Unlisted real estate has traditionally been accessible only to large investors. Through investment funds, everyone can benefit from the asset class’s unique characteristics.
One could argue that real estate is the oldest form of investing. For millennia, people have invested in land and permanent structures to increase their wealth. For today’s investors, there are three ways to invest in real estate: buying properties directly, investing via stock exchange or investing in unlisted vehicles.
Even though a relatively small portion of real estate, roughly 35 percent in Europe, is held as an investment, at EUR 4.1 trillion in assets under management globally, it is one of the largest alternative asset classes. Real estate investments typically offer capital retention and regular payments, and they can help investors achieve various goals: high returns, reduced volatility, stable income, inflation protection, and diversification.
Investment funds make unlisted real estate accessible for smaller investors
Unlisted real estate accounts for the largest share, almost 85 percent, of assets under management in real estate. The properties can include residential and commercial properties, or other special properties like health care facilities.
What sets unlisted real estate apart from its listed counterpart is short-term correlation. In unlisted real estate the valuation is usually done by a local independent valuer against a 10-year cash flow forecast, which is based on existing lease agreements, market variables and the real estate’s individual characteristics. While the valuation of listed vehicles moves more tuned with the sentiment of a stock exchange, unlisted real estate valuations have historically followed market cycles with significant delays and skipped over a majority of the short to medium-term volatility of the listed market, adding stability to the investment portfolio in the long run.
Traditionally, unlisted real estate has been accessible only to large investors due to its capital- and management-intensive nature. However, ownership can be divided into smaller parts in an investment fund. These funds can include either property from a single area or in multiple geographies. Since local expertise is such an essential part of real estate investing, seeking diversification between countries means that the fund manager has to establish a local office or outsource at least parts of the portfolio management to an external investment advisor. Locally managed funds tend to keep the most important parts of the portfolio management, such as investment selection and value and revenue creation activities, in-house as a strategic choice. In both structures, property management is commonly organized by a separate company focusing on maintenance and other essential tasks that uphold the technical condition of the property and ensure tenant satisfaction.
Unlisted real estate funds give access to the unlisted real estate market for all kinds of professional investors and both balance and diversify the portfolio, even when the investor already has invested to apartments or listed real estate. The smaller commitment size allows the investors to diversify to a wider range of sectors and specific markets more efficiently, which becomes increasingly important in a volatile market environment.
Understanding the market is key
Succeeding in real estate investments requires a thorough understanding of the local market, its law, and how to integrate sustainability into real estate development and management practices. These are the things every investor should look out for when selecting the fund manager – in addition to the track record of the fund manager and expected return, of course. In fund selection investment styles and structure to best fit investors investment strategy is the key. To ensure cash flow, the investor should pay attention to what kind of properties and especially what kind of leases and tenants the fund has invested in.
Evli's Real estate team. Starting left: Kukka Floor, Heidi Tilli, Petteri Nurminen, Tero Mäki, Jaakko Nurmi, Elina Gröning, Tero Tuominen, Saara Raitaranta, Santeri Leijola, Niklas Ovaska.
Evli established the first Finnish real estate fund in 2005, followed by the first Finnish healthcare fund two years later. Today, our direct real estate fund program consists of vintages between 2015–2022, covering local Finnish market strategies in residential construction and commercial real estate and health care.
Our experienced real estate team of ten has a long and successful track record both in the financial and real estate sectors. We have local in-house capabilities for the most value-adding parts of real estate asset management. This way, we can offer our customers an accessible and practical way to invest in the Finnish real estate market with an attractive risk-adjusted return.
NB! Evli's alternative investment funds are intended for professional investors and a limited number of non-professional clients who make an investment of at least EUR 100,000 and who are considered to have an adequate understanding of the fund and its investment activities.