European Property Woes

Investment returns from European non-listed real estate funds fell sharply in 2007 as the credit crunch began to bite into fund performance, Institutional Vehicles Index of European Association for Investors in Non-Listed Real Estate Vehicles (INREV) has found.

INREV, which is celebrating its fifth year of operations this year, opened its annual conference in Istanbul Wednesday. The conference, which consists of networking sessions of almost 400 investment professionals and panel discussions on, among other topics, indirect property investments in emerging markets, risk management and the current challenging financial landscape, ends today.



UK worst hit

Measured in euros, the INREV Institutional index yielded a -3.9 percent total return in 2007, compared with 21 percent in 2006.

“The fall can be explained by the euro increasing against the dollar and sterling as well as a poor performance from the United Kingdom market for non-listed real estate funds,” said INREV Research Director Andrea Carpenter.

INREV Chief Executive Lisette van Doorn added the results mask the fact that continental Europe still turned in a strong performance at 12.5 percent in 2007, as is shown in INREV's new Europe Ex-UK sub-index. “This is still down on the 16.1 percent from 2006 but demonstrates that the impact of the credit crunch is varying greatly across the European markets with the U.K. taking the greatest hit so far,” she said.

“The majority of continental European funds have performed far better than vehicles in the U.K., as shown by the overall 2007 index figures. There was, nevertheless, an increase in yields, but the underlying market was not affected by the credit crunch as the U.K.,” said Michael Morgenroth, member of the board of Germany's Gothaer Asset Management. “With the return of risk considerations into pricing, there could be further rises in yields to come on the continent this year,” he added.



Currency effect

The strong influence of currency factors in the performance of the INREV Index in 2007 can be seen when the results were expressed in sterling producing a return of 4.8 percent, or in dollars at 6.6 percent, but the heavy weighting of the U.K. market in the overall index was also a major contributory factor in the low European total return. In sterling the U.K. market returned -5.9 percent compared with -13.8 percent in euros.

The INREV Index measures annual net asset value-based performance for non-listed real estate fund investing more than 90 percent of their portfolios in Europe. The 2007 release of the index covers 257 funds – including retail funds – with a total net asset value of 162.3 billion euros.