A rash of closed-ended fund sales is helping to fuel a new boom in open-ended real estate funds as a range of assets come onto the market after being locked up for years.
Many closed-ended funds, which were launched in the years immediately before the global financial crisis, are now reaching the end of their life.
This now represents an opportunity for open-ended fundraising and has removed a key obstacle they have faced – a lack of available assets.
China is looking particularly lucrative with its asset sales, the pricing of which has been helped by the recent decline of the renminbi.
“Managers are working very hard to get open-ended funds up and running,” said Graeme Torre, Asia-Pacific managing director of Invesco Real Estate.
Open-ended funds typically focus on core real estate, with opportunistic and value-added strategies being more appropriate for closed-ended structures, whose funds have a fixed investment life span.
In contrast, open-ended funds keep raising and investing capital. That can pose challenges in Asia's cyclical market, which has a limited supply of core assets.
A host of those funds – which typically have a three-year investment period followed by a seven-year fund life after that – are coming to the end of their lives.
A surge in capital raising in 2006-08 has led to what is now “a greater concentration of disposals” than usual, observed Torre, as those funds sell assets.
There are a large number of assets in China in particular still to be sold from funds coming up to expiry, observed Nick Crockett, Asia-Pacific head of CBRE Capital Advisors. He added that there were also some assets to be sold in markets ranging from Korea to Singapore and Hong Kong. Australia and Japan have already seen sizeable disposals so far this year.
Those disposals helped drive a 63% year-on-year rise in Asian real estate investment in Australia and New Zealand in the first half of 2015, according to figures released yesterday by CBRE.
That steady supply of assets is helping to feed the establishment of large open-ended pan-Asia core real estate funds. “Big real estate investors all want to set up big core funds like they’ve got in other parts of the world” said Crockett, citing managers ranging from Invesco to Morgan Stanley and BlackRock.
A scarcity of core real estate – high quality properties connected up to infrastructure which have high-quality tenants locked into long leases – has long been a feature of Asia’s real estate market. “When core stock does become available, the competition can be fierce,” said Andy Schofield, TH Real Estate’s director of research.
“If grade-A properties come on the market [in markets like China and India], then a heap of people look at it,” added Alan Dalgleish, CEO of Anrev (the Asian association for investors in non-listed real estate vehicles).
The decline in the value of China’s renminbi over the past week has also lowered the price of entering that market for offshore real estate investors.