Study shows more property funds defer liquidation
LONDON (Reuters) - More unlisted European property funds aim to extend planned expiry dates to avoid selling assets into freefalling property markets, a study by industry body INREV showed on Wednesday.
INREV's Fund Termination Study 2008 showed almost 60 percent of real estate funds due to wind up in 2008-2010 are set to be extended in an attempt to protect returns until investor demand for property recovers.
Just 29 percent of funds due to wind up in 2008-2010 plan to liquidate when originally planned, compared with 52 percent of funds in 2007, the report showed.
"Currently, the flexibility of a one-to-two year extension is attractive from a timing standpoint as it delays the need to decide whether to sell assets into a market where capital values are falling," Andrea Carpenter, INREV Research director said.
"This is particularly the case for funds invested in the UK, where the credit crunch has hit hardest so far, and where nearly half the funds surveyed are investing," she added.
The study said investors and fund managers rarely disagreed on proposals to extend the life of property funds to exploit or circumvent extreme market conditions.
When European property prices were soaring in 2006, short-term extensions were popular among fund managers who wanted asset sales to coincide with the peak of the market.
But since the market downturn gripped in summer 2007, an increasing number of managers have persuaded investors to roll over their investments to give more flexibility in the timing of the exit.
However, INREV warned some extension plans could be hindered by an acute shortage of credit.
"As the price for financing has increased and the availability decreased, some funds may be forced to liquidate instead of continuing," added Carpenter.
INREV questioned 25 fund managers on termination plans for 45 European non-listed property funds with a total gross asset value of 30 billion euros.
(Reporting by Sinead Cruise; Editing by Erica Billingham)
(See www.reutersrealestate.com for the global service for real estate professionals from Reuters)
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