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CBRE’s Khourie: separate accounts are the preference du jour

Matt Khourie, head of CBRE Global Investors, says the world’s biggest real estate investment manager is seeing twice as much capital coming into separate accounts than is coming into its funds.


When CBRE acquired ING Real Estate Investment Management (ING REIM) last year, aside from becoming the world’s biggest real estate investment manager, the Los Angeles-based property services company also inherited a sizeable suite of pooled investment funds. However, in a recent conversation with PERE, global president Matt Khourie explains how currently the firm is seeing approximately twice as much capital coming into its separate accounts programme as it sees coming into its funds.
Here is a snapshot from that conversation:

PERE: Can you provide an update on the business following the merger with ING REIM?

Matt Khourie: One area of growth that has been probably the most satisfying is our ability to build on our relationships in one region in order to migrate capital for those investor clients to other parts of the world through our expanded platform. We’re experiencing cross-border flows that are greater than we’ve ever had, and a lot of it comes out of the merger. Certain relationships we didn’t previously have, for example in Asia, now have matured to the point where they want to look to place capital either in the US or in Europe, and we’ve been able to accomplish this with our new platform. A lot of our growth has been in the separate account arena and has been via these cross-border capital flows.

PERE: Can you talk a little more about your growth in the separate account arena?

MK: We have kept all of our legacy separate account clients and have been able to add a few select new cross-border accounts that desire to have exposure in the US, in the UK, in Asia, and to a lesser extent, in continental Europe. It’s not a large number of new clients, but the ones that we’ve added are substantial. They are looking for big deal ticket sizes in the range of $50 million to $250 million of equity for each individual investment.

PERE: Can you break down how much capital is going into separate accounts versus funds?

MK: What we’re generally seeing is approximately twice as much capital going into separate accounts versus funds, if you look at those two independently. I would say separate accounts certainly are the preference du jour. Things will change, but it goes back to the concept of most investors wanting to go through this uncertain period with more control. Separate accounts afford more control, more decision-making for the investor.

PERE: Overall, how do you see the global real estate investment scene now compared to how it was at the end of 2011?

MK: It’s changed a fair amount. The Euro crisis still hasn’t sorted itself out yet. It was hoped that there would be more certainty today, but the clarity still isn’t there. The US is perceived as a safe haven in a lot of ways, and that’s why you’re seeing core pricing here, especially in the US gateway cities, has continued to get more expensive. One thing that we ask ourselves, that we really weren’t asking at the end of 2011, is how much more money do we really want to put in the gateway cities with strong core product, because the pricing has become so high. We’re still buying core, but we’re trying to buy core in situations where we’re not having to bid up the pricing to levels that we’re not comfortable with. Many investors have less comfort investing in Asia right now compared to late 2011 just because the market wants the “hard landing” question answered – and it still hasn’t been answered. Our belief is that residential prices seem to have bottomed out in most of China, and the Chinese government still has a lot of ammunition in its toolkit to stimulate its economy. I think you’ll start seeing more capital flow to China in the next 12 months than you’ve seen in the last eight or nine months.

PERE: What’s your outlook for the private real estate investment management industry?

MK: I think you’re going to continue to see a consolidation in our industry. We’re seeing a lot of smaller platforms that are stuck in no-man’s land, trying to figure out what their next step is. These firms may have one or two funds that they’ve put together, and the last fund hasn’t performed well because of vintage issues. They can’t raise new money, but they still have a fund to run, and they have to determine how to create an operating platform large enough to get out of no-man’s land. I think a lot of investment managers are still trying to figure this situation out. Some will be able to ultimately raise new capital and find their way, some will come to work for larger platforms like ourselves, and some will get out of the business and do something totally different in the industry.