Transcript REAL ESTATE IN AUSTRALIA

THE PERFORMANCE AND
DIVERSIFICATION BENEFITS OF
EUROPEAN NON-LISTED REAL
ESTATE FUNDS
PROFESSOR GRAEME NEWELL
University of Western Sydney
([email protected])
June 2015
PURPOSE OF PAPER
• Significance of unlisted real estate funds
• Focus: Europe 
• INREV : Europe : Q1 2010 – Q4 2014
• Risk-adjusted performance
• Portfolio diversification
• Real estate investment implications
REASONS FOR UNLISTED REAL ESTATE
• 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
CHALLENGES FOR UNLISTED REAL
ESTATE
• Availability of suitable product 
• Alignment of interest with fund manager 
• Costs
• Current market condition
• Transparency
• Resources required
CHALLENGES FOR UNLISTED REAL
ESTATE
• Liquidity
• Alignment of interest with co-investors
• Regulatory issues
• Currency risk
• Availability of debt
GLOBAL INVESTABLE UNIVERSE OF
REAL ESTATE
Source: CBRE (2011)
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
EUROPEAN REAL ESTATE MARKET
TRANSPARENCY: 2014
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•
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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)
SIGNIFICANCE OF EUROPEAN TRANSACTIONS: 2007-2014
Asia-Pacific: $774B; 17% market share
Americas: $1,977B; 46% market share
Europe/MEA: $1,588B; 37% market share
Global: $4,344B
Source: Real Capital Analytics (2015)
EUROPEAN TRANSACTIONS: 2007-2014
# 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%
Source: Real Capital Analytics (2015)
MAJOR GLOBAL TRANSACTIONS : 2014
# 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
RANKING OF THE MAJOR GLOBAL COMMERCIAL REAL
ESTATE MARKETS: TRANSACTION VALUE
City
2014
2013
2012
2011
2010
New York
1
1
1
1
3
London
2
2
2
2
2
Tokyo
3
3
3
3
1
Los Angeles
4
4
4
5
8
San
Francisco
5
5
5
7
10
Paris
6
7
6
4
4
Washington
7
6
8
6
7
Chicago
8
11
9
10
16
Sydney
9
13
17
20
18
Dallas
10
12
12
16
22
Source: Real Capital Analytics (2015)
RANKING OF THE MAJOR EUROPEAN REAL
ESTATE MARKETS: TRANSACTION VALUE
City
London
Paris
Rhine-Ruhr
Frankfurt
Stockholm
Berlin
Amsterdam
Munich
Madrid
Dublin
2014
2013
2012
2011
2010
1
2
3
4
5
6
7
8
9
10
1
2
5
6
7
3
9
8
17
15
1
2
7
6
4
3
10
8
31
33
1
2
5
7
6
4
11
9
16
52
1
2
5
8
3
6
7
11
10
59
Source: Real Capital Analytics (2015)
SIGNIFICANCE OF UNLISTED REAL ESTATE
• 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 
EUROPEAN UNLISTED REAL ESTATE
• 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
• 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
• Strategies
- Core, value-added, opportunistic, distressed, debt
- Country specific, multi-country, regional, global
- Sector specific, diversified
- Closed-end, open-end
• Termination strategies
CORE AND NON-CORE REAL ESTATE STRATEGIES
Source: Russell (2014)
KEY RESEARCH: UNLISTED
• Commingled real estate funds
• Transparency
• Performance analysis
• Drivers  
• Style  
• Blended portfolios
• General portfolio issues
KEY REPORTS: INDUSTRY
• INREV
• ANREV
• PREA
• ULI
• Preqin
• Russell
• CBRE
European Association for Investors in
Non-Listed Real Estate Vehicles
INREV UNLISTED REAL ESTATE FUNDS INDEX
• European unlisted real estate funds
• Q1 : 2010 – Q4 : 2014
• 233 funds @ €148 billion GAV
• Inclusion criteria
• Sub-indices (22)
- Style (2)
- Country (7)
- Sector (5)
- Structure (2)
• INREV annual index : 2001 - 2014
- Region (6)
INREV INDEX: STRUCTURE
CONTRIBUTORS: EXAMPLES
• Aberdeen
• Aviva
• CBRE Global Investors
• Credit Suisse
• Grosvenor
• AEW Europe
• Bouwinvest
• Cordea Savills
• Deutsche
• Hines
CONTRIBUTORS: EXAMPLES
