SAFE AS MORTGAGES - if you can get one

What goes around comes around. There’s nothing new under the sun.
These and other well worn clichés spring to mind in the face of latest
data from INREV, the European Association for Investors in Non-listed
Real Estate vehicles, which show investors returning to core property
investments after a spell chasing opportunities in 2009.
According to the INREV Investment Intentions Survey 2010, almost 70% of investors in non-listed real estate vehicles now prefer core style funds compared to 38% in 2009. The shift towards the core has been at the expense of opportunity funds, which fell to 3% in 2010 from 37% in 2009.

INREV, which is based in Amsterdam and was launched in 2003, interprets the shift towards the core as a post-financial crisis endorsement of real estate as an asset class.

“This shift down the risk spectrum shows that investors are focused on the benefits that real estate can offer such as diversification and income generation, which can be found at the lower risk/return end of the scale with core funds,” says Andrea Carpenter, Interim CEO for INREV. “When this shift started in 2009, it was a reaction to the financial downturn but the continued trend suggests that investors are revising their expectations of the role of non-listed property funds.”

Meanwhile, David Lee, Manager of T. Rowe Price's US and global real estate strategies, says he is optimistic that the recovery seen in global listed real estate markets in 2009 can be sustained in 2010 – particularly in the emerging Asian markets.

In a presentation originally given to T. Rowe Price clients, Lee describes his overall outlook as combining “a dose of optimism with a sense of realism”. He cities dramatic improvements in the credit markets, the Federal Reserve’s low interest rate policies and growing investor anticipation of a peak in vacancy rates as key factors behind the gains in many markets seen in 2009.

“We would argue that the early recovery is not unwarranted,” he opines.

The fly in the ointment in all markets remains bad debt the problems raising new finance that inevitably trail in its wake.

Lee identifies “a looming wave of maturing debt in the commercial mortgage-backed securities (CMBS) market” as one of two critical obstacles facing the recovery – the other is the risk of a double-dip recession in the US. And for the investors interviewed by INREV, fund managers’ ability to manage their existing debt exposure and to raise new finance is seen as a key obstacle in the year ahead.

INREV’s respondents are right to be worried, it seems. The Amsterdam-based association also spoke to bankers for its survey. They predicted a lack of supply of debt to meet the combined demand from new and existing borrowers.

“When issuing loans, bankers are taking a more conservative stance, with maximum LTVs of 65% and a focus on income producing properties,” says Lonneke Löwik, INREV’s director of research and market information.

Fiona Rintoul, Editorial Director
©2010 Funds Europe

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