Last month, PERE had breakfast with a real estate investment manager which, upon receiving this investor’s RFP, spent time pitching its latest offerings.
No joke. According to the manager, this investor is no stranger to private bricks and mortar investing either. While other institutional investors in Asia and latterly the US were busy capturing value in the years post the global financial crisis, it spent its time licking its wounds from pre-crisis vintage investments, typically made in the higher risk and return bracket. Indeed, our breakfasting manager displayed a modicum of frustration as he recounted how he was asked by the investor for core strategies it offered in 2010 to 2012, back when the markets were reeling and the fruit was low-hanging.
“If only we could swear at our investors sometimes,” he grimaced.
Of course that’s the last thing he should do. A manager can extol all the wisdom about market selection and timing he likes. The investor must still decide to sign the check.
Our European investor, we’re told, is cognizant of today’s tight yields, but still wants to commit its capital in order to satisfy its lagging property allocation nonetheless. The manager should shrug shoulders and duly oblige.
In fact, there is said to be an incoming second tier of indirectly investing European institutions that, after taking something of an investing sabbatical, are today ready to deploy capital into European private real estate markets once more. It is a capital pool that is happy to earn less in the short-term if that means not repeating the loss-making mistakes of the past. For them, for the higher risk and return strategies, there’s Blackstone, Lone Star and other global fund managers that are open for business.
What that means for some of the world’s more niche opportunistic strategies, some of which feature in a dedicated section in this magazine, remains to be seen. What is more predictable, if our breakfast is any indicator, is that there’s another wave of incoming capital hunting in the already chock-a-block European prime property market. That is not a joke.