• Legal & General
• Patrizia
• Schroders
• UBS
• Valad Europe
• M&G
• ProLogis
• Standard Life
• Union
• Warburg-Henderson
UNLISTED FUNDS: EXAMPLES
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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
UNLISTED FUNDS: EXAMPLES
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•
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•
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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
INREV NON-LISTED REAL ESTATE FUNDS
PROFILE Q4:2014
Sector
Total
Number of funds
Total GAV(€)
223
€ 148.1B
Core
175
€ 127.3 B
Value-added
58
€ 20.8 B
Style
INREV NON-LISTED REAL ESTATE FUNDS
PROFILE Q4:2014
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
107
€56.5B
Multi-country
INREV NON-LISTED REAL ESTATE FUNDS
PROFILE Q4:2014
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
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
Closed end
105
€47.3B
Open end
128
€100.8B
Structure
RISK-ADJUSTED PERFORMANCE ANALYSIS: Q1:2010 – Q4:2014
Sector
Total
Average
annual return
Annual risk
Reward-to-risk
ratio
4.66%
1.91%
2.44
Core
4.82%
1.68%
2.87
Value-added
4.00%
3.18%
1.26
Style
RISK-ADJUSTED PERFORMANCE ANALYSIS: Q1:2010 – Q4:2014
Sector
Average
annual return
Annual risk
Reward-to-risk
ratio
Country
Finland
7.25%
3.32%
2.18
France
4.54%
3.62%
1.25
Germany
2.94%
1.83%
1.61
Italy
0.25%
2.16%
0.12
Netherlands
1.58%
1.08%
1.46
UK
9.10%
3.53%
2.58
Multi-country
1.64%
2.25%
0.73
RISK-ADJUSTED PERFORMANCE ANALYSIS: Q1:2010 – Q4:2014
Sector
Average
annual return
Annual risk
Reward-to-risk
ratio
Region
CEE
2.04%
4.66%
0.44
Continental Europe
2.24%
1.48%
1.51
Nordic
5.03%
3.54%
1.42
Southern Europe
-3.84%
6.38%
-0.60
Western Europe
6.18%
2.20%
2.81
Pan-Europe
1.94%
1.75%
1.11
RISK-ADJUSTED PERFORMANCE ANALYSIS: Q1:2010 – Q4:2014
Sector
Average
annual return
Annual risk
Reward-to-risk
ratio
Sector
Office
3.19%
2.53%
1.26
Retail
5.79%
2.60%
2.23
Industrial
5.47%
3.99%
1.37
Residential
1.20%
1.26%
0.95
Multi-sector
5.20%
1.83%
2.84
RISK-ADJUSTED PERFORMANCE ANALYSIS: Q1:2010 – Q4:2014
Sector
Average
annual return
Annual risk
Reward-to-risk
ratio
Structure
Closed end
4.93%
2.76%
1.78
Open end
4.52%
1.48%
3.05
DIVERSIFICATION BENEFITS: Q1:2010 – Q4:2014
Style
Core / Value-added: r = 0.94
DIVERSIFICATION BENEFITS: Q1:2010 – Q4:2014
Country
Fin.
Fin.
Fra.
Ger.
Ita.
Neth.
UK
Multi.
Fra.
Ger.
Ita.
Neth.
UK
Multi.
1.00
-0.23
1.00
0.03
0.12
1.00
-0.03
0.19
0.17
1.00
0.09
0.16
0.40
0.42
1.00
-0.31
0.24
-0.07
0.24
0.30
1.00
-0.07
0.51
0.40
0.69
0.50
0.44
1.00
DIVERSIFICATION BENEFITS: Q1:2010 – Q4:2014
Region
CEE
Cont.
Nord.
Sth.
West.
CEE
1.00
Cont.
0.57
1.00
Nord.
0.51
0.82
1.00
Sth.
0.33
0.79
0.54
1.00
West.
0.04
0.53
0.31
0.64
1.00
Pan-E.
0.53
0.98
0.79
0.75
0.51
Pan-E.
1.00
DIVERSIFICATION BENEFITS: Q1:2010 – Q4:2014
Sector
Off.
Off.
Ret.
Ind.
Res.
Multi.
1.00
Ret.
0.75
1.00
0.73
0.55
1.00
0.56
0.19
0.63
1.00
0.84
0.79
0.82
0.48
Ind.
Res.
Multi.
1.00
EUROPE Vs ASIA-PACIFIC Vs US
Q1:2010 – Q4:2014
Average annual
return
Annual risk
Reward-to-risk
ratio
Europe
4.66%
1.91%
2.44
Asia-Pacific
9.14%
1.38%
6.61
US
13.30%
2.26%
5.87
REAL ESTATE INVESTMENT
IMPLICATIONS
• 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?
FUTURE OPPORTUNITIES FOR THE
EUROPEAN REAL ESTATE MARKETS
•
•
•
•
•
•
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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
FUTURE RESEARCH
• 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
ACKNOWLEDGEMENT
• INREV  
• Real Capital Analytics