THE MAGAZINE OF THE EUROPEAN NON-LISTED REAL ESTATE INDUSTRY INREV guidelines in action How to get the most out of it
IQ
GRESB Survey Results are in! How did INREV members do?
Focused on Solvency II: Marieke van Kamp tells all
MAGAZINE
Banking on Growth What impact will the recapitalisation of banks have on property lending?
Passing the torch Regulatory issues move into professional standards domain
Value judgement Seeking out worth in heating markets
ISSUE 21 • INREV QUARTERLY • FEBRUARY 2015
Welcome This time of year sees the INREV team
(page 5), we will bring you a more
looking forward in preparation for
in-depth analytical approach that will
2015. We’ve been gathering input from
meet the demands of an increasingly
members and our Management Board
sophisticated market.
for our 2015 Business Plan to ensure that our views are aligned with the
The market maturity must also be
needs of the market.
reflected in our events. While we are a pan-European industry, we see the
For 2015, we will have a continued
depth of engagement within national
focus on increasing acceptance of the
markets increasing. This means that
INREV Guidelines as a standard within
to support those members we should
the global market. The revised INREV
offer more events in local languages.
Guidelines are not yet a year old – one
We’ve already started that in 2014
of our main achievements for 2014 –
with webinars in German, Italy and
but already there is evidence of them
French, and we will do more localisation
being integrated in the market here
to make our work as accessible as
and in Asia.
possible to the widest group of market participants.
One important aspect of this is to work closely with our US counterparts
We think that this will also be a good
to ensure there can be an easy
way to grow our roster of investor
transposition from, and to, the INREV
members, which is always an important
Guidelines to the established Real
priority. We will work with members to
Estate Information Standards (REIS).
organise small-scale content-led events
MATTHIAS THOMAS
For us, this means a new addition
for prospective investor members to
INREV CEO
in one area which is performance
help them understand the benefits of
measurement. This will be on the
joining INREV.
agenda for 2015. I would like to thank all our members Next year will also mark a new phase
for the support they have shown INREV
in our research programme. As the
in 2014, with a special thanks to our
industry matures, our independent
Management Board, committee and
research must reflect that. With Henri
working group members. I wish you
Vuong joining the team as Director
and your families a wonderful festive
of Research and Market Information
period.
INREV QUARTERLY –
1
IQ ONLINE All articles and features in the IQ can be viewed online at the website www.inrev.org. Articles are searchable by section or can be browsed by issue. Selected articles are also available from previous editions of the IQ while there are PDF versions dating back to December 2009.
A – ISSUE 21
Contents Update and news Sustainability Committee Staff profile: Henri Vuong New members Sweden attracts non-listed funds
Public Affairs
04 05 06 08
Letter from Brussels
Member profile
10
Marirke van Kamp
Research
14
Banking on growth Banking on growth 2 Fees highlight regional variations
18 20
Professional Standards
24
Growing on Green Europe leads reporting compliance Passing the torch
28 32
Viewpoint
34
Value Judgement
Young Professionals
36
Guidelines in Action Industry Job Moves
40
View from Asia
42
Calenders
43
Training calender Event calender
44
What’s Coming Up?
46
INREV QUARTERLY –
3
‘Looking at the broader impact is part of responsible investing’
Sustainability Committee Committee update
The upgrade of the Sustainability Working Group to a full committee is a sign of INREV’s commitment to emphasising the importance of sustainability in the non-listed real estate investment industry. Its aim is to improve the dialogue between investors and fund managers to increase knowledge and to drive a better understanding of the relevance of sustainability.
recently organised the webinar “Why sustainability investments are green to go”. This outlined the topic of sustainability from a life cycle perspective, focusing on the topic at a vehicle level, and offering an overview of social and ecological sustainability. “The high level of attendance and the number of questions raised at the webinar showed the strong interest from the industry,” said Elshout. However, he acknowledges that there is still some way to go. “Sustainability has been on INREV’s agenda in the last few years and there is enthusiasm to incorporate sustainable practices, but until a firmer link is established with financial
One main consideration for the committee is to concentrate
performance, investors may continue to see a conflict with
not only on the environmental aspects of sustainability
their fiduciary responsibilities,” said Elshout.
but also to incorporate social factors such as labour rights, the creation and safeguarding of jobs and induced
The committee plans to help this by supporting education
spending in the surrounding area. “Social sustainability
and research in this area including publishing academic
is the most difficult aspect to quantify but we know that
work on the topic. In addition, it plans to update and refine
looking at the broader impact of our investment is part of
the INREV Sustainability Reporting Recommendations
responsible investing,” says Mathieu Elshout, Chairman of the
and provide best practices, case studies and examples of
Sustainability Committee and Senior Investment Manager
sustainable investments to show the impact on returns.
with PGGM. “Having the mandate of a full committee has further One barrier to integrating sustainability into the investment
increased the members’ enthusiasm to putting our plans into
process has been the low level of education and training
action.
within the industry. To begin to overcome this, the committee A – ISSUE 21
UPDATE AND NEWS
Henri Vuong Staff profile Henri Vuong is INREV’s newest member of the team in Amsterdam, joining as Director of Research and Market Information.
She will be responsible for
replaces Casper Hesp in the
of Property Derivatives.
maintaining and further
role. Henri’s previous real
Henri also comes to the role
developing INREV’s Research
estate experiences span
with a strong understanding
and Market Information
both equity and debt. She
of the benefits of industry
initiatives, such as the
joins INREV from the Real
research programmes.
annual and ad-hoc research
Estate Finance Strategy
projects as well as the INREV
& Research team at the
She was the 2012 Chair of
Vehicles Universe and the
Royal Bank of Scotland in
the UK Society of Property
INREV Index. In addition,
London, where she was
Researchers and continues
she is keen to continue to
responsible for formulating
to serve on the committee.
broaden INREV’s reach.
commercial real estate
She also sits on Property
“One of my priorities will be
business appetite strategies
Industry Alliance research
to further expand INREV’s
and providing client insight
group, and is a Board
interregional research
for the Commercial & Private
Director of the Association
programme. I think we
banking division. Prior to
of Property Lenders,
have a strong foundation in
RBS, she worked as a Senior
Consultant to the Chinese
Europe to serve the needs
Property Research Analyst
Property Professionals
of all members, and help
with a focus on Quantitative
Society, an Assessor for the
INREV lead the development
Risk at M&G Real Estate
RICS Research Trust and a
of globally consistent market
(formerly PRUPIM), as well as
member of the Investment
practices,” said Henri, who
Acting Deputy to the Director
Property Forum.
‘One of my priorities will be to further expand INREV’s interregional research programme.’
CONTACT HENRI VUONG 000 000 000 000 henrivuong@irev.com
New members Two new members since September 2014 DANICA PENSION Institutional Investor Denmark
POSTE VITA SPA Institutional Investor Italy
INREV QUARTERLY –
5
Sweden attracts non-listed funds Research into the Swedish market
A – ISSUE 21
UPDATE AND NEWS
Alfio Shkreta, INREV Research Analyst, recently researched the Swedish markets through a series of interviews with placement agencies. The Swedish property market started 2014 with a high volume of transactions. In the first half of the year there was an increase of 30% compared with last year.
The Swedish economy has been characterised by stability in the last few years, while the very low interest rate environment has made it possible for Swedish investors to acquire financing at very low rates. As a result, the percentage of the total investment volume from domestic investors has been around 85% for 2013 and 2014, favouring office and residential with international investors preferring retail. Another difference between local and domestic capital is the route to investment. Local investors prefer to make direct investments while international investors are looking at funds to gain access to the Swedish real estate market. This is because they lack local expertise so prefer to partner with local market participants or invest with managers who have a proven track record. In the INREV Vehicle Universe there are five funds from three different fund managers who invest only in Sweden. The Index sample of single country Swedish funds is too small to be able to produce a sub-index. Investors in Sweden have also seen that the cost of financing decrease substantially, and have been able to borrow at around 45 basis points. The availability of cheap capital and scarcity of prime properties has led to an increased volume of transactions of secondary assets. Prices for these assets has therefore been increasing steadily in the last two years, which has resulted in a narrowing spread between primary and secondary assets. These indicators suggest that the Swedish real estate investment market, especially Stockholm, is at buoyant levels. The fundamentally strong Swedish economy and its highly liquid and transparent market continue to make Sweden attractive to international investors of real estate, especially to those investing via non-listed funds.
FURTHER INFORMATION: Please contact Alfio Shrkreta at alfio.shkreta@inrev.org.
INREV QUARTERLY –
7
INREV leads successful Brussels policymakers event Letter from Brussels
After something of a lull during the summer, activity in Brussels has really picked up in recent months. The seating of the newly elected European Parliament followed by the appointment of new Commission leadership created new opportunities to familiarise policy makers with the non-listed real estate funds industry and we have been busy doing just that.
After something of a lull during the summer, activity in Brussels has really picked up in recent months. The seating of the newly elected European Parliament followed by the appointment of new Commission leadership created new opportunities to familiarise policy makers with the non-listed real estate funds industry and we have been busy doing just that. The centrepiece of our recent efforts has been to organise an industry event for policymakers in Brussels in early November with the support of the 27 other institutional real estate investment-related associations participating in the European Real Estate Forum (EREF). The event focused on the role of real estate as a long-term investment and its important contribution to vital and sustainable European urban areas, European economic growth, job creation and environmental sustainability. The event was a big success, attracting nearly 80 participants interested in learning about how institutional investment in real estate can contribute to solving some of Europe’s most pressing issues. Our timing was certainly good, as the event came just two days ahead of the new European Commission leadership’s
A – ISSUE 21
PUBLIC AFFAIRS
‘The real estate investment industry is central to economic activity across Europe, so this event was timely and significant.’
