16 October 2018, Amsterdam – The 2018 INREV Debt Funds Universe report, reveals the continuing strength of real estate debt funds. The full Universe of 67 vehicles – eight more than last year – recorded a total target gross asset value of €33.0 billion – up from €30.2 billion in 2017.
The Universe results reflect investors’ stated appetite for debt funds as highlighted in INREV’s Investment Intentions Survey 2018, which showed that 23.6% of investors planned to increase their allocations to debt funds. Though the increase in the number of debt funds in the Universe is relatively low at 11%, this is likely to increase. The Investment Intentions Survey suggests that interest is likely to come from US investors hunting for opportunities to gain greater exposure to European non-listed real estate.
Other headline statistics from the report paint a consistent picture of the debt funds market. For example, over half (52.2%) of vehicles in the Universe focus on senior debt as their most prominent loan strategy – echoing the trends in 2017 and 2016.
Direct lending remains the most popular loan generation strategy at 35.8%, whilst 34.3% of funds opt for a combination of both loan acquisition and direct lending.
Funds with a closed end structure dominate the debt funds space, accounting for 88.2% of the Universe – a rise from 76.2% in 2017.
The report suggests a graduated scale of hurdle rates across the lending stack. Senior debt offers the lowest median target internal rate of return at 6.5%, versus 12% for subordinated debt (junior and mezzanine combined) at the top, and 8% for the aggregate of all categories in the middle. However, there was a relatively broad spread of rates in each category.
‘Traditional banks may be back in the lending game, but this report clearly indicates that real estate debt funds remain attractive. They may not have become the ubiquitous source of capital that might have been expected post-financial crisis, but they offer important benefits as a diversified source of capital. And this may be particularly relevant as we approach the cusp of a market downturn,’ said Henri Vuong, INREV’s Director of Research and Market Information.
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Notes to Editors
About the Debt Funds Universe 2018
The INREV Debt Funds Universe captures live non-listed real estate debt vehicles.
The Debt Funds Universe was launched in 2013 to capture information about debt vehicles in the European non-listed real estate market. The Debt Funds Universe is a live database which means that information can change at any time. The snapshot report is published annually in October and results are based on vehicle level data provided directly to INREV from managers.
This year’s Universe release includes 67 vehicles and represents minimum target GAV of €33.0 billion as at beginning October 2018.
INREV, the European Association for Investors in Non-Listed Real Estate Vehicles, was launched in May 2003 as a forum for investors and other participants in the growing non-listed real estate vehicles sector. The association represents and reflects an industry with a total value of €2.7 trillion and INREV members deliver €300 billion of stimulus to the real economy of Europe.
INREV has 437 members which include 75 of the largest institutional investors as well as 40 of the 50 largest real estate fund managers, plus banks and advisors across Europe and elsewhere.
The non-profit association is focused on increasing the transparency and accessibility of non-listed vehicles, promoting professionalism and best practice, and sharing knowledge. It is based in Amsterdam, the Netherlands.