Non-listed real estate management fees remain stable

The latest INREV Management Fees & Terms Study 2020 reflects a broadly consistent level of fees and costs faced by investors in European non-listed real estate vehicles, compared with the previous study published two years ago.

Average Total Expense Ratio (TER) for all vehicles based on gross asset value (GAV) before performance fees was 0.87 per cent (as reported for 2019), versus 0.86 per cent reported for 2017. However, a cross-sectional review of the results reveals a more nuanced picture, highlighting notable variations based on vehicle characteristics, such as size, style and structure.

The latest findings reveal that larger European non-listed real estate vehicles exhibit lower expense ratios. Larger vehicles (over EUR1 billion GAV) recorded a notably lower average TER based on GAV and before performance fees at 0.62 per cent, compared with a 1.18 per cent equivalent for smaller vehicles (less than EUR500 million GAV).

Similarly, core funds posted a 0.80 per cent average TER, versus value added and opportunity funds, each with 1.05 per cent. The differences between open end and closed end funds were similar to those observed between core and value added funds. Open end vehicles reported an average TER of 0.68 per cent, while those with a closed end structure hit 1.20 per cent. Funds with over 60 per cent target gearing noted an average TER of 1.82 per cent – almost three times the 0.66 per cent shown by funds with less than 40 per cent target gearing.

Differences also occurred across vintages. Funds launched between 2001 and 2007 and those launched from 2007 onwards filed an average TER of 0.91 per cent and 0.92 per cent respectively; whereas, older funds lunched before 2001, showed a lower average TER of 0.56 per cent. The evolution of the funds can partly explain these results as the sample of funds launched before 2001 now only includes open end funds, which tend to display lower TERs, as the older funds with a finite structure (closed end funds) have now liquidated and are no longer part of the study.

Funds that follow a single sector strategy show lower average TERs compared to funds that follow a multi sector strategy. There were interesting divergences across vehicles targeting single sectors. Those focused on offices posted the lowest average TER of 0.53 per cent, while vehicles focused on residential, retail and industrial / logistics reported TERs of 0.61 per cent, 0.80 per cent and 0.93 per cent, respectively.

Iryna Pylypchuk, INREV’s Director of Research and Market Information, says: "These results reinforce the fact that size really does matter; as do all other characteristics, be it style, structure, geography and sector strategies, vintage and gearing. The numbers suggest that riskier strategies are likely to encounter higher fees as a proportion of a vehicle’s GAV, while large core funds report lower expense ratios. That said, the complexity of diversification clearly comes at a more elevated cost, so multi-country and multi-sector strategy funds apply higher TERs than those targeting a single country or sector."