Record EUR32bn raised for global real estate debt vehicles

Global real estate

Non-listed real estate debt products continue to attract attention from institutional investors and investment managers, with a record high of EUR32 billion raised globally in 2019, according to the INREV Debt Vehicles Universe 2020 study.

This reflects a strong uptick in demand for non-listed real estate debt, representing a circa 50 per cent increase on the 2018 results and is significantly higher than in any given year since INREV records began in 2013. According to the global Investment Intentions Survey 2020, investors in North America and Asia pacific have a strong preference for non-listed real estate debt strategies. In Europe, where the private debt market is still immature – it is not yet in the top three preferred strategies for investors in this region – but it is growing strongly.

Debt vehicles posted strong performance expectations in 2019, with the average target IRR for all vehicles of 7.7 per cent. Vehicles with a senior loan strategy targeted an average IRR of 6.8 per cent, while those adopting riskier, subordinated loan strategies recorded a target IRR of 10.3 per cent.

Vehicles with a mixed loan generation strategy dominated the composition of the universe, accounting for 33 of the total number of 80, with a combined target equity of EUR31 billion. Almost as many vehicles (32) adopted a direct lending strategy, with a combined target equity of EUR11.8 billion.  However, these tend to be significantly smaller in size with an average target equity of around EUR370 million.

The study also reveals the predominance of vehicles focused on a senior debt strategy, which accounted for 51.3 per cent of the total universe and a total target equity of EUR30 billion. By contrast, subordinated strategies (such as mezzanine and junior debt) made up less than 20 per cent of the total, be it by number, target equity or target GAV.

In terms of geographic strategy, debt vehicles with a multi-country: pan- European strategy occupied a pre-eminent position, accounting for EUR26 billion (74 per cent) of the total target equity. Single country: Western European debt vehicles were the second largest group accounting for EUR8.3 billion.  Debt vehicles with a multi-country strategy tend to be larger relative to the single country structures. And of the single country group, vehicles with a focus on the UK accounted for 33 out of the total of 42 with EUR12.9 billion in target equity.

Iryna Pylypchuk, INREV’s Director of Research and Market Information, says: ‘These data point to a general uptick in investor interest in real estate debt vehicles latterly, and judging from the latest announcements capital raising activity for debt strategies continues strongly. We believe the INREV Debt Vehicles Universe study already delivers greater transparency of, and insight into, the non-listed real estate debt space for market participants.  However, our longer-term aim is to continue to build coverage and to create the very first European private debt vehicles performance index to enable a more comprehensive analysis of the market as it continues to evolve.’