“Finance for Growth” conference in Brussels, which
in the economic growth agenda for Europe.”
addressed how private sector capital can help stimulate growth and job creation. It also closely followed Commission
At the EREF industry associations meeting following the panel
President Jean-Claude Juncker’s announcement of a €300
discussion and a networking lunch with policymakers, INREV’s
billion stimulus package for Europe and plans to facilitate
leading role in organising the day’s event was very much
capital flows and investment across Europe under the Capital
appreciated. Participants from associations across Europe
Markets Union initiative.
also discussed how INREV we can build on the steps taken so far. With a goal to ensure that we continue to raise the
The panel at the Brussels event included MEP Philippe
awareness of the social and economic role and importance
de Backer, Karel Lannoo, CEO of the Centre for European
of real estate investment with policy makers, future Brussels
Policy Studies, and Patrick Kanters, Managing Director Real
events based on new messages and close collaboration will
Estate and Infrastructure for APG Asset Management. Dirk
be important building blocks.
Brounen, Professor of Real Estate at Tilburg University in the Netherlands, moderated a lively discussion, which also hit
Contribute to the policy discussions to increase both
on key topics from the need for a more coordinated policy
knowledge and awareness of our industry. Policy making
approach to stimulating key investment, to the significance of
based on more complete understanding of institutional
sustainably responsible investment, and the importance of
real estate investment should help lead to better outcomes
avoiding over-regulation in the future.
for our industry while enabling us to fully contribute to addressing the challenges facing Europe.
Kanters articulated the main message of the event well in a statement to the press: “The real estate investment industry is central to economic activity across Europe, so this event was timely and significant. It illustrated how important it is for us to maintain a well-informed, open dialogue with policymakers to ensure we can continue to play our part fully
JEFF RUPP Director of Public Affairs jeff.rupp@inrev.org +32 22 13 8161
INREV QUARTERLY –
9
‘Solvency II was seen as the death of real estate. This was a dramatic perspective but we’re still here.’
Marieke van Kamp Member profile
A – ISSUE 21
MEMBER PROFILE
Both in her day job and at INREV, Marieke van Kamp is firmly focused on Solvency II. IQ talked to her about how Solvency II is likely to impact the real estate industry. From her deep knowledge of the regulation, she offers some enlightening and instructive insights.
“Solvency II regulation has been with us for the best part
measure of risk but it could also reduce investor appetite for
of the last nine years. It’s generated thousands of pages of
diversification which, for many, has long been one of the key
commentary and absorbed many hours of debate. It’s also
benefits of non-listed real estate investment.
cast a fairly major shadow over the real estate industry,” says Marieke van Kamp, Head of Real Estate & Alternatives at NN
Van Kamp observes that the Solvency II team at EIOPA is
Group. But she acknowledges that, as a piece of prudential
shaping the IORP regulation so there’s a chance that the
regulation, Solvency II occupies an important place. “This
approach it adopted to risk and leverage for Solvency II could
regulation is clearly in line with European regulators’ views
be replicated in the long term in the pensions regulation. And
that an overly leveraged economy is unsustainable and
if both pension funds and insurance companies – the bulk of
undesirable. The original objectives of the regulation were
institutional investors – reduce their allocations as a result of
rooted in good sense at a time when real estate was arguably
a lower appetite for leverage, the consequences for the real
in need of better oversight, and individuals who looked to
estate market will likely be fairly significant.
institutional investors for their savings and pensions products needed greater protection.”
There will be broader knock-on ramifications too. The new European Commission may well see sustainable investment
However, now that it is in its near final form, van Kamp sees
platforms as the engine for long-term economic growth
Solvency II as something of a blunt instrument that has
across the union, but there’s a perceptible, if silent, inference
become far more complicated than it probably needs to be.
from van Kamp that, with Solvency II, Brussels may just have
As such, she believes that Solvency II will significantly impact
shot itself in the foot in terms of delivering this new agenda.
investors’ decisions about their allocations to real estate in the medium term, at least.
However, she also recognises that it may be a question of time. Investors with a time horizon of 20-25 years are unlikely
The devil of Solvency II is in the detail and van Kamp explains
to desert the asset class in droves. And on the upside,
very clearly why some of these details will cause problems
investors exiting real estate will create opportunities for new
for investors. “The look-through principle is the key factor for
entrants to find a way in.
many investors because the ability to take risk depends on leverage and, if this is capped at 50%, the level of deployable
It certainly isn’t all gloom. Solvency II will reduce volatility
capital is reduced. Philosophically, the commitment to real
and, depending on their specific points of view, investors
estate as an asset class hasn’t changed but allocation is
could find this helpful. It has also helped to make real estate
dependent on exposure and this is defined by the equity
more transparent as an industry, though this will come at
invested. So if leverage is reduced as the result of Solvency II,
a price for fund managers, in particular. “There’s no doubt
real estate exposure will go down because there will be less
that the rigorous and detailed reporting requirements of the
actual capital to invest.
regulation will mean significant additional burden for many managers. INREV has a key role to play in helping here. For
Alongside leverage sits the solvency capital requirement
example, by setting out a consistent approach to reporting
(SCR) - the infamous 25% shock factor. The arguments
in an effort to reduce continued requests from investors
about its inappropriateness are well known, but van Kamp
for a slightly different version of the data each time. A lot is
emphasises the effect this element of Solvency II could
already being done in this respect, particularly through the
have on investment strategies. It is, she says, a mistake to
Guidelines, the Standard Data Delivery Sheet and the DDQ,
use the same measure of risk for a single stable asset as
as well as through workshops and training.”
for a diversified fund operating in a mix of different sectors across multiple jurisdictions. Not only is it an inefficient
But that there is still further to go. “As the industry body INREV QUARTERLY – 11
for the non-listed sector, this is at the
the industry. She mentions that
was a dramatic perspective but we’re
heart of what INREV needs to do and
sustainability is high on the list
still here. The current low interest rate
we’re firmly focused on meeting this
of priorities for the European
environment has dampened some of
objective.”
Commission. With a Masters in Real
the negatives and I can’t see things
Estate Management and in Sustainable
changing anytime soon so far as rates
Referring to the planned review of
Development herself, it’s a subject
are concerned. However, the jury is
SCRs under Solvency II by 2018, she
that’s close to her heart too. It’s also an
still out because the combination of
also sees an important role
high interest rates and the
for INREV to update data
implementation of Solvency
showing the real volatility of real estate investments. Going further, van Kamp notes that INREV can play an important role more generally by helping
‘Solvency II was seen as the death of real estate. This was a dramatic perspective but we’re still here.’
II would definitely reduce the attractiveness of real estate relative to fixed income. That would be an uncomfortable place to be, but our industry
policymakers better understand
is resilient and the work we’re
how real estate investment
continuing to do is all about
actually works. The objective
area that INREV is looking at closely.
is to ensure that any future regulation
This bodes well for greater alignment
affecting the real estate market is more
between policymakers and the industry
measured and fit-for-purpose.
in the future.
On the subject of new regulation,
In the meantime, Solvency II remains
Marieke sees this as a potentially
a hot topic. “In 2010, Solvency II was
positive way to further professionalise
seen as the death of real estate. This
A – ISSUE 21
preparing ourselves to deal with that challenge when it comes.”
MEMBER PROFILE
Total real estate assets under management FUND OF FUNDS MANAGERS
18 BN EURO 2014
18,2 BN EURO
INSTITUTIONAL INVESTORS
364,5 BN EURO
425,8 BN EURO
FUND MANAGERS
1100 BN EURO
1200 BN EURO
2015
INREV QUARTERLY – 13
Banking on growth What impact will the restructuring of banks have on property lending?
A – ISSUE 21
RESEARCH
With the European Central Bank (ECB) assuming responsibility for the supervision of banks in the euro area, improvements in strengthening the banking system are underway. In theory, the Single Supervisory Mechanism (SSM) will provide a level playing field in the supervisory requirements to be met by banks across the euro area, thus helping to rebuild trust and bolster financial stability.
The ECB, together with the national supervisors, have already made great strides in preparation for operating under a SSM. Together they conducted
Loan origination strategy composition by number of funds
DIRECT LANDING DIRECT LENDING LOAN ACQUISITION
the recent comprehensive assessment which
LOAN ACQUISITION
consisted of the asset quality review (AQR) and a
NOT REPORTED
forward-looking stress test of 130 banks across the euro zone, results of which found a capital shortfall of €25 billion at 25 banks.
‘Despite increasing their capital by €15 billion in 2014, banks are still too weak to expand new lending materially.’
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Fund status composition by number of funds
Despite 12 of the 25 banks having already covered their capital shortfall by increasing their capital by €15 billion in 2014, banks are still too weak to expand new lending materially. Modest month-on-month growth in corporate lending indicates it is still too early to call this stability. Even with the positive AQR and stress test results, any growth in lending in the near term is likely to be modest at best. Banks in the periphery still face challenges which may deter
LORUM IPSUM
them from expanding lending.
