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Emerging markets ‘on fire’

Participants at the 2007 PERE Forum in New York discussed the credit crunch and the outlook for US private equity real estate performance, but much of the talk centered on investor enthusiasm for emerging markets property.

Delegates to the 2007 PERE Forum, held this week at the Marriott Financial Center in New York City, were given a world tour of real estate opportunities, with much of the discussion centering on opportunities in developing economies.

Sonny Kalsi, managing director and global co-head at Morgan Stanley Real Estate, opened the day’s discussions with a keynote address on private equity real estate’s march to the global property markets.

“Emerging markets are on fire,” Kalsi said, adding that approximately two-thirds of the firm’s portfolio is invested outside the US, with 25 percent invested in the emerging markets.

Investors expressed a high degree of interest in the largest emerging markets, including India, China and Brazil. However, some private equity real estate firms expressed an appetite for countries often dubbed “frontier” markets. Chris Fiegen, chief investment officer at Equity International, set out Libya as the new market to watch. The firm has espoused its early-mover advantage.

Brazil was noted as a top destination for equity investment within Latin America. Strong economic fundamentals and a growing middle class continue to be a magnet for capital flows. “It’s a very different kind of market than it was ten years ago,” said James Worms, president of Paladin Realty Partners, who led a roundtable on the Brazilian property market at the conference.

The credit crisis this past summer in the US was noted as a cause for concern among participants at the conference, though most were not overly concerned on its impact. “In the US, the credit markets will stabilize at some point,” Kalsi said.

The view on fundraising for 2008 was not dire, but some participants did not see marked growth going forward in this area. During a panel entitled “Five predictions for private equity real estate,” panelists agreed that fundraising in 2008 would not see the record amount of capital raised this year. There was also consensus that the effects of the credit crisis in the US would not soon be forgotten.

Some participants described a predicted slow-down in deals and fundraising as a return to normalcy. “It’s just been too easy to raise money,” said Equity International’s Fiegen. “Over the last couple of years you could take a ham sandwich public if you had the right condiments on it.”