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DLA Piper: PE firms no longer most active in RE

Property executives expect another group to command a greater portion of US investment activity next year, according to the global law firm.

For the past three years, US private equity firms have been viewed as the most active property investors in the country. In the coming year, however, they stand to be overtaken by another group that is viewed as being even more aggressive in putting out capital.

In DLA Piper’s new State of the Market Survey, 37 percent of property executives anticipated that foreign institutional investors such as sovereign wealth funds and pension funds would be the most active in US commercial real estate over the next 12 months, followed by US pension funds at 28 percent. US private equity firms, however, came in third, representing 21 percent of the vote. Individual investors, such as high-net-worth individuals and crowdfunding, along with real estate investment trusts rounded out the remainder.

This year’s results were a departure from DLA Piper’s 2011 and 2013 surveys, when US private equity was predicted to be the most active property investor in the coming year. Last year, for example, 28.6 percent of respondents predicted that that US private equity would lead the investment pack, compared with 25.9 percent for foreign investors and 23.3 percent for US pension plans. US private equity also prevailed in 2011 with 34.66 percent of the vote, followed by foreign investors with 25.27 percent and pension funds with 19.86 percent.

“Foreign investors continue to see the US commercial real estate market as a safe haven for investment as well as diversification, and commercial real estate executives believe that group will be the most active,” the firm wrote in its report.

“Foreign investors have gotten a lot of play,” Jay Epstien, co-chair of the global real estate group and chair of US real estate at DLA Piper, told PERE. “They’ve done a lot in New York and Los Angeles. They got higher level of recognition this year than the past two years.”

Although “an enormous influx of capital” has entered the US from investors in China, Canada and Australia, Epstien was quick to point out that “private equity is just as active as it has been. [But] given where we have been in the past 12 months, there’s not question there’s been a higher level of activity from foreign investors year-over-year.”

The report also noted that property executives had different perspectives on the most active equity investor in the US, depending on his or her role in the industry. For example, 45 percent of lenders who responded to the survey believed that foreign investors would be the most active, while 36 percent of third-party brokerage participants felt the same about US private equity firms.

The State of the Market Survey was conducted last month and represented the responses of 158 top executives in the real estate industry. They comprised chief executive officers, chief operating officers, chief financial officers and other senior management, including real estate developers, debt providers, property investors; third-party brokerage; property and asset managers; and other real estate professionals.