Limited partners were urged not to blindly follow the surge of capital chasing core real estate assets in the US, amid fears that if they “act like sheep” they should “expect to get fleeced”. The comment on the final day of the PERE Forum in New York was one of many calling on LPs to become more vocal with their fund managers.
With almost 43 percent of equity targeting the US eyeing core and core-plus investments, compared to 25 percent for opportunistic deals and 21.8 percent for value-added, according to Urban Land Institute and PricewaterhouseCoopers’ Emerging Trends 2011 report, there are fears some core transactions are becoming more risky than higher-risk strategies.
During the two-day event, the 200-strong audience also heard concerns about the amount of debt available in the market, particularly debt available for core deals, as well as fears about where the economic drivers of demand will come from in the next few years.
Below, we present a selection of quotes from panelists attending the PERE Forum in New York.
* “The deals are there … you just have to have your Hazmat suit.” – a real estate fund manager
* “If the fund model is going to continue in any shape, size or form, LPs need to have a sensible say and have people representing them, representing their company, who are enabled to make decisions at that meeting and are prepared to speak out.” – Mark Burton, a member of the real estate advisory board
of Norges Bank Investment Management, which manages the capital of Norway’s $300 billion sovereign wealth fund
* “The co-investing club will become, for the bigger guys … the better investment vehicle for a while.” – Thomas Barrack, chairman and chief executive officer, Colony Capital
* “The FDIC is arguably the only true seller in the market up to now.” – a real estate fund manager
* “There’s no evidence that co-investment makes you a better investor. It may cause you to lose your own money on a bad investment, but does it make you a better investor?” – Ted Leary, founder of advisory firm Crosswater Realty Advisors
* “There’s an unbelievable, excessive amount of debt availability.” – a real estate fund manager
*“I am generally concerned about the overall economic demand drivers for the US. [That’s] why public investors look at the top markets because they have multiple demand generators. It’s easy to look around and find opportunities to get peak revenue per available room and peak net operating income.” – Mit Shah, founder of the hospitality investment firm Noble Investment Group
* “The non-performing performer.” – one real estate investment manager describing borrowers who stop making debt repayments when their lender fails in the hope of securing a discounted debt buyback or renegotiation of the loan
* “If you act like sheep, expect to get fleeced.” – Nori Gerardo Lietz, chief strategist private real estate, Partners Group offering advice to limited partners and the consultants that represent them