2011 has been another strong year for Luxembourg domiciled REIFs. 26 Direct REIFs were launched in 2011, twice the number launched in 2010, bringing the total of Direct REIFs, surveyed by ALFI, to a total of 170 funds. This translates into an average annual compounded growth rate of 27% (since 2006). In respect of direct investment in real estate, the survey also covers 15 Risk Capital Investment Companies (SICARs). In addition, indirect investment in real estate is covered by the survey, which looks at a total of 34 REIF FoFs.
Marc Saluzzi, Chairman of ALFI observes: “This latest edition of the ALFI REIF survey highlights some interesting trends in the real estate investment sector. The most significant has been the increase in the number of funds being launched, the ability to raise debt has returned and there is interest in these types of fund from investors in a number of markets. ”
Key findings of the survey:
- Investment Strategy: The most common sectors targeted in the investment strategy are “diversified” (approx. 58%) with a preference towards “industrial” and “office”. The 2012 survey shows a decrease in the “multi sector”, with more focus on single sector strategies. German initiators have launched the majority of the REIF FoFs, followed by UK initiators. A single country investment focus represents only one in four (27%) of the geographic investment strategies, highlighting the benefits of Luxembourg investment vehicles for multi-national investment.
- Fund Structures: The trend over the last few years has been towards a simplification of fund structures and strategies, and three in four (77%) of the funds have a single compartment structure. In total 71% of funds are closed-ended, reflecting the inherent illiquidity of real estate as an asset class.
- Fund sizes and gearing: The average NAV of funds appear to be settling around the range of EUR 100 and 200 million and in respect of the gross asset value (GAV) between EUR 400 to 800 million. Although the average fund size appears to be decreasing, this seems to be in line with the more cautious capital raising forecasts of previous years. Positive to note that the target NAV increased compared to the previous survey, suggesting an increased confidence in valuations, while the ability to raise debt appears to be returning. 30% of REIFs’ targeted gearing is estimated at 50-60% in 2014, and 20% is in the 70%+ range.
- Fees: In line with previous surveys, the most common fee basis applies the GAV as a basis for calculation (33%), with 50% of funds charging between 0.5-1.5% on GAV. Most of the funds launched in 2011 charge performance fees, with fees around 20% being the standard used by three in four of those REIFs charging a performance fee (88 funds).
- Investors: Investors are predominantly European, however, a significant number come from the Americas, Asia and the Middle East, confirming the standing of Luxembourg as a global fund centre. Direct REIFs and REIF FoFs in Luxembourg are used mainly for small groups of institutional investors; four in five (82%) have less than 25 investors, and only 3% have more than 100. The Direct REIFs are distributed widely with one in four (24%) being sold in more than 6 countries. Only 29% are distributed in a single country.
- Fund reporting: The number of fund reporting under IFRS has increased over the years to 46% of the total of funds covered by the survey; nevertheless in 2011 72% of fund launches were made subject to Lux GAAP. Almost all of the funds use an independent appraiser (97%), with RICS (Royal Institution of Chartered Surveyors) being the preferred standard.
Mr Saluzzi concludes: “This survey confirms that Luxembourg remains a favoured location to establish multi-national and multi-sectorial regulated real estate investment funds which appeal to institutional investors and fund managers around the world.”
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