LORUM IPSUM
DECLINE SLOWING The picture is diverse. Spain has benefitted from
LORUM IPSUM LORUM IPSUM
early restructuring and recapitalisation which has led to improved confidence. Asset quality remains a problem, though, and the Spanish
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banks are still cutting loans to corporates, but the overall pace of decline is slowing. While Italy, INREV QUARTERLY – 15
Loan origination strategy composition by number of funds
Fund status composition by number of funds
45% 28% 34% 38% DIRECT LANDING DIRECT LENDING LOAN ACQUISITION
Source: Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nam tristique tincidunt feugiat.
LOAN ACQUISITION NOT REPORTED
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which has one of the most highly
ALLOCATIONS ON THE RISE
loan books and recapitalising their
fragmented banking systems across
In the INREV 2013 Investment
balance sheets, savvy institutions
Europe, has been slow to make
Intentions Survey 55.9% of respondents
spotted a regulatory capital arbitrage
structural reform. Consolidation is
indicated an intention to increase
and stepped in to fill the void left by
much needed to improve economies
allocation to commercial real estate
the traditional lenders. As a result
of scale and boost profitability. As a
over the year. This intention was swiftly
there has been an increasing number
result the Spanish economy has fared
translated into action with €47.3
of alternative debt providers for
better than its peers, though it faces headwinds from a generally slowing Europe.As such, a forced action requiring banks to further reinforce their balance sheets would be at the expense of new lending.
European commercial real
‘Despite increasing their capital by €15 billion in 2014, banks are still too weak to expand new lending materially.’
Lending volumes may be slow
estate. At the time of writing, the number of European non-listed debt funds had reached 39, representing targeted equity of €29 billion. Furthermore €8.9
to improve, but there are
billion of capital was raised in
both supply side and demand side
billion of capital raised over 2013 for
2013 for European non-listed debt
dynamics at play. Those borrowers
investment into the non-listed real
funds, according to the INREV Capital
representing “good” risk do not need
estate sector. Some of this capital will
Raising Survey 2014. This is a clear
or want to borrow money from banks.
undoubtedly be making its way towards
indication of commitment to this
This could create a downward spiral in
bank’s asset disposals.
spectrum of the market.
and asset sales to equity rich buyers
However, buying assets or loans is only
Alternative lenders offered non-senior
only, of which there is no shortage for
one investment strategy. While banks
debt; however, in recent years this
commercial real estate.
have been busy working through their
has evolved to a much wider offering.
the European markets via forced loan
A – ISSUE 21
RESEARCH
Loan origination strategy composition by number of funds
Fund status composition by number of funds
45% 28% 34% 38% DIRECT LANDING DIRECT LENDING LOAN ACQUISITION
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LOAN ACQUISITION NOT REPORTED
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Of the €8.9 billion of capital raised,
is certainly true of the German real
supply for those who need or want
48.8% was by senior debt funds,
estate lending market. Results from
debt, juxtaposed with plenty of
26.2% by subordinated debt funds,
the IREBS German Debt Project 2014
debt, for those who do not need or
while the remaining is apportioned to
showed that more than half of the
want to leverage. However, with the
those funds that offer a mix of senior,
institutions surveyed expect to expand
development of new, sustainable
subordinated and / or whole loans.
new business as well as growing their
and secure sources of finance, the
This strong appetite for real estate
existing loan portfolios although citing
commercial real estate funding market
debt, mainly driven by pension
is now more diversified than
funds and life insurers, comes
ever before, suggesting a move
at a time when some traditional lenders are more proactively lending again. This has led to increasing competition in some markets, where all sources of debt are chasing the same types
‘Despite increasing their capital by €15 billion in 2014, banks are still too weak to expand new lending materially.’
towards a more balanced and varied provision of real estate debt for European real estate – potentially limiting the impact of any future credit crunch.
of assets - good quality asset, good location, good tenant -
the “increasing level of competition” to
where the future potential is stronger
be “a major issue”.
than today’s proposition, and most importantly, to a borrower with strong
As a result there has been a “noticeable
supporting credentials.
move away from [the] narrow focus on core properties” towards more
EXPANSION OF NEW BUSINESS
secondary space, which is the usual
As such, select markets are seeing
hunting ground for traditional
pressure on pricing and margins. This
lenders. In short, there is limited
FURTHER INFORMATION: Please contact Alfio Shrkreta at alfio.shkreta@inrev.org.
INREV QUARTERLY – 17
Banking on growth What impact will the restructuring of banks have on property lending? With the European Central Bank (ECB) assuming responsibility for the supervision of banks in the euro area, improvements in strengthening the banking system are underway. In theory, the Single Supervisory Mechanism (SSM) will provide a level playing field in the supervisory requirements to be met by banks across the euro area, thus helping to rebuild trust and bolster financial stability.
billion in 2014, banks are still too weak
to improve, but there are both supply
to expand new lending materially.
side and demand side dynamics at play.
Modest month-on-month growth in
Those borrowers representing “good”
corporate lending indicates it is still
risk do not need or want to borrow
too early to call this stability. Even
money from banks. This could create
with the positive AQR and stress test
a downward spiral in the European
results, any growth in lending in the
markets via forced loan and asset sales
near term is likely to be modest at
to equity rich buyers only, of which
best. Banks in the periphery still face
there is no shortage for commercial
challenges which may deter them from
real estate.
expanding lending. ALLOCATIONS ON THE RISE DECLINE SLOWING
In the INREV 2013 Investment
The picture is diverse. Spain has
Intentions Survey 55.9% of
benefitted from early restructuring
respondents indicated an intention to
and recapitalisation which has led to
increase allocation to commercial real
improved confidence. Asset quality
estate over the year. This intention
remains a problem, though, and the
was swiftly translated into action with
Spanish banks are still cutting loans
€47.3 billion of capital raised over 2013
The ECB, together with the national
to corporates, but the overall pace of
for investment into the non-listed real
supervisors, have already made great
decline is slowing. While Italy, which
estate sector. Some of this capital will
strides in preparation for operating
has one of the most highly fragmented
undoubtedly be making its way towards
under a SSM. Together they conducted
banking systems across Europe, has
bank’s asset disposals.
the recent comprehensive assessment
been slow to make structural reform.
which consisted of the asset quality
Consolidation is much needed to
However, buying assets or loans is only
review (AQR) and a forward-looking
improve economies of scale and boost
one investment strategy. While banks
stress test of 130 banks across the
profitability. As a result the Spanish
have been busy working through their
euro zone, results of which found a
economy has fared better than its
loan books and recapitalising their
capital shortfall of €25 billion at 25
peers, though it faces headwinds from
balance sheets, savvy institutions
banks.
a generally slowing Europe.
spotted a regulatory capital arbitrage and stepped in to fill the void left by
Despite 12 of the 25 banks having
As such, a forced action requiring
the traditional lenders. As a result
already covered their capital shortfall
banks to further reinforce their balance
there has been an increasing number
by increasing their capital by €15
sheets would be at the expense of new
of alternative debt providers for
lending. Lending volumes may be slow
European commercial real estate.
A – ISSUE 21
RESEARCH
At the time of writing, the number of European non-listed debt funds had reached 39, representing targeted equity of €29 billion. Furthermore €8.9 billion of capital was raised in 2013 for European non-listed debt funds, according to the INREV Capital Raising Survey
Loan origination strategy composition by number of funds
2014. This is a clear indication of commitment to this spectrum of the market. Alternative lenders offered non-senior debt; however, in recent years this has evolved to a much wider offering. Of the €8.9 billion of capital raised, 48.8% was by senior debt funds, 26.2% by subordinated debt funds, while the remaining is apportioned to those funds that offer a mix of senior, subordinated and / or whole loans. DIRECT LANDING This strong appetite for real estate debt, mainly driven by pension funds and life insurers, comes at a time when some traditional lenders are more proactively lending again. This has led to
DIRECT LENDING LOAN ACQUISITION LOAN ACQUISITION NOT REPORTED
increasing competition in some markets, where all sources of debt are chasing the same types of assets - good quality asset, good location, good
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tenant - where the future potential is stronger than today’s proposition, and most importantly, to a borrower with strong supporting credentials. EXPANSION OF NEW BUSINESS As such, select markets are seeing pressure on pricing and margins. This is certainly true of the German real estate lending market. Results from
Fund status composition by number of funds
the IREBS German Debt Project 2014 showed that more than half of the institutions surveyed expect to expand new business as well as growing their existing loan portfolios although citing the “increasing level of competition” to be “a major issue”. As a result there has been a “noticeable move away from [the] narrow focus on core properties” towards more secondary space, which is the usual hunting ground for traditional lenders. In short,
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there is limited supply for those who need or want
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debt, juxtaposed with plenty of debt, for those
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who do not need or want to leverage. However, with the development of new, sustainable and
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secure sources of finance, the commercial real estate funding market is now more diversified than ever before, suggesting a move towards a
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more balanced and varied provision of real estate debt for European real estate – potentially limiting the impact of any future credit crunch. INREV QUARTERLY – 19
Fees highlight regional variations A global report highlights the need for greater comparability of funds across Europe, Asia Pacific and the US.
A – ISSUE 21
RESEARCH
With more investors considering fund investments outside their own region, the importance of comparable fee structures is growing.
