2
Tokyo 3 3 3 3 1
Los Angeles 4 4 4 5 8
San Francisco 5 5 5 7 10
Paris 6 7 6 4 4
Washington 7 6 8 6 7
Chicago 8 11 9 10 16
Sydney 9 13 17 20 18
Dallas 10 12 12 16 22
Source: Real Capital Analytics (2015)
RANKING OF THE MAJOR EUROPEAN REAL ESTATE MARKETS:
TRANSACTION VALUECity 2014 2013 2012 2011 2010
London 1 1 1 1 1Paris 2 2 2 2 2Rhine-Ruhr 3 5 7 5 5Frankfurt 4 6 6 7 8Stockholm 5 7 4 6 3Berlin 6 3 3 4 6Amsterdam 7 9 10 11 7Munich 8 8 8 9 11Madrid 9 17 31 16 10Dublin 10 15 33 52 59
Source: Real Capital Analytics (2015)
• 2014: CAPITAL RAISED: CLOSED FUNDS- 182 funds @ $ 91 billion
- 18% Private Equity market share
• 2014: RAISING CAPITAL: “IN MARKET”
- 437 funds @ $174 billion
• Major players- Blackstone (#1) - Lone Star (#2) - Brookfield (#3)
- CBRE GI - Prudential REI - LaSalle
• 2007 – 2014 : CAPITAL RAISED- 1819 funds closed @ $669 billion
• Investor appetite : pension funds
SIGNIFICANCE OF UNLISTED REAL ESTATE
• 2014: CAPITAL RAISED: CLOSED FUNDS- $36 billion
- 40% market share
• 2014: RAISING CAPITAL: “IN MARKET”- $40 billion
- 23% market share
• 2007 – 2014 : CAPITAL RAISED
- 479 funds closed @ $142 billion
- 21% market share
• Blackstone REP Europe IV : € 6.6 B
• Lone Star Fund IX : $7.2B (50% Europe)
• Investor appetite
EUROPEAN UNLISTED REAL ESTATE
• International players- Blackstone - CBRE GI - Heitman
- Invesco - LaSalle - ProLogis
- TIAA Henderson - Tishman Speyer - UBS
• Local players- Aberdeen - AEW Europe - Aviva
- AXA - Credit Suisse- L&G
- M&G - Patrizia - Patron
- Standard Life - Schroders - Union
EUROPEAN UNLISTED REAL ESTATE
• Strategies- Core, value-added, opportunistic, distressed, debt
- Country specific, multi-country, regional, global
- Sector specific, diversified
- Closed-end, open-end
• Termination strategies
EUROPEAN UNLISTED REAL ESTATE
CORE AND NON-CORE REAL ESTATE STRATEGIES
Source: Russell (2014)
KEY RESEARCH: UNLISTED
• Commingled real estate funds
• Transparency
• Performance analysis
• Drivers
• Style
• Blended portfolios
• General portfolio issues
KEY REPORTS: INDUSTRY
• INREV
• ANREV
• PREA
• ULI
• Preqin
• Russell
• CBRE
European Association for Investors in Non-Listed Real Estate Vehicles
• European unlisted real estate funds
• Q1 : 2010 – Q4 : 2014
• 233 funds @ €148 billion GAV
• Inclusion criteria
• Sub-indices (22)- Style (2) - Country (7) - Region (6)
- Sector (5) - Structure (2)
• INREV annual index : 2001 - 2014
INREV UNLISTED REAL ESTATE FUNDS INDEX
INREV INDEX: STRUCTURE
CONTRIBUTORS: EXAMPLES
• Aberdeen
• Aviva
• CBRE Global Investors
• Credit Suisse
• Grosvenor
• AEW Europe
• Bouwinvest
• Cordea Savills
• Deutsche
• Hines
CONTRIBUTORS: EXAMPLES
• Legal & General
• Patrizia
• Schroders
• UBS
• Valad Europe
• M&G
• ProLogis
• Standard Life
• Union
• Warburg-Henderson
UNLISTED FUNDS: EXAMPLES
• Aberdeen European Balanced Property Fund
• Aviva Investors Central European Property Fund
• BlackRock UK Property Fund
• Bouwinvest Dutch Institutional Office Fund
• CBRE Strategic Partners Europe Fund II
• CBRE Nordic Property Fund
• Cornerstone German Retail Fund
• Grosvenor French Retail Investments
• Heitman Europe Property Partners II
• M&G European Property Fund
UNLISTED FUNDS: EXAMPLES
• Morgan Stanley Eurozone Office Fund
• ProLogis European Properties Fund II
• Schroder European Property Fund I
• Schroder UK Property Fund
• Standard Life UK Shopping Centre Trust
• Tishman Speyer European Core Fund
• UBS Central London Office Value Added Fund
• Nordic Aktiv Property Fund
• UniInstitutional European Real Estate
• Warburg - Henderson Pan-Europa Fonds III
Sector Number of funds Total GAV(€)
Total 223 € 148.1B
Style
Core 175 € 127.3 B
Value-added 58 € 20.8 B
INREV NON-LISTED REAL ESTATE FUNDS PROFILE Q4:2014
Country Number of funds Total GAV(€)
UK 44 €50.0B
Germany 17 €5.0B
France 12 €3.4B
Netherlands 27 €17.2B
