UK-focused funds earmarked for termination are expected to release a potential €4.8 bn of assets back into the market, putting further strain on the local property sector which is already facing pressure from Brexit.
Half of the single country funds scheduled for termination between 2019 and 2021 target the UK, according to the INREV Funds Termination Study 2019. The looming Brexit deadline could therefore coincide with the release of around €4.8 bn of assets over the coming three years.
Retail funds outnumber those in all other single sectors earmarked for termination between now and 2021, the industry body said, representing around 41% of the total, or €4.4 bn.
'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,' said Lonneke Lowik, INREV’s CEO.
The study reveals that 50 European closed-end non-listed real estate funds are scheduled to terminate by 2021, releasing a potential €13.2 bn of assets back onto the market. By 2028, 97 funds are expected to have terminated, representing €23 bn 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 mln, representing a total of €5.6 bn.
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 2021overwhelmingly 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%).