To support transparency in this area, INREV joined forces
regions. Table 1 shows that in Europe and Asia Pacific, most
with ANREV and PREA to compare fees across Europe, Asia
core funds base their annual management fee on GAV at
Pacific and the US. The results show that there are still
46% and 63% respectively. However, the lead basis for core
significant differences in fee bases for annual management
funds in the US is NAV and commitment for those funds
fees but that metrics such as the total expense ratio (TER)
investing in non-US real estate.
can help investors. For value added and opportunity funds, there is still no Annual management fees continue to be the bedrock for
consistency across the regions. In Europe, GAV is the most
most fee structures, as part of the suite of fund management
popular basis for 60% compared with drawn commitment
fees charged by managers. It is the most common of these
in Asia Pacific at 50% and invested equity in US only at just
types of fees across the three groups. However, there
32%. Within Europe, the most common basis for opportunity
continues to be variation in the fee bases, as seen in Figure
funds is “other”, meaning the fund managers do not tend
1. While the regions use a common set of metrics, in what
to use one of the more popular bases resulting in very
proportion they are used varies considerably.
little consistency. In Asia Pacific, the most common basis is commitment at 50% while both US samples favour invested
Figure 1 shows that there is variation both within each region
equity.
as well as across the three. Europe, Asia Pacific and the US only sample (PREA funds which invest only in US assets) have
Figure 2 shows what fund managers charge for each fee base
seven or eight different fee bases out of 11 recorded in the
by region. GAV-based fund management fees tend to show
survey while the non-US sample (PREA funds which invest
the most alignment with a 19 basis points spread within the
outside the US) has five. Around 43% of the European funds use gross asset value (GAV) as a basis for fee calculation while 15% use net asset value (NAV) and 10% base
regions with Europe at the high
‘60% of the European sample by number bases its fee on GAV for added value funds.’
end at 0.61% and the lowest in Asia Pacific at 0.42%. The lower fees applied in Asia Pacific can partly be explained by investment style as GAV is most
it on property value. In Asia
typically applied by core funds
Pacific, commitment, drawn
in the region, while in Europe
commitment and GAV are the most popular bases with
and US, this fee basis is commonly applied by both core and
shares of 17%, 19% and 19% respectively.
value added funds.
While the US funds mostly use invested equity as a basis at 32% for the US only sample and 39% for the non-US sample,
There is a greater variation in what is charged for the
NAV and commitment are also commonly used. The “other”
commitment fees with Asia Pacific the highest at 1.93% and
category includes different costs which are used as a basis
the US only sample at 1.11. For commitment and drawn
such as net funded capital and scaled fees.
commitments, it is interesting to see that fee levels are lower in the US compared to Asia Pacific and Europe.
The figures in Table 1 do show there are some examples of consistency within some of the styles within the regions
In Asia Pacific, around half of the value added and
overall. For example, 60% of the European sample by
opportunity funds use drawn commitment and commitment
number bases its fee on GAV for value added funds. In Asia
as a basis respectively. In the US only sample, NAV is the
Pacific, 63% of core funds use GAV and 50% of value added
most typical fee basis for core funds, whereas invested equity
funds use drawn commitment. This shows that in some
is commonly applied to other styles within this sample.
styles in each region, a particular fee base dominates. For core funds, there is also more consistency across the
With the regions showing inconsistency, total expense ratios INREV QUARTERLY – 21
(TERs) can help provide a foundation upon which to compare
By structure, the TER based on GAV is lower for open end
fees. This year’s INREV and ANREV studies included TER
funds than for closed end funds across both European and Asia Pacific samples though the
calculations; the US tends to use Return Reduction Metrics
‘60% of the European sample by number bases its fee on GAV for added value funds.’
(RRM). Figure 3 shows that European funds had a higher NAV-based
difference is smaller in the Asia Pacific sample. This can mainly be explained by fund style, especially for the European sample where the majority of the core funds are open end.
TER than Asia Pacific funds, even though the GAV-based TER were almost at the same level. The European sample showed a larger difference between
The global comparison report shows the importance of TERs
core and value added funds than the sample of Asia Pacific
and should highlight to fund managers the need to promote
funds.
transparency around fees to support investors in their investment decisions.
Sample and methodology The fees comparison report is based on individual Management Fees and Terms Studies for these regions. The INREV study included 305 funds, which comprises 66% of the funds in the INREV Vehicles Universe while the ANREV study comprised 107 funds, representing 61% of the
A – ISSUE 21
funds in the ANREV Vehicles Database. The PREA study received responses from 164 vehicles, which included separate account mandates and joint ventures. The PREA study included funds targeting US investors independent of their target geographical market, which is a slightly different approach.
However, the majority of the vehicles in the PREA study invested in US assets.
RESEARCH
Annual fund management fee eases and rates
Fee base of the annual fund management fee
45% 28% 34% 38% LORUM IPSUM LORUM IPSUM LORUM IPSUM LORUM IPSUM
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Ter rates by style 45% 28% 34% 38% LORUM IPSUM LORUM IPSUM LORUM IPSUM LORUM IPSUM
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INREV QUARTERLY – 23
Growing green INREV members have performed well in the GRESB annual survey.
A third of INREV’s participants in the Global Real Estate Sustainability Benchmark (GRESB) survey gained a sought-after Green Star rating in 2014. The merit, awarded to 80 of the 241 INREV participants, indicates a property company is strong on green policies, and crucially, the implementation of them.
There was more good news for the
GRESB has provided an overview of
region in other areas of GRESB’s
performance by INREV funds. While
report, the fifth survey of its kind:
INREV has a good proportion of
Europe’s GRESB participation, mainly
Green Star ratings, these performers,
accounted for by INREV participants,
however, remain in the minority. The
achieved an 8% increase in its total
sustainability strategies of 32% of
score for the year. That improvement,
INREV’s members were considered
based on Europe’s total score of 47,
Green Talkers. Being placed in that
was based on performance in two
category denotes the respondent
categories - management and policy and
scored over 50 on management but
implementation and measurement.
less than 50 on implementation. Only
GRESB said that globally,
1% of the sample ranked over 50 for implementation and below 50 for
improvements had been made in the
management – the so-called Green
industry’s ability to put green plans or
Walk participants.
policies into practice. The GRESB global average score for implementation was
There are also many INREV members
43, versus 35 twelve months ago. These
(33%) classified as Green Starters.
gains mainly accounted for an increase
These participants scored below 50
in the overall score of 46 globally, said
in both categories but the results
GRESB.
reflected a large number of new participants in 2014 (543: 2013).
INREV supports GRESB and encourages
A – ISSUE 21
its members to participate, as it
However, GRESB’s survey was able
is an important measure of how
to reflect efforts made by INREV’s
sustainability is being adopted in the
non-listed property funds - which
non-listed property funds industry.
dominated Europe’s sample
In order to get a better idea of this,
- to improve implementation of its
PROFESSIONAL STANDARDS
sustainability policies overall.
implementation and monitoring of
half said members of an entity’s board
INREV participants registered a score
objectives. External taskforces are
of directors were rated like this too -
of 42 for implementation. While below
regarded as indicative of a structured
much higher than the global average
the global average of 43, the result
approach towards integration across
of 34%.
reflected an improvement on last
the organisation. Around 90% of
year - where the sector’s record on
INREV’s participants - higher than
POLICY & DISCLOSURE
implementation was 35.
the global average of 88% - have
Institutional investors and other
sustainability objectives in place. Most
shareholders are important drivers
Lower scores for management and policy were explained by a large number of first-time participants in the survey. INREV members’ scored 59 for management, slightly lower than the previous year’s 61.
for increasing disclosure of
‘Participants are demonstrating how policies and management are being implemented, and the impact of this on their businesses.’
environmental, social and governance policies. GRESB’s 637 respondents therefore score highly for disclosure of sustainability performance - which shows
However, this was higher than
participants are demonstrating
the global average of 54, as well
how policies and management
as management scores for Asia and
make these publicly available online.
are being implemented, and the impact
North America - continuing the sector’s
Crucially, these objectives are
of this on their businesses.
strong sustainability management
reinforced with staff resource; 93% of
record regarding its portfolio and
the INREV sample reported having a
But INREV’s non-listed funds were the
stakeholders.
sustainability task force, with healthy
highest scoring of all in this category
levels of input from high-ranking
with 90% disclosing sustainability
employees.
performance - higher than the global
MANAGEMENT Allocating staff resources to the
average of 84%.
management of sustainability is
Additionally, 80% include sustainability
seen by GRESB as key to the proper
factors in the annual performance
The results show that 66% of that INREV QUARTERLY – 25
targets of the employees responsible
sample does this in its annual report,
prevalent – with only 58% having rules
for a green entity - higher than the
63% in a standalone report, and
in place to address these issues. This is
global average of 75%.
79% has a dedicated section of their
also in line with the global average.
corporate website.
Just 9% of INREV participants had no
Almost all of the sample (95%) said
specific policies relating to specific
a dedicated employee - for whom
Over half of those that do publish
environmental issues, lower than the
sustainability is one of their core tasks
their sustainability performance (52%)
13% global average. These results
- is responsible for implementing an
have these results reviewed by an
exactly reflected the numbers in these
organisation’s green objectives. Only
independent third party. This is mostly
categories in 2013.
half leave this to external consultants.
in the case of those that disclose
This is in line with the global scores.
through an annual report (70%).
