Investors, ranging in sophistication from institutional fund managers through to high net worth individuals, are increasingly putting their money into non-listed and tax efficient property vehicles, UK-based Investment Property Databank showed in its Directory of European Property Vehicles published yesterday.
Flows of new money into non-listed property vehicles across continental Europe are expected to amount to at least 13.2 billion in 2005, according to IPD. The study shows that some 12.4 billion of new monies has been invested in these vehicles in January 2004/July 2005. Upon reaching their targeted gross asset value, these vehicles are expected to have an aggregated GAV of 25.6 billion.
"We are currently seeing aggressive growth in the continental European market. The appetite for non-listed property vehicles currently is strong throughout Europe, and the continued pressure of capital continues to push yields down. This explains the move particularly to Eastern European markets" Hans Op 't Veld, Head of Property Vehicles said.
As interest in commercial real estate has increased in step with the strong returns it has generated over the past five years, investors have sought suitable ways of gaining rapid exposure to the property market without having to shoulder the high costs of direct investment. This is evidenced by the rapid growth of the funds of funds industry, which has seen at least seven vehicles launched over the last two years.
Investment style and fees
Despite falling returns, core styled vehicles continue to be the majority of the non-listed property vehicles in continental Europe. Measured by number of vehicles, 55% have adopted a core style. Value added vehicles form 31% of the universe, with the remainder investing with an opportunistic style.
Transparency in the market is improving. There is now more information available on fees than ever before. Out of 287 vehicles in the IPD universe, 161 vehicles provided some information on fee structure. There are a wide variety of fee structures, which seem to vary with the investment style and sector. Core vehicles generally have a management fee basis looking at gross assets, whereas opportunity funds tend to look at equity committed/invested. Differences in management fees are substantial, ranging between 1.0% and 1.5% for core vehicles and 1.5% and 2.3% for value added vehicles. Performance fees are also quite common, especially among the value added and opportunistic vehicles. Hurdle rates seem to be rather low compared to the target internal rate of return vehicles communicate.
"HSBC is pleased to sponsor the IPD Directory of European Property Vehicles. In response to growing demand for pooled property funds, we have witnessed a rapid growth in the number and scope of such vehicles in recent years. The Directory will assist investors to understand better the vehicles that exist and improve market transparency," said Dr Guy Morrell, Director of Indirect Property at HSBC Property Fund Management Limited.