High leverage has been "horribly damaging" to the performance of European property funds over the past decade, according to new research from the Urban Land Institute (ULI).
Large amounts of debt in funds boosted performance during the boom years, but is currently eating into returns. Opportunity funds, which typically have gearing of 60% or more, saw an decrease in returns of 2.2% per year for every 10% of debt in the fund. This is the equivalent to 13.2% per annum for a fund with an LTV of 60%. Value-add funds, which tend to have LTVs of 40-60%, outperformed the