It seems that US institutional investors are at something of a juncture.
If last month’s flurry of research reports is anything to go by, the demand-supply dynamic for institutional-grade real estate Stateside is now so starkly weighted in favor of sellers that many US investors probably should hit the pause button – lest they want to ramp up on risk.
In its well-respected Great Wall of Money biannual report, property services firm DTZ notes how new capital targeting commercial real estate in the Americas was up 12 percent year-on-year to $166 billion, far in excess of a global increase of 5 percent. One week before DTZ’s report was released, association triumvirate INREV, ANREV and NCREIF released their own report in which they stated how US private property returns lagged Asia for the first time in two years: 3.1 percent versus 3.6 percent.
The number crunchers are converging at the same place: against mounting predictions that fixed-income asset yields will soon notch up, US core commercial real estate investing by US institutions – with all the resource requirement it brings – will diminish, and notably so. Indeed, DTZ has noted how certain firms are rushing to close fundraises early to take part in what might be a late push of deal activity before sentiment sours.
But is upping the ante the right answer? Certainly this year’s PERE 50 ranking suggests it could be. Peruse (starting on page 28) and you will discover a value-added and opportunistic real estate investing universe dominated by US-focused strategies. Indeed, only six of the 50 spots were taken by European or Asian firms.
But do pay special attention to those firms that nearly made the cut. Of the ten firms that found themselves in our ranking’s epilogue, you’ll note that more than half were of non-US origin. Expect to see these guys inside the top 50 next year, as more US investors port their higher-risk dollars to ex-US strategies. Throw in a stabilizing Eurozone, replete with an accommodating euro exchange rate, and sustained political reform in Asia, and 2016’s PERE 50 ranking will almost certainly offer meaningfully greater geographical disparity than this year’s list.