November 30, 2015
Interviewed by: Privcap
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What’s Driving Investors to Non-listed RE?

INREV’s director of research, Henri Vuong, talks about the kinds of studies the European Association for Investors in Non-listed RE Vehicles is doing, why investors are looking at non-listed RE, and the liquidity requirements that investors expect from real estate.

INREV’s director of research, Henri Vuong, talks about the kinds of studies the European Association for Investors in Non-listed RE Vehicles is doing, why investors are looking at non-listed RE, and the liquidity requirements that investors expect from real estate.

What’s Driving Investors to Non-listed RE?
With Henri Vuong of INREV

Andrea Heisinger, Privcap: Today, we’re talking to Henri Vuong from INREV. Welcome to Privcap RE.

Henri Vuong, INREV: Thank you.

Heisinger: We’ll start at the macro level. What kinds of research and topics do you look at at INREV?

Vuong: INREV is the leading source of information and research for the non-listed real estate industry in Europe. The uniqueness of INREV’s research is that it builds on the proprietary information we collect, either through our surveys or through our data-input tools directly from the market participants.

Heisinger: What kinds of studies or reports do you do?

Vuong: They range from investment-intention surveys to fund-termination studies, so that we can understand the full lifecycle of what happens in the non-listed real estate industry. In addition to that, we would look at topical areas. For example, we have an RFP (request for research proposal) out at the moment on cost transparency for listed and non-listed real estate.

Heisinger: Who are the people who are completing the surveys you do?

Vuong: These vary. For example, our investment intention survey, which is conducted with ANREV is Asia Pacific and PREA in the U.S., goes out to all market participants—investors, fund managers and fund-to-fund managers. Some of our other studies are more targeted. For example, the capital-raising survey and the fund-manager survey goes out to fund managers only.

Heisinger: You’ve done research into why people invest in non-listed real estate. What are some reasons you’ve found for why the investors choose to do that?

Vuong: From our investment-intention survey, we found that the main reason for people investing into real estate is for the diversification benefits. And this is unanimous across the globe, whether the investors are based in Europe, Asia Pacific or the U.S. There are slight differences across the world. For example, European investors find income return as the second most important reason for driving them to invest into real estate, while Asia Pacific and North American investors feel that enhancing returns is the second most important driver.

Heisinger: Were there any surprising findings as to the reasons for investment?

Vuong: What tends to surprise on the upside is the continued commitment to real estate as an asset class. Real estate is still considered alternatives to some. But, there is a lot of money pouring into the asset class, and this is seen across the globe.

Heisinger: What have you learned from investors about the liquidity requirements they’re looking at?

Vuong: We did a research study earlier this year that looked specifically at this topic. It was targeting investors only, looking at the investor’s liquidity requirements and investing in direct real estate. What we found interesting out of the study was that there are two key aspects to liquidity: timing and pricing. And, at different points in the cycle, one becomes more important than the other. But, essentially, it’s the tradeoff between the two that is very important for investors when they’re considering liquidity of real estate investments.

They confirm that they don’t necessarily require liquidity from real estate investment. They tend to be in it for the long term, so their investment horizon is much longer than any other asset class. So, once they’ve made a decision to move allocation out of real estate, that’s where their liquidity requirements come into play. They want to know how long it will take for them to transact.

Heisinger: I saw from your research that there’s been a huge increase in the number of non-listed real estate funds. Do you know any reasons why that has happened?

Vuong: There are several factors that have come into play that tended to coincide to make non-listed real estate attractive for investors. First, it comes from the real estate attraction, where some pension funds have switched from a defined-benefit scheme to a defined-contribution scheme. So, they have to actively manage their investments for the liability matching. Also, we’ve seen more sovereign wealth-fund money come into real estate.

For non-listed real estate, generally the attraction comes because it allows all sizes of players to access the market in various ways. For example, if a U.S. investor is attracted to the European landscape, they may do so via a non-listed vehicle. The reason being is that they have been accessed to the expertise on the ground. So, it’s a nice route into the real estate market for those, especially, who are less familiar with it.

Heisinger: What have you seen from European investors in terms of a target allocation for 2016, compared to the current allocation?

Vuong: We did a study earlier this year, the investment intention survey, which asked respondents to indicate what their current allocation is and what their target allocation is. On a weighted basis, current allocation sits at 7.7. It’s set to increase to 9% over an overall portfolio. On an unweighted basis, this is even higher. This is from 10.8% moving up to 11.3%. So, an increase quite significantly in the amount of money expected to go into real estate.

Heisinger: Have you gotten any indications as far as reasons why that’s happening?

Vuong: Yeah, it generally falls back to the attractiveness of real estate as an asset class down to the current environment. Since the global financial crisis, investors have been a lot more cautious in their approach to investment. Real estate generally is described as safer in equities, more rewarding than bonds. This is certainly the case at the moment, where investors still want to take a cautious approach to investing but, at the same time, they still want a yield from their investments.

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