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THE PERFORMANCE AND DIVERSIFICATION BENEFITS OF EUROPEAN NON-LISTED REAL ESTATE FUNDS PROFESSOR GRAEME NEWELL University of Western Sydney

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Presentation on theme: "THE PERFORMANCE AND DIVERSIFICATION BENEFITS OF EUROPEAN NON-LISTED REAL ESTATE FUNDS PROFESSOR GRAEME NEWELL University of Western Sydney"— Presentation transcript:

1 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

2 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

3 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

4 Availability of suitable product  Alignment of interest with fund manager  Costs Current market condition Transparency Resources required CHALLENGES FOR UNLISTED REAL ESTATE

5 Liquidity Alignment of interest with co-investors Regulatory issues Currency risk Availability of debt CHALLENGES FOR UNLISTED REAL ESTATE

6 GLOBAL INVESTABLE UNIVERSE OF REAL ESTATE Source: CBRE (2011)

7 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

8 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

9 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 SIGNIFICANCE OF EUROPEAN TRANSACTIONS: 2007-2014 Source: Real Capital Analytics (2015)

10 # 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)

11 # 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

12 RANKING OF THE MAJOR GLOBAL COMMERCIAL REAL ESTATE MARKETS: TRANSACTION VALUE City20142013201220112010 New York11113 London22222 Tokyo33331 Los Angeles44458 San Francisco 555710 Paris67644 Washington76867 Chicago81191016 Sydney913172018 Dallas1012 1622 Source: Real Capital Analytics (2015)

13 RANKING OF THE MAJOR EUROPEAN REAL ESTATE MARKETS: TRANSACTION VALUE City 2014 2013201220112010 London11111 Paris22222 Rhine-Ruhr35755 Frankfurt46678 Stockholm57463 Berlin63346 Amsterdam7910117 Munich888911 Madrid917311610 Dublin1015335259 Source: Real Capital Analytics (2015)

14 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

15 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

16 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

17 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

18 CORE AND NON-CORE REAL ESTATE STRATEGIES Source: Russell (2014)

19 KEY RESEARCH: UNLISTED Commingled real estate funds Transparency Performance analysis Drivers   Style   Blended portfolios General portfolio issues

20 KEY REPORTS: INDUSTRY INREV ANREV PREA ULI Preqin Russell CBRE

21 European Association for Investors in Non-Listed Real Estate Vehicles

22 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

23 INREV INDEX: STRUCTURE

24 CONTRIBUTORS: EXAMPLES Aberdeen Aviva CBRE Global Investors Credit Suisse Grosvenor AEW Europe Bouwinvest Cordea Savills Deutsche Hines

25 CONTRIBUTORS: EXAMPLES Legal & General Patrizia Schroders UBS Valad Europe M&G ProLogis Standard Life Union Warburg-Henderson

26 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

27 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

28

29 SectorNumber 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

30 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-country107 € 56.5B INREV NON-LISTED REAL ESTATE FUNDS PROFILE Q4:2014

31 Sector Number of funds 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

32 Sector Number of funds 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

33 Sector Average annual return Annual risk Reward-to-risk ratio Total4.66%1.91%2.44 Style Core4.82%1.68%2.87 Value-added4.00%3.18%1.26 RISK-ADJUSTED PERFORMANCE ANALYSIS: Q1:2010 – Q4:2014

34 Sector Average annual return Annual risk Reward-to-risk ratio Country Finland7.25%3.32%2.18 France4.54%3.62%1.25 Germany2.94%1.83%1.61 Italy0.25%2.16%0.12 Netherlands1.58%1.08%1.46 UK9.10%3.53%2.58 Multi-country1.64%2.25%0.73 RISK-ADJUSTED PERFORMANCE ANALYSIS: Q1:2010 – Q4:2014

35 Sector Average annual return Annual risk Reward-to-risk ratio Region CEE2.04%4.66%0.44 Continental Europe2.24%1.48%1.51 Nordic5.03%3.54%1.42 Southern Europe-3.84%6.38%-0.60 Western Europe6.18%2.20%2.81 Pan-Europe1.94%1.75%1.11 RISK-ADJUSTED PERFORMANCE ANALYSIS: Q1:2010 – Q4:2014

36 Sector Average annual return Annual risk Reward-to-risk ratio Sector Office3.19%2.53%1.26 Retail5.79%2.60%2.23 Industrial5.47%3.99%1.37 Residential1.20%1.26%0.95 Multi-sector5.20%1.83%2.84

37 RISK-ADJUSTED PERFORMANCE ANALYSIS: Q1:2010 – Q4:2014 Sector Average annual return Annual risk Reward-to-risk ratio Structure Closed end4.93%2.76%1.78 Open end4.52%1.48%3.05

38 DIVERSIFICATION BENEFITS: Q1:2010 – Q4:2014 Style Core / Value-added: r = 0.94

39 Country Fin.Fra.Ger.Ita.Neth.UKMulti. Fin. 1.00 Fra. -0.231.00 Ger. 0.030.12 1.00 Ita. -0.030.190.171.00 Neth. 0.090.160.400.421.00 UK -0.310.24-0.070.240.301.00 Multi. -0.070.510.400.690.500.441.00 DIVERSIFICATION BENEFITS: Q1:2010 – Q4:2014

40 Region CEECont.Nord.Sth.West.Pan-E. CEE1.00 Cont.0.571.00 Nord.0.510.82 1.00 Sth.0.330.790.541.00 West.0.040.530.310.641.00 Pan-E.0.530.980.790.750.511.00 DIVERSIFICATION BENEFITS: Q1:2010 – Q4:2014

41 Sector Off.Ret.Ind.Res.Multi. Off. 1.00 Ret. 0.751.00 Ind. 0.730.55 1.00 Res. 0.560.190.631.00 Multi. 0.840.790.820.481.00 DIVERSIFICATION BENEFITS: Q1:2010 – Q4:2014

42 Average annual return Annual risk Reward-to-risk ratio Europe4.66%1.91%2.44 Asia-Pacific9.14% 1.38%6.61 US13.30% 2.26% 5.87 EUROPE Vs ASIA-PACIFIC Vs US Q1:2010 – Q4:2014

43 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

44 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

45 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

46

47 ACKNOWLEDGEMENT INREV   Real Capital Analytics

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