Funds with a retail strategy earmarked for termination are expected to release a potential €5 bn of assets back into the market, putting further strain on the retail property sector, according to the INREV Funds Termination Study 2018.
Funds with a retail strategy outnumber those in all other single sectors earmarked for termination between now and 2020, the industry body said. 'At a time when retail is facing multiple challenges, liquidation of these funds could add further pressure to the sector,' it added.
In total, 92 -two European closed end non-listed real estate funds are set to terminate over the next 10 years, releasing a potential €20.9 bn of assets back into the market.
Between 2018 and 2020, 44 funds with a combined AUM of €9.6 bn are due to close. The peak of activity is anticipated in 2022, when 22 funds could be wound up.
Half of the single country funds scheduled for termination in 2019 target the UK. The looming Brexit deadline could therefore coincide with the release of around €337.8 mln. In total, €2.1 bn of UK assets may be brought to the market over the coming three years.
'While it might be tempting to consider Brexit as a driver for fund terminations in the UK, seven years ago no-one could have predicted today’s political landscape; and there’s no reason why capital won’t return to the UK,' said Lonneke Löwik, INREV’s CEO. 'The trend away from retail, however, may be longer lasting.’
Current market circumstances emerged as the most important reason for terminating funds – quoted by 65.2% of the study’s respondents. Prevailing market conditions are also seen as a key factor in the decision to extend a fund.
Liquidating was cited as the preferred termination option, though this varied according to style. Core and opportunity funds opted for liquidation and extension in equal measure, whilst the majority of value added funds went for liquidation.
Value-added and opportunity funds were more likely than their core peers to consider options other than liquidation, extension and rollover, such as IPO or merger.