A tide of Asian capital is moving into global real estate markets but a herd mentality and internal company dynamics are among the factors preventing investors from adopting their own overseas investing strategy.
“There is a crowd mentality among Asian-based investors. If a fellow pension fund has made a successful overseas investment, there is political pressure at a corporate level in many institutions to go overseas,” said Vincent Ng, partner at Atlantic-Pacific Capital and one of the panelists speaking at the PERE Global Investor Forum held in Hong Kong today.
When it comes to deciding how and where to deploy capital overseas, however, many Asian investors find it hard to get a unanimous approval from their own investment board.
“The investment team and the risk management team have different preferences. For the investment team, a well-leased property in a secondary location could also be core, but the risk management team may not agree,” explained Henry Ching, head of real estate, Asia, for Mercer Investments, a role in which he is responsible for investment consulting and research for private and listed markets in the region.
In terms of the investment strategy, most panelists agreed that many Asian investors, particularly Chinese investors, have demonstrated a preference towards direct overseas investments. This too is guided by cultural and strategic factors, including the “me-too” mentality.
Ng was of the opinion that owning an asset and paying someone else to manage it “just doesn’t feel right” to the Asian investors, a contrast to western institutional investors which are more amenable to paying a fee and hiring third-party asset managers.
“A degree of over-comfortability and over-confidence in their knowledge about real estate has led Asian investors into jumping headfirst into joint ventures or direct investments. The results however have been mixed,” he said.
Rui Torres de Oliveira, managing director, Asia for Sonae Sierra, a global developer and investor in shopping centers, added: “Asian investors who are investing in developed markets are slowly realizing they need to pay local asset managers, which they are not used to. And if they choose not to use local partners, there are bound to be bumps on the way.”
There was agreement amongst the panel that niche sectors such as healthcare and student accommodation in Europe and the US are a viable investment opportunity for many institutional investors, especially as the competition for core office buildings in central business districts in gateway cities such as London and New York has driven up prices. Among the Asian investors, Oliveira said that given the Chinese insurance companies have invested in healthcare centers for the aged within their country, they would like to do similar deals overseas in student accommodation, holiday resorts and other niche sectors, but the challenge lies in execution and getting regulatory approvals.
“They are afraid to put such ideas to their investment team and there is a career risk involved. Therefore, they [Asian institutional investors] chose the path of least resistance and invest in core deals,” Ching explained.