Property Fund Management

Online

Interactive graphic showing the sharp rise in assets under management of the property fund management industry over the past decade and the recent slowdown against the performances of funds in the sector in that time. (Inclusion of this depends on support.)

Overview

Having survived the real estate crash, many asset managers are preparing new pushes into the real estate market but investors are likely to only back those that have track records and more aligned interests. What will the next generation of property funds look like? Will there be changes to the structures and incentives? Does there need to be? What sort of fund managers have outperformed, even in the downturn? Where do investors want to be investing over the next five years

and how has that changed from before the real estate crash? What importance are factors such as multi-country vs single domicile, smaller vs larger, stand alone managers vs captive, self-managed funds vs outsourced, first time funds vs follow-on? Will the vogue for property “clubs” – small groups of rich investors with greater control – rather than large “blind pool” funds become the norm? This article will try to tease out the opportunities and challenges for the many fund managers looking to exploit the return of interest in real estate.

Residential

There has been a rise in interest in residential as an asset class on the back of the recovering housing markets. Many fund managers are looking at the private rented housing sector in particular. In the UK, the Homes and Communities Agency said that more than £1bn would be invested by new funds this year. However, there have also been a number of proposed funds that have quietly been sidelined or downsized. What are the investment opportunities in the market, and what sort of risks and returns are there on offer? What are the constraints in the market? Is it possible to build a sufficiently attractive large institutional residential fund? 

Debt

There was a number of global debt funds launched in the past three years, but many of these have been very quiet since their inception in spite of promises of high returns and profits from distressed institutions. In particular, many launched hoping to find the large returns in providing mezzanine debt at high rates, although again there has been little sign of actual deals. What happened to the promises of the debt investors and are they still waiting in the wings for the right conditions? Of those that did invest, what sort of returns, or losses, were made over the past two years? There is now talk again of new debt funds being raised – what are the opportunities to buy debt in future? Will it be among the impending debt refinancings that may not be able to be met by borrowers? Or it is in issuing new debt?

German Open Ended Funds

Foreign investors' assumptions about price rises and growth in the German market amazed some domestic property funds. But while the German funds may have avoided glaring errors at home, they have had their own problems thanks to their big foreign portfolios. Now, however, many see business returning to better times, with inflows giving them the mandate to buy again. Where and what are they buying? How much money do they have to invest? How important are they in the European property market?

Property Investment Trusts

Two of the largest investment trusts in the UK have proposed a merger, while there has been a resurgence of interest among investors in the market given the return of asset values and the prospects for resilient income from rents. Has the sector been a good place to invest over the two year slump and what are its prospects going forward? Will there be new trusts launched to meet investor demand? Or will there be further consolidation?

Listed Property Funds

There was a number of IPOs of property funds last year that are now out looking for investments. Can these be judged as successful so far or is it too earlier? Have they found the opportunities they promised? Is the market for new offerings now closed following these launches or is there still investor appetitive for new listed real estate vehicles? If so, what would investors like to see launched into the market? Will there be the chance for any more “blind-pool” funds or will they have to have assets in their portfolio prior to launch? Will the new funds be focused on the international markets or the UK market?