What a year…For many of us, our most challenging year yet. It’s finally behind us and now, here we are in 2021 with a fresh opportunity to set goals and intentions for the next 12 months, as well as a chance to look back and reflect on the year that was.
Don’t worry, we’re not here to talk about the (other) C-word – the one that cast a shadow over 2020. Instead, we’ve got something else under the spotlight – the 2020 Real Estate Investment Funds (REIF) Survey.
The REIF Survey by the Association of the Luxembourg Fund Industry (ALFI) was created in collaboration with Luxembourg’s leading audit firms. The 14th annual edition of the REIF Survey covers a total of 449 surveyed vehicles (of which 394 funds have the regulatory framework of an Alternative Investment Fund (AIF)) – the highest number of vehicles ever surveyed. Data was compiled by the ALFI head office and the ALFI REIF Survey Working Group (which includes KPMG Luxembourg and other professional services firms).
The main objective of this survey? To create an understanding of market trends rather than reporting on all funds. And the main takeaway? That the steady increase in surveyed vehicles only goes to show the ongoing success of Luxembourg domiciled real estate funds. They are thriving.
Now it’s time to take a closer look at the facts and figures.
The latest survey not only exhibits ongoing trends, but also manifests new directions. An increasing interest in RAIFs (22% of the total population) and manager-regulated AIFs (18% of the total population) has significantly contributed to a declining interest in SIFs which represent 43% of the total population (54% in 2019). The growth of RAIFs has not slowed down and this legal form, established in 2016, shows steady growth with 98 launches in 2020 (63 in 2019).
Legal regimeSource: ALFI REIF survey 2020
45% of the surveyed REIFs focus on investing into one specific sector, leaving the “multi-sector-strategy” with 42% (33% in 2019). “Residential” as a target sector with 12% accounts for the largest proportion of “single-sector-strategy” funds, followed by “retail” and “office” with 10% each.
So, where do these funds invest? Around two thirds of them invest in Europe, representing by far the strongest geographical investment focus. Considerably far behind come North America (around 9%) and Asia-Pacific (around 8%). Overall, 8% of the surveyed vehicles invest globally.
Luxembourg REIF investment regionsSource: ALFI REIF survey 2020
77% of the funds covered in this survey have a single-compartment structure (73% in 2019), leaving 23% with a multi-compartment structure. Funds which use a multi-compartment structure use it for separate investment strategies (43%), co-investment (26%) or both (31%).
Slightly less than two thirds of the surveyed funds (65%) are closed-ended funds (61% in 2019). This increase has affected open-ended funds with restrictions which experienced a slight decrease (from 29% in 2019 down to 25% in 2020). It will be interesting to see whether this trend will feature in next year’s edition; we have started witnessing a trend towards “retailization2” and expect more players to focus on open-ended funds as well.
Fund size and gearing
Slightly more than half of the surveyed vehicles reported a NAV below €100 million (49% in 2019) and only one third a target NAV below €100 million.
46% of the REIFs in the survey keep their gearing level below 20% loan to value (LTV) demonstrating a 10% increase compared to 2019. 43% aim to keep their LTV level below 60% (also more than last year).