BUILDING CERTIFICATION AND
GRESB found taskforces in Europe’s
While 48% of those that produce a
BENCHMARKING
sample consisting of senior
standalone report have independent
GRESB investigates two types of
management, portfolio managers and
reviews. Only 10% of the INREV sample
building certifications: green building
asset managers. Decision-makers in
that published performance in an
certificates and energy ratings to reflect
these forum are a board of directors in
annual report did so in alignment with
respondents’ ability to demonstrate
47% of cases, or a senior management
INREV’s recommendations, guidelines
to both tenants and investors their
team in 39% of cases. Most (84%)
and frameworks.
commitments to improving a property’s
also have a formal process to inform
energy efficiency or sustainability.
decision makers about sustainability
It was the same for those reporting
performance.
performance in a standalone reports
In 2014, just below half (44%) of all
– again 10% did so in alignment with
GRESB participants globally obtained
Where sustainability targets applied last
INREV. Half of the sample said it
green building certificates for building
year, employees in a wide range of roles
reported according to Global Reporting
design, development and structure
were assessed on this basis. Around
Initiative guidelines.
during the construction phase. But in the INREV sample, this was the case
70% said asset managers were rated this way, and 62% said green targets
Specific policies on energy, GHG
for 30% of participants. BREEAM was
applied to portfolio managers.
emissions, water and waste are well
the most commonly used method in
Over half said senior management
covered by the INREV sample, and
Europe for non-listed vehicles. But on
team members of an entity (56%) also
broadly in line with global averages.
average 16% of the INREV sample had
had annual performance targets. And
But climate change policies are less
certificates from BREEAM, LEED or
A – ISSUE 21
PROFESSIONAL STANDARDS
France’s Haute Qualité Environnementale. More, however, obtained certificates while the building was in occupation with 77% reporting that their portfolios included investments that
Loan origination strategy composition by number of funds
obtained certificates at this stage in a building’s life cycle. The global average was 30%. Energy rating systems measure the intrinsic or actual energy performance of real estate assets, and in some European jurisdictions it is mandatory to obtain this data via EPC requirements. Therefore the number of 2014 participants with energy rating systems applied to buildings in their portfolio is relatively high in the European non-listed sector. In addition, 95% of the European sample included standing investments that obtained an energy rating via Energy Performance Certificates.
DIRECT LANDING DIRECT LENDING LOAN ACQUISITION LOAN ACQUISITION NOT REPORTED
METHODOLOGY Each year GRESB captures sustainability from property companies and private funds across seven categories. The score for each generates a
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total GRESB score from 1 to 100. This total score is then divided into two dimensions: Management & Policy (MP), which has a weighting of 30% and Implementation and Measurement (IM), which is 70% of the total score. Each question on the survey is allocated to one of these categories.
Fund status composition by number of funds
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INREV QUARTERLY – 27
Europe leads reporting compliance INREV member reports have the edge over ANREV when it comes to compliance
A – ISSUE 21
PROFESSIONAL STANDARDS
Each year INREV conducts an annual review to measure compliance of European non-listed property funds with the INREV reporting guidelines. Since last year, ANREV has also undertaken a similar study for Asian non-listed vehicles, which allows us to compare reporting practices across the two regions. This article compares the results of the two studies and highlights the main similarities and differences.
Loan origination strategy composition by number of funds
DIRECT LANDING This year’s reviews can be seen as a marker for compliance with the revised INREV Guidelines and where fund managers need to make adjustments to comply. Therefore, this year can be seen as a
DIRECT LENDING LOAN ACQUISITION LOAN ACQUISITION NOT REPORTED
transition year, and we expect to see this reflected in next year’s review. The review focused on each funds’ individual
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primary investor reporting format, which typically comprises an annual report, quarterly reporting and investor call presentations, and to what extent such reporting complies with the relevant parts of the latest INREV reporting guidelines. The results from this year’s review of 2013
Fund status composition by number of funds
investor reports were determined based on a scoring scheme which reflects disclosures within each section of the revised INREV reporting guidelines: Fund Documentation, Content and Frequency of Reporting, General Vehicle Information and Governance, Capital Structure and Vehicle-level Returns, the Manager’s Report, the Property Report, Risk Management and INREV Net Asset Value (NAV) and Fee Metrics. The same scoring scheme was used by both INREV and ANREV to ensure a consistent methodology. In Europe, information was received from 33 fund managers with reports covering 67 funds. Of these, 39 were included in the review. No more
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than two reports from the same fund manager were included as fund reporting is likely to be standard across a manager’s range of funds.
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In Asia, ANREV had responses from 25 fund managers with reports covering 38 funds, all of which were all included. INREV QUARTERLY – 29
The samples give a good picture of the differences between the two regions. Europe has a more mature market with a dominance of core funds, while the relatively young market in Asia has a high share of opportunity funds. Overall, the INREV sample demonstrated more compliance than the ANREV sample at 75% versus 57%. Based on the share of funds that comply with more than 50% of the reporting guidelines, the difference is even bigger. At 97%, almost all funds in Europe complied compared to 58% for Asia with a median at 77% and 61% respectively. It is unlikely that the structure of funds are responsible for these differences as the results in the INREV sample are well balanced between open end closed end funds. The more probable explanation is that the revised Guidelines are mainly derived from the European market practice. The INREV Guidelines, originally tailored towards core funds, are well integrated in the more mature European market. In addition, some of the European funds use INREV NAV as their trading NAV and are therefore obliged to better comply with INREV reporting guidelines. Another explanation may be that Asian funds, many of which do not have European investors and as such are not exposed to European market practices, were not able to anticipate some of the new requirements of the Guidelines, in particular around the disclosure of INREV NAV and fee metrics. Furthermore, the INREV study showed a clear correlation between compliance with the INREV reporting guidelines and the use of IFRS (funds using IFRS had a 82% compliancy) while in Asian study, the correlation is not as strong. The main reason behind this result is the fund manager mix. Indeed, Europe has a more mature real estate market with more core funds using IFRS as reporting framework, with extensive disclosure. This may result in better compliance with the new disclosures requirement. In both studies, the financial quantitative requirements of the reporting guidelines are usually well-complied with, while the newly-added qualitative requirements are followed less.
A – ISSUE 21
‘One of my priorities will be to further expand INREV’s interregional research programme.’
PROFESSIONAL STANDARDS
Key insights for the different reporting sections Fund documentation for reporting framework INREV members generally complied well with this section although there are some discrepancies among the respondents regarding the interpretation of some guidelines. Respondents questioned if all disclosures should be made in the fund’s constitution documents or yearly in the annual report. ANREV respondents raised these same questions, resulting in higher levels of noncompliance. CONTENT AND FREQUENCY OF REPORTING Across the two regions, both INREV (81%) and ANREV (80%) showed high scores results indicating good compliance with the Guidelines. However, newly added requirements to disclose the level of compliance with the Guidelines was extremely low and did pull the overall results down. General vehicle information, organisation and governance In both the INREV and ANREV surveys, some fund managers considered the description of the fund and vehicles governance framework to
be static information which is available in the fund’s constitutive documents and that including such information in the annual or quarterly reports would make it redundant. Capital structure and vehicle level returns. For the open-end funds, the compliance of both INREV (84%) and ANREV (83%) is similarly high. However, a significant difference exists for closed end funds (INREV 88% versus ANREV at 52%). This is mainly due to the fact that there is a lack of relevant benchmarks in Asia, especially for pan-Asian funds. MANAGER’S REPORT The level of compliance for the Manager’s report section is higher for INREV (83%) than ANREV (69%). PROPERTY REPORT The level of compliance on the property report for INREV members is in line with the overall average INREV compliancy. We noticed however, that some assumptions regarding the valuation model (disposal scenario, transfer tax and capital expenditures) were not always properly disclosed.
Similar trends were seen in the ANREV sample, with some additional disclosure omissions, regarding market data and trends that is reducing the level of compliance down to about 52% (versus about 75% for INREV). RISK MANAGEMENT With an increasing focus on risk management, it is interesting to see that while fund managers in Europe complied relatively well with the risk management reporting guidelines, in the ANREV sample this section scored below average. Many of the Asian fund managers did not include much commentary on risk management beyond what was required by the relevant accounting standards (e.g. IFRS 7).
incurred taking into account the intended method of exit). In Asia, many managers prefer to report INREV NAV only to individual investors upon request. As a consequence, the level of compliance is significantly lower in the ANREV sample. The use of the Total Expense Ratio (TER) and Real Estate Expense Ratio (REER) Metrics has always been very low in both regions. Despite significant revisions, the level of compliance remains well below average but are already resulting in better compliance in Europe; 40% use TER and 24% use REER. The ANREV sample lags with a very low use of TER at 12% and REER at 6%.
OTHER DISCLOSURES – INREV NAV & FEE METRICS In Europe, the NAV reconciliation is generally well disclosed in the investor reports, with the exception of some of the adjustments that are not always used (such as the adjustment for the negative net equity for subsidiaries with nonrecourse), nor described (such as the estimate and disclosure of disposal costs likely to be
INREV QUARTERLY – 31
Passing the torch Regulatory issues move into professional standards domain
A – ISSUE 21
PROFESSIONAL STANDARDS
After the INREV public affairs programme was established in early 2011, the team and Public Affairs Committee quickly assumed responsibility for dealing with all issues related to regulations being developed in Brussels.
