Only 22 out of 268 funds altered their fee terms in 2009, according to the latest report from Inrev, the organisation for non-listed real estate investors.
There is thus little evidence that challenging market conditions have had an impact on fee levels and structures for non-listed property funds, the report concluded. However, changes to fee terms and levels are expected to feed through to upcoming fund launches.

The highest fund management fees based on gross asset value (GAV) is charged by funds launched in 2007 with an average of 0.69%, which is in line with the property market reaching its peak across Europe.

For funds launched in 2008 and 2009, average management fees for value added funds fell from to 0.56% of GAV compared to 0.80% in 2007 but this was based on a small sample. There is no clear trend for core funds.

The impact of fee terms and levels are difficult to gauge in a market which has seen a limited number of fund launches but interviews with investors and funds managers reported that discussions over fees were common at this time.

'Interviews with investors and fund managers identified problem areas with fees that were now under review,' said Lonneke Löwik, Director of Research and Market Information, INREV. 'For example, investors are now less prepared to accept fund management fees based on GAV as they are seen to have encouraged the use of higher levels of gearing and a quicker pace of investment in some funds. Instead, fees based on net asset value (NAV) or committed capital are favoured. Committed capital fees are now seen as beneficial in markets which have not bottomed out to temper the pace of investment.'

Interviewees also predicted changes to performance fee structures. 'Interviewees said that that going forward fees would be more likely to be charged on realised returns rather than unrealised returns based on valuations. There is also likely to be some adjustment of hurdle rates to become closer to the fund’s target internal rate of return (IRR) in new funds,' said Löwik.

The 2009 INREV Management Fees and Terms Study comprises detailed information of the fee structures and fee levels of 268 European non-listed real estate funds targeted at institutional investors. This covers 55% of the number of funds and 50% of the GAV of the funds in the study universe.