Real estate funds can be an investment for additional dissipation of the portfolio

Real estate can also be an investment. In addition to the most widely used form, which is a rental purchase, investment is also possible by buying undervalued real estate, which we again offer to the market after the renovation, and the growth is experienced by real estate investment funds.

These can be classic mutual funds that invest the funds raised in the shares of companies in real estate activities. They can be alternative funds aimed at raising investors’ money and offering it to investors in real estate looking for bank loans alternative sources of financing. Real estate funds can also buy and manage real estate with money raised, and investors pay off, for example, from the rents received.

“Depending on the regulatory framework, we know many forms of real estate funds, such as public, private, alternative, open, closed, or not. Depending on the investment strategy, we have growth funds, liquid returns and hybrid. There are also differences in the ways of creating a basic value added strategy and opportunistic strategy of the Fund. Funds invest in commercial buildings, residential complexes, industrial facilities, shopping centers and other forms of commercial real estate, « explains prof. dr. Timotej Jagričhead of the Institute of Finance and Artificial Intelligence at the University of Maribor.

In funds already a thousand billion euros

In the euro area, in the last decade, real estate funds that invest directly in physical real estate or indirectly have been on the rise in the last decade by financing companies investing in real estate. Between 2012 and 2022, their total value tripled and exceeded one thousand billion euros. In 2022, according to the ECB, 40 percent of the commercial real estate market in the euro area was already represented, and their share is smaller in residential real estate.

According to Jagrič, by 2023 interest in real estate funds increased due to low interest rates, finding alternative investment opportunities and providing sufficient yield. After a significant cooling in 2023, the market has again stabilized and the global index of these funds has been achieving an average of 8.5 % in the last decade, and in Europe the average annual return is approximately seven percent, he summarizes.

According to the ECB, these funds are characterized primarily by Germany, Luxembourg, France, the Netherlands and Italy, but as the Generali Investment management company notes, interest in them in recent years has also been increasing in Slovenia and their role has been strengthening. This is also confirmed by the establishment of new alternative investment funds, but this investment class is still in the creation in our country, according to Investments.

Jagrič agrees, adding that the release of regulation, the development of the rental market and the promotion of institutional investors could contribute to improvement, which is confirmed by numerous studies. However, these funds do not solve the problems of the Slovenian real estate market, he points out.

Region with a lot of potential for growth

In 2018, Generali Investments founded the first real estate fund with the status of a special investment fund in Slovenia, Generali Adriatic Value Fund. His investment strategy pursues the search for commercial real estate in the territory of Slovenia, Croatia and Serbia with appropriate internal value and with the potential of growth and stable revenues.

In seven years of operation, the real estate market has been highlighted by many challenges, the largest of which was the pandemic. Nevertheless, he was successful in terms of investors. The experienced and professional team manager manager managed to retain revenue at the same level as in the year before Covid-19, in Generali Investments.

In commercial real estate, it is important that in an attractive location, that they have all the available infrastructure, which must be effective, obtained all permits for efficient use and to maintain full occupancy of the premises intended for rent, and to invest in real estate in such a way as to increase their value.

Real estate funds provide investors with stable returns as well as inflation protection, because they usually have the potential to grow value over time and to adjust rents in accordance with inflation. Photo: Voranc Vogel/Work

“The most concerns of investment living at home and abroad were related to the illiquidity of the market. With successfully completed sales processes, we also brought this out and showed that quality and well -managed real estate in Slovenia are more than satisfactory liquid, « they say in Generalija Investments, believing that there is still a lot of unused potential for growth in our region.

This shows a comparison of average rent returns, which are significantly higher here than in the neighboring regions, « which is why we plan to offer the market this year the Adriatic Value Fund II real estate fund, which will continue the successful story of our first real estate fund, which is coming to an end, » they predict.

For institutional investors and wealthier

Alternative real estate funds are usually intended for institutional investors, family offices (Family Offices) and the wealthier individuals who want to additionally disperse their property are still explained in Investments Generali.

Research from the European Association of Inreves shows that real estate funds allow investors to have stable returns as well as inflation protection on the one hand because they usually have the potential to grow in value over time and on the other, due to the adjustment of rents in accordance with inflation.

In this way, they significantly complement the classic stock and bond investments and also help reduce the total risk of the portfolio, since the value of real estate is not directly related to movements in the stock or bond markets. However, the potential for such funds depends on several factors, including the availability of quality real estate, macroeconomic conditions and the legislative framework.

According to Timotej Jagrič, with the benefits offered by real estate funds, the risks, including market volatility, sensitivity to interest rates, business cycle and inefficiency of management should also be aware. “In doing so, pay attention to the risk of risks with the risks of other investments, which professional controllers pay particular attention to. The risks also depend on what types of projects they are investing in, so it is important for the investor to know the real estate sector well. «