As INREV’s experts on all regulatory issues, they analysed,
However, a sub-group of the two committees is now going
commented on and informed INREV members about
even further by examining whether there should be a more
provisions related to the European Markets Infrastructure
far-reaching reflection of the AIFMD requirements in the
Regulation (EMIR), Solvency II Directive, Institutions for
INREV Guidelines. If they decide that there should be in
Occupational Retirement Provision Directive II (IORP II)
order to help members understand the links between INREV
and, of course, the Alternative Investment Fund Managers
guidelines and the regulatory requirements under AIFMD, the
Directive (AIFMD), among others, in rapid succession and
next question is what specific elements should be covered.
often even at the same time. In this context, the group is working on adding manager’s Fast-forwarding to late 2014, each of those regulations
guidance to the INREV Guidelines. As the AIFMD addresses
has come into at least partial effect, while new regulatory
the manager itself and not only the investment vehicle,
proposals that could impact the non-listed real estate funds
additional requirements need to be reflected in the
industry are being developed in Brussels. The team and committee continue to engage in efforts to educate policy makers about the role and importance of real estate investment in Europe
guidelines. The groups are just
‘Professional standards will include regulated requirements into the INREV guidelines.’
starting their work but hope to reach conclusions and make recommendations in the first half of 2015.
and the potential impacts of
In another regulation-driven
regulatory proposals on our
project being taken up by the
industry. However, as many aspects of the regulations enacted
professional standards team, the Reporting Committee
in recent years have become incorporated into industry
and the Public Affairs Committee will examine what are the
structure and operations, INREV has increasingly focused on
property-level data requirements of Solvency II and IORP
supporting members to comply with these requirements in an
II Pillar 3. This information will then be used to determine
efficient and effective way.
whether those requirements could be more efficiently satisfied by fund managers using an expanded Standard Data
The professional standards team led by Maurits Cammeraat,
Delivery Sheet.
in particular, has taken up responsibility for including regulatory-related elements into relevant parts of the INREV
Both projects are designed to ensure that INREV members
Guidelines. One new project in particular stands out in this
understand the newly imposed regulatory requirements and
regard. As part of the revision of the INREV Guidelines project
satisfy them to minimise both the effort and costs involved.
that was completed in April of this year, a joint group of
Member participation in both projects in the months ahead
members of the INREV Corporate Governance Committee
will hopefully ensure that these goals are achieved.
and Public Affairs Committee reviewed the Guidelines to ensure that, in the first instance, that there were no inconsistencies between INREV corporate governance guidelines and AIFMD requirements.
INREV QUARTERLY – 33
Value Judgement Seeking out worth in heating markets With real estate in ever increasing demand across Europe, our investor and fund manager give their views on where and how to find value.
INVESTOR VIEWPOINT
of gaining exposure to the sector.
In order to find value in the market,
Real estate, in every shape
Debt has become readily available and
investors could look away from core
and form is well and truly
at margins that would have seemed
and towards alternative risks and
unthinkable just a few years ago.
strategies. These could include investing
back on the investment agenda. Given the relative pricing of bonds, investors
in different locations such as non-core
appear unable to get enough of the
Does the return of both equity and
or secondary cities, taking on leasing
yield that the asset class offers and are
debt mean that we are entering boom
risk or investing in assets with shorter
now willing to look at a variety of investment strategies in order to gain further exposure. Following the downturn in the global economy between 2008 and 2011, it appeared property investors were only interested
lease lengths, buying in different
‘Structural reforms that have been undertaken have set these markets up for higher trend growth rates than France and Italy.’
in low risk assets that were
geographies, perhaps once again looking at Eastern Europe. Another popular strategy has become to invest in emerging property types such as student housing or self-storage. The more adventurous are looking to once again start developing.
viewed as being relatively safe. This has now changed. Investors are
territory or just returning to a healthy,
Now would appear the perfect time for
increasing their allocations across
functioning market? Both can be
risk tolerances to be reviewed and for
the board to real estate. Markets that
argued, but it certainly means, that the
investors to once again ensure that their
appeared to be permanently out of
perspective returns for real estate have
portfolios are well diversified. Investors
favour with investors, both geographies
fallen. Investors not keen to change
should remember not to put all of their
and sectors, are now seeing record
their acquisition strategy are looking
eggs in the same basket, limiting their
levels of investment. Lenders have
to use higher levels of debt to boost
exposure to any one of a variety of
also returned. One consequence of
returns. From a risk perspective this
strategies.
the downturn is that more European
makes little sense. The more leverage
investors are using debt as a means
that is applied to an asset the higher its correlation with other investments.
A – ISSUE 21
VIEWPOINTS
FUND MANAGER
trading at yields that are near to their
the overhang of space in some markets.
VIEWPOINT
previous cyclical lows but without
However, we think good quality assets
When we think about
the fundamental economic and
in these markets look attractively
finding value at present, it’s all about
occupier market recovery, it’s a high
priced, and the painful structural
rotation: from prime to secondary, and
price defensive income. In addition,
reforms that have been undertaken
from Northern Europe to Southern
without that fundamental economic
have set these markets up for higher
Europe. Despite interest rates rising,
recovery, the attraction of moving into
trend growth rates than France and
the flattening of the bond yield curve and increasingly competitive margins of debt should mean that real estate can provide attractive cash on cash yields even as property yields compress.
Italy. A second theme is the
‘Structural reforms that have been undertaken have set these markets up for higher trend growth rates than France and Italy.’
For the UK, this means that
Central and Eastern European markets, where we think the stronger economic growth forecasts coupled with an emerging middle-class makes for a potent mix. The problem is that this is “obvious” demand growth, and not undetected
rotating into good secondary
by developers. This means we
assets with some leasing risk in the
secondary cities for yield compression
need to be careful about oversupply
major UK cities is likely to continue
is less compelling than in the UK. As
and the Warsaw office market is a great
given the broad based recovery in
a result, we see two themes which
example at present – with the largest
occupier demand.
are arguably more attractive. The first
absolute volume of supply of any
On the continent, we see that the
is the Southern European recovery
European market excluding London.
market is rotating from the northern
markets. Yield compression has been
So, while the UK retains a place for
safe haven markets to the southern
incredibly rapid in Spain, and is starting
investors looking for value - albeit with
recovery markets and the Central and
to take place in Portugal. We also think
a focus on regional cities – in general,
Eastern European emerging markets.
investors could be over-estimating
we see a move from the northern safe
Prime property in Germany and
how quickly the economic recovery
havens, to the South and CEE.
France, and indeed Sweden, is now
translates into a rental recovery given INREV QUARTERLY – 35
The backbone of the INREV Guidelines may well be the series of principles, guidelines and recommendations that support best practice but without implementation these are just ideas. Therefore, the Guidelines have always been focused on providing the right support to ensure that compliance and levels adoption are easily achieved by industry participants.
Guidelines in action We explain the series of tools and templates available
A – ISSUE 21
YOUNG PROFESSIONALS
This is done through a series of
standardised template, which they can
satisfactory corporate governance
checklists, tools and templates that are
then send to their investors.
or where the corporate governance
available in the Guidelines section of
is only acceptable in exceptional
the INREV website.
The SDDS provides many benefits to
circumstances. A traffic light system
both fund managers and investors
indicates which approach the user
The Guidelines include a number
including increased transparency and
identifies most closely with. However,
of tools that help you disclose your
performance monitoring, increased
“red” does not necessarily mean bad
compliance and level of adoption with
comparability and more efficient
governance as deviations can be due to
the INREV Guidelines and support your
operations. It comprises of different
the individual fund structures or other
day-to-day business. The first is the
worksheets including fund level and
appropriate reasons.
INREV Compliance Checklist, which is
investor level data, and portfolio
a downloadable check list for an annual
allocation. The SDDS also summarises
By comparing the features of their
report. It breaks down all the principles
all the requirements set out in the
own vehicle to the sample behaviour,
of the compliance modules that you
reporting module so using this tool
managers should be able to assess
have to follow. In addition, as it summarises all aspects of the Guidelines, it gives a useful picture of their scope. Other checklists are available for real estate debt funds and funds of funds.
where their fund sits on
‘The Corporate Governance selfAssessment tool takes the user through questions referring to best practixe within seven core principles.’
corporate governance for each feature individually, and then where the vehicle’s corporate governance sits as a whole. It then helps fund managers as an aid to disclose levels of adoption and then to explain any reasons
The advantage of the main
for not being compliant with
checklist is that it shows that the
best practices in certain areas.
user is fulfilling the requirements of the
helps you prepare fund documentation
This allows investors to have a clear
reporting module, INREV NAV as well
and annual reporting.
picture of the fund manager’s corporate
as the fee and expense metrics, which
governance.
are all compliance modules. It ensures
While the reporting guidelines, INREV
the fund manager can be sure that
NAV calculation and the fee and
After using the compliance checklist
reporting aligns with all current market
expense metrics are compliance
and compiling your self-assessment
practice requirements and will meet
modules, the Guidelines’ best
results, INREV also offers help with
investor requirements.
practice modules leave a margin for
communicating levels of compliance
implementation.
to investors. The INREV Compliance
To be complying with INREV NAV and
Decision Tree is a flow diagram
the fee and expense metrics means to
To define the level of adoption for the
available on the website, which helps
calculate/value funds with comparable,
best practice modules, the Guidelines
the user understand if they are in line
stable figures that are tailored to the
offer a self-assessment tool. At present,
with the Compliance Modules of the
non-listed real estate market. The
the tool covers only the corporate
Guidelines, and what is the level of
alternative is reporting individual
governance module but there are plans
adoption for the best practice modules.
figures which lack comparability for
to create further tools for the valuation
investors on a European level while
and liquidity guidelines soon.
