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European non-listed real estate debt market grows steadily, led by the UK

26 October 2022, Amsterdam – According to the 2022 INREV Debt Vehicles Universe study, the European non-listed real estate market has grown steadily to 98 vehicles with a total target equity of €60.3billion . Over the last seven years, vehicles in the Universe have more than doubled in number and size. 

The UK, Europe’s most developed non-listed real estate debt market, is leading this evolution. A fact that’s supported by Bayes Business School’s recently published Commercial Real Estate Lending Report H1 2022, which reveals that, at 38%, non-bank lending in the UK surpassed that of banks and building societies for the first time on record.

The majority (85.1%) of the total equity in the Universe is concentrated in closed end vehicles and 64.3% is focused on a senior loan debt strategy. The number of closed end vehicles has risen sharply from 37 in 2016 to 80 in 2022. Liquidity concerns, at least in part, explain their dominance, especially given the relatively small size and immaturity of the European non-listed debt market. This is also reflected in the proposed revisions to AIFMD, which stipulate that a debt fund originating more than 60% of its net asset value in loans must have a closed end structure to avoid liquidity mismatches. 

Sixty of the 80 closed end vehicles in the Universe have a provision to extend their termination date, which provides comfort as a risk mitigating mechanism in the event of significant market correction or change in investor sentiment. 

Senior debt funds make up the largest share of the Universe, accounting for 54 of the 98 vehicles and €38.8 billion of the total target equity. In terms of loan generation, relatively few vehicles target a pure loan acquisition strategy. Combined, mixed loan generation strategies and direct lending dominate with 83 vehicles and €54.3 billion in target equity, representing 84.7% and 90.0% of the respective totals. Vehicles with mixed loan generation strategies are the largest with an average target equity of €880 million. The average size of those focused on loan acquisition strategies and direct lending is €690 million and €490 million, respectively.

Multi country vehicles account for 70.1% of target equity and dominate new fund launches. At €840 million, the average size of these vehicles is double that of an average single country peer (€420 million). It is worth noting that of the 46 vehicles with a single country strategy, 36 focus on the United Kingdom. The average UK-focused fund size stands at €470 million. This is substantially larger than for vehicles focused on any other single European market, where the average size is €170 million.  Only 15 vehicles in the Universe follow a single sector strategy, and these are small at around €180 million on average. Of these, 12 are focused on residential.

Over the last three years, ten newly launched vehicles were added, with combined target equity of €6.78 billion or 11.2% of the overall Universe. Their characteristics mirror the overall trends. Eight of the 10 vehicles follow a multi country, multi sector strategy and the remaining two are single country, multi sector funds with a focus on the UK. Only one of the newly launched funds is an open-end structure. It is worth noting that, at €680 million, their average vehicle size by target equity is larger  than that of the overall Universe average of €650 million.

Iryna Pylypchuk, INREV’s Director of Research and Market Information, said: ‘The expansion of the European non-listed real estate debt market is providing a more diverse choice of funding and healthy competition to traditional lenders. Confirming this growth, we are now starting to see the first signs of regulatory involvement. The European real estate market is under huge pressure to decarbonise, and traditional lenders are broadly on the sidelines when it comes to retrofit lending. So, the biggest question is to what extent will the non-traditional lenders fill a funding gap, especially when it comes to an ESG-focused debt proposition.'

‘In theory, there is plenty to be enthusiastic about. However, the test now is to see whether the segment will continue to sustain investor appetite. Will it become more streamlined, or might it become more fragmented?’

– Ends –

For further information, please contact: 
Justin St Clair-Charles, inrevteam@firstlightpr.com | +44 (0) 7769 644 059
Josie Workman, inrevteam@firstlightpr.com | +44 (0) 7460 325 392

Notes to Editors

About INREV Debt Vehicles Study 2022
The INREV Debt Vehicles Universe 2022 is a live database which captures information about the non-listed real estate debt market. It currently includes 98 vehicles, with a total minimum target equity of €60.3 billion at the beginning of 2022. Since 2021, five new vehicles have been added to the Universe and two vehicles have been deleted due to liquidation. 

INREV, the European Association for Investors in Non-Listed Real Estate Vehicles, was launched in May 2003 as a forum for institutional 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 €2.8 trillion and INREV members deliver €385 billion of stimulus to the real economy of Europe. 

INREV has 500 members which include 118 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.