EUROPE – Between €8bn and €10bn has been raised for European real estate debt investments, but a changeable lending market has prevented more debt funds from being launched, according to INREV.

The association's 'European Real Estate Debt Study' estimates that €4bn-5bn has been raised for debt funds over the past three years, with a similar amount secured for separate account mandates.

Following the release of its first major piece of research on the emerging investment sector, INREV said investors had expressed "increased interest" in European real estate debt funds, based on interviews with institutions.

But the report also referred to challenges facing fund managers seeking to launch debt funds – principally, a difficult capital-raising market and a need to adjust to changes in the European lending market.

Vitaliy Tonenchuk, senior research manager at INREV, said many plans to launch real estate debt funds had been aborted because of two factors: concerns over the ability to raise enough capital with sufficient speed to execute a strategy and doubts about finding the right deals in the market.

Some managers of mezzanine funds raised in 2011 were forced to return to the investors to request widening the strategy to include lower-risk subordinated and stretched-senior debt, he added.

Mezzanine strategies are predicated on the existence of an active senior debt market, but this year senior financing has become scarcer, prompting debt investors to change their strategies.

Such shifts are likely to result in a lowering of return expectations for investors.

Tonenchuk said some investors that had committed to real estate debt funds saw that "the promises that were made a couple of years ago didn't materialise".

The INREV report highlighted manager track record as one of the most important factors for investors when considering whether to commit capital.

"The deployment for some funds proved a challenge, and that's what [investors] are concerned about," Tonenchuk said.

"There were instances where fund managers were launching new funds when existing funds were not fully invested. That was also a point of concern for them."

The INREV report also found the emergence of a clear division between senior debt strategies – which promise returns of 4-6% and would be of interest to fixed income investors – and subordinated debt, which offers returns anywhere between 6% and 20% and are more likely to interest traditional real estate investors.