Italy 5 €0.9B
Finland 4 €0.9B
Multi-country 107 €56.5B
INREV NON-LISTED REAL ESTATE FUNDS PROFILE Q4:2014
Sector Number offunds Total GAV(€)
Regions
CEE 11 €3.9B
Continental Europe 189 €98.1B
Nordic 21 €8.1B
Sth. Europe 12 €2.8B
West. Europe 116 €89.3B
Pan-Europe 73 €44.0B
INREV NON-LISTED REAL ESTATE FUNDS PROFILE Q4:2014
Sector Number offunds Total GAV(€)
Office 29 €13.5B
Retail 37 €22.6B
Industrial 20 €14.9B
Residential 17 €13.9B
Multi-sector 117 €71.9B
Structure
Closed end 105 €47.3B
Open end 128 €100.8B
INREV NON-LISTED REAL ESTATE FUNDS PROFILE Q4:2014
Sector Averageannual return Annual risk Reward-to-risk
ratio
Total 4.66% 1.91% 2.44
Style
Core 4.82% 1.68% 2.87
Value-added 4.00% 3.18% 1.26
RISK-ADJUSTED PERFORMANCE ANALYSIS: Q1:2010 – Q4:2014
Sector Averageannual return Annual risk Reward-to-risk
ratio
Country
Finland 7.25% 3.32% 2.18
France 4.54% 3.62% 1.25
Germany 2.94% 1.83% 1.61
Italy 0.25% 2.16% 0.12
Netherlands 1.58% 1.08% 1.46
UK 9.10% 3.53% 2.58
Multi-country 1.64% 2.25% 0.73
RISK-ADJUSTED PERFORMANCE ANALYSIS: Q1:2010 – Q4:2014
Sector Averageannual return Annual risk Reward-to-risk
ratio
Region
CEE 2.04% 4.66% 0.44
Continental Europe 2.24% 1.48% 1.51
Nordic 5.03% 3.54% 1.42
Southern Europe -3.84% 6.38% -0.60
Western Europe 6.18% 2.20% 2.81
Pan-Europe 1.94% 1.75% 1.11
RISK-ADJUSTED PERFORMANCE ANALYSIS: Q1:2010 – Q4:2014
RISK-ADJUSTED PERFORMANCE ANALYSIS: Q1:2010 – Q4:2014
Sector Averageannual return Annual risk Reward-to-risk
ratio
Sector
Office 3.19% 2.53% 1.26
Retail 5.79% 2.60% 2.23
Industrial 5.47% 3.99% 1.37
Residential 1.20% 1.26% 0.95
Multi-sector 5.20% 1.83% 2.84
RISK-ADJUSTED PERFORMANCE ANALYSIS: Q1:2010 – Q4:2014
Sector Averageannual return Annual risk Reward-to-risk
ratio
Structure
Closed end 4.93% 2.76% 1.78
Open end 4.52% 1.48% 3.05
DIVERSIFICATION BENEFITS: Q1:2010 – Q4:2014
Style
Core / Value-added: r = 0.94
Country
Fin. Fra. Ger. Ita. Neth. UK Multi.
Fin.1.00
Fra.-0.23 1.00
Ger.0.03 0.12 1.00
Ita.-0.03 0.19 0.17 1.00
Neth.0.09 0.16 0.40 0.42 1.00
UK-0.31 0.24 -0.07 0.24 0.30 1.00
Multi.-0.07 0.51 0.40 0.69 0.50 0.44 1.00
DIVERSIFICATION BENEFITS: Q1:2010 – Q4:2014
Region
CEE Cont. Nord. Sth. West. Pan-E.
CEE 1.00
Cont. 0.57 1.00
Nord. 0.51 0.82 1.00
Sth. 0.33 0.79 0.54 1.00
West. 0.04 0.53 0.31 0.64 1.00
Pan-E. 0.53 0.98 0.79 0.75 0.51 1.00
DIVERSIFICATION BENEFITS: Q1:2010 – Q4:2014
Sector
Off. Ret. Ind. Res. Multi.
Off.1.00
Ret.0.75 1.00
Ind.0.73 0.55 1.00
Res.0.56 0.19 0.63 1.00
Multi.0.84 0.79 0.82 0.48 1.00
DIVERSIFICATION BENEFITS: Q1:2010 – Q4:2014
Average annual
return Annual risk Reward-to-risk ratio
Europe 4.66% 1.91% 2.44
Asia-Pacific 9.14% 1.38% 6.61
US 13.30% 2.26% 5.87
EUROPE Vs ASIA-PACIFIC Vs USQ1:2010 – Q4:2014
• European unlisted real estate
- Performance -Diversification
• Investor landscape
• Real estate strategy
• Challenges: going forward
• Fund vs Separate account vs Club deal?
• Europe vs Asia-Pacific vs US?
REAL ESTATE INVESTMENT IMPLICATIONS
FUTURE OPPORTUNITIES FOR THE EUROPEAN REAL ESTATE MARKETS• Increased levels of European real estate in institutional
investor portfolios
• Enhanced quality of real estate assets available to investors
• Increased stature for European real estate assets in global portfolios
• Further development of REIT markets in Europe
• Further development of unlisted real estate products
• Increased opportunities for skilled real estate professionals
• Increased levels of real estate market information and added-value real estate services
• Role of unlisted versus listed RE in European real estate portfolio; “blended” portfolio
• Role of unlisted real estate in European mixed-asset portfolio
• Asia-Pacific unlisted RE analysis: ANREV
• Global unlisted RE analysis-Europe, Asia-Pacific, US
FUTURE RESEARCH
ACKNOWLEDGEMENT
• INREV
• Real Capital Analytics