Probitas: Investors fear ‘flood’ of money into RE

Too much money is flooding into real estate, driving down returns while adding risk, say 86 percent of investors surveyed by placement agent Probitas Partners.

This response was the leading concern across all types of investors and across all geographies, and the percentage of those concerned increased from 72 percent of respondents in last year’s survey.

The survey, Real Estate Institutional Investor Trends 2105, also revealed that investors’ next biggest fear is that real estate is “nearing another cyclical market high point”, with 52 percent of respondents selecting it as a major concern.

Yet, in spite of these concerns interest in the asset class remains strong with investors continuing to commit to the sector. The firm said 70 percent of the respondents were either concentrating on their current manager relationships, while targeting a limited number of new fund managers, or were actively looking to add new fund manager relationships.

And as far as interest in real estate strategies, the picture this year is decidedly mixed. Those investors totally focused on core strategies nearly doubled from 12 percent last year to 22 percent this year. However, the number of investors which do not invest at all in core also increased, going from 29 percent last year to 39 percent this year.

The two strategies most widely targeted continue to be opportunistic and value-added strategies which make up a key part of a real estate program for 73 percent and 52 percent of investors respectively.

Probitas expects that the focus on closed-end funds for value-added and opportunistic strategies will continue to be the strategy of choice for most investors without the scale to invest directly.

“Many institutional investors lack the internal resources to pursue more active strategies, such as joint ventures, co-investments, direct investments, and separate accounts, and will continue to access real estate through fund managers,” the firm said.

“However, these investors remain highly focused on manager quality and fund terms. Investors are also becoming more concerned on the leverage and investing strategies being used by opportunistic managers, looking to avoid the worst of the problems that arose in the last market crisis.”