Twice as many investors considering property debt in 2012

By Bridging Loan Directory -

The number of institutional investors expecting to make future investments in real estate debt funds has almost doubled compared with last year, according to INREV, which is looking into the feasibility of a dedicated fund index.

The association for the European non-listed real estate funds industry found that 41% of its investor members were ‘likely’ or ‘very likely’ to commit to debt vehicles, up from 23% last year.

The findings, published in the annual Investment Intentions Survey, show the growing attraction of property debt funds.

Casper Hesp, director of research and market information at INREV, told IP Real Estate that debt funds were not part of the INREV index, but the organisation intended to research the potential size of the market and whether it might warrant a separate index.

The INREV index, which is now published annually and quarterly, currently tracks the performance of only core and value-add funds.

There are plans to launch a separate opportunistic fund index in future, but any debt fund index would have to be a separate entity.

The Investments Intentions Survey found that 27% of investors had already made investments in real estate debt funds. This figure was higher (31%) for fund of funds managers.

The study also found that real estate debt was included within the real estate allocation of 44% of investors and 63% of fund of funds’ real estate mandates.

Only 7% of investors had committed capital to direct debt strategies, but the figure was higher (13%) for fund-of-fund managers, possibly due to the latter’s growing move into joint ventures and club deals more generally.

The findings were revealed at INREV’s UK Winter Seminar in London, where two large real estate investors discussed the appeal of real estate debt strategies.

Neil Harris, head of asset management for Europe at GIC Real Estate, said the Singapore sovereign wealth fund had been investing in real estate debt as a way of generating better risk-adjusted returns over core property.

Harris said there was a need to “eke out returns” in a low-growth environment and so GIC Real Estate had been targeting “focused strategies”, such as debt, to meet its double-digit return requirements in Europe.

Adam Calman, principal and head of Europe at The Townsend Group, said the firm’s investor clients had been committing to mezzanine debt strategies in recent months.

He said 2011 was “a good year” for the Townsend Group in terms of finding investment opportunities, but that this was largely outside the rush to prime property.