In addition, the INREV Compliance Framework is a table that offers the
different calculation methods also means there is less transparency and
The Corporate Governance self-
compliance objective, self-assessment
comparability.
Assessment tool takes the user
process, disclosure and oversight
Ongoing reporting is a focus for the
through questions referring to best
and assurance for each module. This
Guidelines where INREV provides
practice within seven core principles.
helps achieve the main aim to present
support through the Standard Data
Each area considers the questions
investors with a clear and accurate
Delivery Sheet (SDDS). This aims to
that are relevant to understanding
picture of the degree of best practice
standardise the information exchanged
the corporate governance issues.
adoption and level of compliance with
between a fund manager and an
Then, for each question, sample
the INREV requirements. An Example
investor. Fund managers use this Excel
behaviour is identified which
Statement is also available on line to
sheet to enter their fund details in a
exhibits good corporate governance,
provide users with further support. INREV QUARTERLY – 37
TEMPLATES
DUE DILIGENCE QUESTIONNAIRES
Another type of tool offered by INREV is templates. First, is
Also, at this earlier stage of fund development, investors are
a Capital Calls & Distribution template, which is offered in
going to require substantial due diligence information about
Excel and allows users to complete information about each
the product. The three Due Diligence Questionnaires
capital call and distribution to help with a systemised tagging
created by INREV mean there can be a clear exchange of
of transactions at the investor level.
information between fund managers and investors, which not only enables investors to
The Debt and Derivatives Disclosure Notes also provides ready-made tables to present information on financing and hedging arrangements to investors. The notes cover
‘Due diligence questionnaires are now available for non-listed real estate funds, funds of funds and debt funds.’
have comparable information across different products but saves fund managers time but being able to produce a document which covers most questions from investors.
loans and borrowings, foreign currency exposure and
Due diligence questionnaires
derivative financial instruments.
are now available for non-listed real estate funds, funds of funds and debt funds.
INREV also provides support at the initial stages of a fund with its template for a Structure of a Private Placement
Young professionals looking to understand further about
Memorandum. This means that as relationships begin
the INREV Guidelines should go to Guidelines section of the
to progress from initial conversations to more detailed
www.inrev.org to find out more, or look out for training and
discussions about the investment, fund managers can
education opportunities (see box).
provide a document that fully explains the investment in a clear and consistent manner. This template proposes a minimum table of contents for the private placement.
TRAINING AND EDUCATION INREV’s training and education programme also offers opportunities to get a quick insight in the Guidelines. Webinars are regularly held for members and include the following topics: - INREV NAV in French, German, English - Sustainability - Global Real Estate Index See page 20 for the 2015 training calendar
A – ISSUE 21
TUTORIALS There website includes short video introduction of all modules by an industry expert. TRAINING COURSES Several of INREV’s training courses relate to the INREV Guidelines including: - Fund valuation and reporting - Effective due diligence in today’s market - Advanced NAV and fee metrics
RECENT PUBLICATIONS
Recent publications Keep up-to-date with the latest market trends To provide members with a better overview of research results, we provide a two-page snapshot of each report. The detailed results are also available in full report format. To view the publications related to each report, visit www.inrev.org.
INREV QUARTERLY INDEX Q3 2014. A quarterly performance index for European non-listed real estate funds. A quarterly performance index for European non-listed real estate funds. TAX BRIEFING: IMPACT OF BEPS ON REAL ESTATE INVESTMENT A briefing from the tax committee on a topical subject. A briefing from the tax committee on a topical subject. REVIEW OF REPORTING BEST PRACTICE 2014 An annual look at current market practices of investor reporting and the extent to which reporting complies with the INREV Guidelines. INREV FUND TERMINATION STUDY 2014 An annual look at the strategies adopted by funds due to terminated over the coming two years. An annual look at the strategies adopted by funds due to. MANAGEMENT FEES AND TERMS - GLOBAL 2014 An overview of the fee structures and fee levels of non-listed real estate funds. An overview of the fee structures and fee levels of non-listed real estate funds. AN OVERVIEW OF 2013 PERFORMANCE FOR FUNDS OF FUNDS An overview of the fee structures and fee levels of non-listed real estate funds. An overview of the fee structures and fee levels of non-listed real estate funds. INVESTMENT CASE FOR CORE NON-LISTED REAL ESTATE FUNDS A guide for new and existing investors on the benefits of core non-listed real estate funds. An overview of the fee structures and fee levels of non-listed real estate. An overview of the fee structures and fee levels of non-listed real estate funds. TRANSPARENCY & PERFORMANCE OF THE EUROPEAN NON-LISTED REAL ESTATE FUND MARKET An academic paper to examine the recent evolution of the non-listed real esatte fund market with respect to transparency and performance. An overview of the fee structures and fee levels of non-listed real estate funds.
DOWNLOAD PUBLICATIONS
REAL ESTATE IN THE REAL ECONOMY A report to explores real estate’s role in the European economy. An overview of the fee structures and fee levels of non-listed real estate funds. An overview of the fee structures and fee levels of non-listed real estate funds.
Visit inrev.org/library/ publications or email
INREV DEBT DUE DILIGENCE QUESTIONNAIRE (DDQ)
webmaster@inrev.org
DDQ addressing the special features and characteristics of real estate debt vehicles. DDQ addressing the special features and characteristics of real estate. INREV QUARTERLY – 39
Industry job moves The latest job moves in non-listed real estate estate investment approaches and
Holding, grouping the insurer’s real
their implementation on behalf of
estate, private equity, infrastructure,
institutional investors. Prior to this
renewable energies and fund
post, he held different positions at DIL/
investment activities. Before that, he
Deutsche Bank-group, KGAL, HSH Real
was a member of the management
Estate and Commerz Real.
board at Dresdner Bank, where he was responsible for the corporate client
In addition, Andreas Strey has been
business.
appointed as Senior Fund Manager
NABIL MABED
and Michael Krzyzanek has joined the
IVG has also appointed Rolf Glessing
company as Senior Investment Analyst.
as CFO. Glessing is trained as an
Strey previously worked at UBS Real
auditor and previously held senior
Estate in various positions, most recently
management positions at various
as Senior Portfolio Manager.
companies, including as Managing Director at the Merckle Group and as
MABED APPOINTED IN FRANCE
Krzyzanek previously worked for
CFO of residential property landlord
Pramerica Real Estate Investors has
accountancy firm KPMG and fund
Gagfah. He most recently worked as an
appointed Nabil Mabed as Head of
manager Aberdeen Immobilien. Most
independent management consultant.
Transactions for France. Mabed will
recently, he worked as a fund manager
be responsible for underwriting and
with Patrizia Gewerbeinvest.
M&G REAL ESTATE APPOINTS NEW HEAD OF CAPITAL RAISING
executing new business. He joins from private equity fund manager Doughty
BERGMANN JOINS PATRIZIA
M&G Real Estate has hired Lucy
Hanson where he has worked since
WOHNINVEST
Williams as Director of Institutional
2009 as Senior Associate in charge of
Patrizia Immobiliën has appointed
Business for the UK and continental
origination, underwriting and closing
Peret Bergmann as the new
Europe, replacing Chris Nash who has
of acquisitions in France, Benelux and
Managing Director of its spezialfonds
left the group. In her new role, Williams
southern Europe.
for institutional investors Patrizia
will lead M&G Real Estate’s business
WohnInvest KAG. Bergmann is a lawyer
development team, spearheading
New faces at Warburg – Henderson
specialising in property and tax law
capital raising activities in the UK and,
Andreas Beckers has joined the
and was previously General Manager
in collaboration with M&G’s institutional
Management Board of Warburg -
in the founding of a Service Alternative
fixed income business, across
Henderson Kapitalanlagegesellschaft
Investment Fund Manager (AIFM).
für Immobilien mbH. He will work
Before that, he held a management
alongside Eitel Coridaß and Andreas
role at Bouwfonds Management.
Ertle as part of the Management Board and will be responsible for product
IVG APPOINTS CEO AND CFO
development, institutional sales and
German listed property company IVG
marketing. He joins from Art-Invest
Immobilien has appointed Ralf Jung
Real Estate Funds GmbH where, in
as its new Chief Executive. Jung most
his current role as Director Business
recently worked as a partner with a
Development, he is responsible
business consultancy, prior to which he
for the development of new real
was CEO of Allianz Alternative Assets
A – ISSUE 21
RALF JUNG
continental European markets.
Management Schluter.
Williams brings 20 years of experience of building businesses across a variety
MÄSSING AND FORSMAN JOIN
of industries, including construction and
GENESTA
real estate funds management. She joins
Genesta has appointed Gunnar
from Ignis Asset Management, having
Mässing as Senior Retail Advisor
previously spent six years heading
in the company’s retail team and
up business development, investor
Niclas Forsman as an Associate in
relations and marketing at Lothbury
the transactions team. Mässing was
Investment Management.
CEO of Kista Galleria KB/AB from 2003 until 2013. His role will be to focus
MARINA JESTIN
of office this year.
ALLIANZ REAL ESTATE NAMES NEW
on strategy, business planning and
HEAD OF RETAIL
shopping centre management. Much
CORNERSTONE NAMES NEW CEO
Allianz Real Estate has appointed
of his time will be spent developing the
Scott Brown, Cornerstone’s President,
Marina Jestin as new Head of Retail.
company’s retail and shopping centre
will take on the additional role of Chief
In her new role, Jestin will work on the
management capabilities, as well as
Executive Officer (CEO). He succeeds
retail strategy and will support Allianz in
sourcing new investments.
