Preqin’s recent study examining investor attitudes towards the private real estate market, Preqin Investor Outlook, revealed that there a number of issues and concerns surrounding the private real estate market. Preqin therefore asked investors which issues they thought were of key concern to them.
The economic climate and the resulting volatility in the real estate market was the most prevalent issue cited by investors, with 28% of those interviewed feeling apprehensive about the state of the market. 26% said that the illiquid nature of private real estate investments is an issue for them and 21% of investors are worried about current real estate valuations.
Another issue that investors consider to be of increasing importance in the private real estate market is the misalignment of interest between fund managers and investors. 18% of investors believe that the interests of fund managers and investors need to be better aligned.
The level of leverage utilized by private real estate fund managers and prevailing debt financing issues were cited by 16% of investors, and 15% feel that transparency levels need to increase. Fund terms and conditions and the fees charged by real estate firms were of concern to 10% of investors, and 10% thought that the poor performance and returns generated by private real estate funds were key issues.
8% of investors stated there is a strategy-to-market fit discrepancy, reasoning that a significant proportion of funds in market are not well positioned to succeed in the current market. Investors thought that funds utilizing strategies which were suited to the current market were difficult to locate and the right opportunities were not readily available.
Finally, 8% of investors are concerned about changing investment regulations. This includes the Solvency II legislation primarily affecting European insurance companies. Solvency II is a fundamental review of the capital adequacy regime for the European insurance industry, aiming to establish a revised set of EU-wide capital requirements and risk management standards that will replace the current solvency requirements. A number of Europe-based insurers believe that this legislation will have an impact on their private real estate portfolios and compel them to make fewer fund commitments.