David Reilly, who is stepping down as
growing its proportion of retail assets in
CEO after nearly two decades at the
the global portfolio while optimising the
Forsman joins Genesta from Catella
company. Reilly will be transitioning
existing retail portfolio Jestin, who will
Corporate Finance in Stockholm,
to the role of Vice Chairman in
be based in the Paris office, has over
where he spent the past four years as
January. In this new position, he will
20 years’ experience in the real estate
Associate Director. He will be based
focus on strategic issues and special
industry having held a number of senior
in Stockholm where his skills and
assignments. Brown is being appointed
positions at Unibail-Rodamco and
experience will be deployed as part of
as CEO less than a year at the firm,
most recently at Viparis, a consortium
the Genesta transaction team covering
having taken over as President from
of 10 congress and exhibitions venues
the Nordic market.
Reilly when he joined Cornerstone in
in Paris. At Unibail Rodamco, she
February. Brown previously served
worked as Group Managing Director
INTERNOS APPOINTS GREENWOOD
as Americas head of CBRE Global
of Operations around Europe, in
TO ITS INVESTMENT BOARD
Investment Partners, where he
charge of implementing the group
Internos Global Investors has
managed global investment, portfolio
strategy, methodology and value
appointed retail expert Jenefer
management, client service and
creation process, reporting to the Chief
Greenwood to its Investment Board as
product and business development.
Operation Officer.
a Non-Executive Director. Greenwood brings a wealth of UK and continental
VELDKAMP JOINS VALAD
AEW EUROPE HIRES IN GERMANY
European retail experience to Internos
Valad Europe has appointed Marcel
AEW Europe has hired two senior
with over 30 years specialising in the
Veldkamp as Asset Manager in the
executives to further strengthen
sector.
Netherlands. He managed global
its platform in Germany. Arndt
investment and portfolio management.
Rellecke has joined the German
She started her career with Hillier
He will be responsible for managing
investment team of AEW Europe
Parker, where she most recently held
assets in Utrecht and the east of the
as a Director based in Dusseldorf.
the position of Executive Director
Netherlands. Prior to this, he spent four
He will have a particular focus on
and Head of Retail following the
years as portfolio manager at VastNed
securing and executing logistics
merger with CBRE in 1998. She was
Offices/Industrial in Rotterdam.
investments for AEW Europe. Rellecke
then with Grosvenor for 10 years,
joins AEW Europe from Goodman
where, in 2010, she was appointed
Europe where he worked since
Director of Sales and Lettings for
2008, based in Dusseldorf. He has
Grosvenor Britain and Ireland. In 2004,
worked for a number of leading real
Greenwood was appointed a Crown
estate investment firms over his 22
Estate Commissioner and served on
year career. Also joining the asset
the board of the Crown Estate, chairing
management team in Germany is
its Remuneration Committee for four
Tim Schluter from CR Investment
years until the completion of her term
SOURCES: PropertyEU Press release PropertyFundsWorld PERE Please send your job moves to alfio.shkreta@inrev.org
INREV QUARTERLY – 41
A view from Asia Strong attendance at ANREV’s Annual Conference in Hong Kong as the industry discussed capital flows on the move. In October, I attended the sixth ANREV Annual Conference in Hong Kong which brought together 250 ANREV representatives, of which 51% were fund managers, 18 % were investors and fund of funds managers.
This was another well attended
(GDP) expected to remain around
and endorses: standardisation and
7-7.5% in the next couple of years and
customisation, transparency, control
neutral macroeconomic policies.
and governance and globalisation.
Simon Mallinson from Real Capital Analytics presented the first results
PROFESSIONAL STANDARDS
of the back testing of the ANREV
Before the Annual Conference, I met
Investment Intentions Survey and
with managers in Japan to present
noted that the correlation in Asia
the new INREV Guidelines. Many fund
Pacific between intentions and
managers expressed interest and
transactions is much higher than in
we expect to see more adoption and
Europe, expecting that the year-end
compliance in Japan in the coming
correlation percentage might be
years. The INREV Guidelines have
between 80% and 90%.
already been translated into Japanese
conference for ANREV where 81% of attendees represented the industry in Asia and 19% in Europe and the US, so it proved again an excellent forum for interaction and exchange of
to facilitate their promotion and
‘An excellent forum for interaction and exchange of views.’
views. This year the conference
we hope to have them available on the online tool soon. A Standard Data Delivery Sheet (SDDS) briefing session by ANREV members from PwC
focused on Capital on the move
An interesting session confronting
in Asia. For his keynote speech, Dr Fan
limited partners’ and general partners’
more than 40 professionals in Hong
Gang, one of China’s most prominent
points of view, respectively represented
Kong early November. Similar to INREV,
economists, shared his views on
by Maarten van der Spek, Senior
we have also recently completed a
China’s growth prospects as it edges
Analyst at PGGM and Willem de Geus,
review of investor reporting against the
towards becoming the world’s largest
ANREV Executive Board Chairman,
new reporting module of the INREV
economy. He was optimistic about the
on the future of funds allowed the
Guidelines. An interesting comparison
future, forecasting a soft landing for the
audience to hear about the trends in
in terms of compliance of funds in the
economy with gross domestic product
the industry that ANREV fully supports
two regions can be found on page 17.
A – ISSUE 21
and Langham Hall attracted
EVENTS CALENDAR
Events calender 2015
20 JAN
INVESTMENT INTENTIONS ROAD SHOW
21 JAN
INVESTMENT INTENTIONS ROAD SHOW
22 JAN
INVESTMENT INTENTIONS ROAD SHOW
27 JAN
INVESTMENT INTENTIONS ROAD SHOW
28 JAN
London
Amsterdam
Munich
Cophenhagen
INVESTMENT INTENTIONS ROAD SHOW
21 APR
INVESTOR ROUND TABLE
21 APR
ANNUAL GENERAL MEETING (AGM)
22 & 23 APR 21 MAY
Barcelona
Barcelona
ANNUAL CONFERENCE Barcelona
ADVANCED TAX ROUND TABLE Amsterdam
YOUNG PROFESSIONALS SEMINAR
Stockholm
11 JUN
29 JAN
INVESTMENT INTENTIONS ROAD SHOW
23 SEP
NORTH AMERICAN SEMINAR
10 FEB
INVESTMENT INTENTIONS ROAD SHOW
14 OCT
AUTUMN CONFERENCE
11 MAR
CANNES SEMINAR
19 NOV
CFO ROUND TABLE
Paris
Cannes
Amsterdam
New York
Frankfurt
London
REGISTER FOR EVENTS Visit inrev.org/events or email events@inrev.org.
INREV QUARTERLY – 43
Training calender 2015
20 JAN
CURRENT ISSUES IN DEBT FINANCING FOR NON-LISTED
02 & 03 JUL
10 FEB
FUND STRUCTURING: TAX AND LEGAL ASPECTS
17 & 18 SEP
03 MAR
FUND VALUATION AND REPORTING
19 MAR
INVESTOR RELATIONS AND COMMUNICATION
Munich
FINANCIAL ANALYSIS FOR INDIRECT INVESTMENTS
FOUNDATION COURSE Copenhagen
24 SEP
NORTH AMERICAN TRAINING COURSE
RISK MANAGEMENT FOR NON-LISTED PROPERTY
Stockholm
20 OCT
21 APR
CURRENT ISSUES IN REGULATORY AFFAIRS: SOLVENCY II
05 NOV
REGULATORY COMPLIANCE COURSE AIFM DIRECTIVE AND EMIR
20 MAY
EFFECTIVE DUE DILIGENCE IN TODAY’S MARKET
18 NOV
LIQUIDITY ISSUES IN TODAY’S MARKET
18 JUN
ADVANCED NAV AND FEE METRICS
01 DEC
PERFORMANCE MEASUREMENTS AND
Milan
New York
Luxembourg
REGISTER FOR TRAINING COURSES AND WEBINARS Visit inrev.org/training or email training@inrev.org
A – ISSUE 21
INREV QUARTERLY – 45
UPCOMING PUBLICATIONS
What’s coming up?
December 2014
January 2015
February 2015
Impact Of Regulatory
Investment Intentions 2014
Investment Intentions -
Compliance On Non-Listed
February 2015 Style Classification Comparison
A Global Comparison
February 2015
March 2015
INREV Quarterly Index, Vehicles
Secondary Markets
Universe, Debt Funds Universe Q4
& Liquidity Study
2014
DOWNLOAD PUBLICATIONS Visit inrev.org/library/publications or email webmaster@inrev.org
INREV info INREV Strawinskylaan 631, 1077 XX Amsterdam, The Netherlands +31 (0)20 799 3960 INREV Square de meeûs 23, 1000 brussels, belgium +32 (0)2 213 81 61 info@inrev.org
A – ISSUE 21
www.inrev.org INREV is the European Association for Investors in Non-Listed Real Estate Vehicles. Our aim is to improve the accessibility of non-listed real estate vehicles for institutional investors by promoting greater transparency, accessibility, professionalism and standards of best practice. As a pan European body, INREV represents an excellent platform for the sharing and dissemination of knowledge on the non-listed real estate industry. CREDITS Produced by INREV Designed by‘ Booreiland
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