Pension plans will be the most significant source of equity for commercial real estate in 2012, while joint ventures and recapitalisation deals are being viewed as the most attractive options for investors, according to Goodwin Procter’s inaugural survey of the real estate capital markets.
The survey, Real Estate Capital Markets Snapshot 2012, was compiled from responses submitted online by nearly 290 participants in the industry, including investment managers and fund sponsors; owners and operators; investment bankers, advisors and placement agents; and investors.
About 55 percent of all respondents cited pension plans as the number one or number two source of equity capital this year, followed by US opportunity funds, publicly-traded sources and sovereign wealth funds. However, among investment managers and fund sponsors, nearly half expect sovereign wealth funds to be their number one or two source of new equity capital this year.
Pension plans, “along with sovereign wealth funds, have the most money to invest,” said Rob Insolia, co-chair of Goodwin Procter’s private real estate investment fund practice. “They have a lot of the dollars.”
Forty-six percent of all respondents said they were most likely to participate in 2012 in a one-off joint venture – a venture involving an operator partner, a financial partner and a single investment – than other structures. In order of preference, the remainder of survey participants expected to engage this year in programmatic joint ventures, commingled funds and club deals. However, 56 percent of investment managers and fund sponsors said commingled funds were their preferred alternative.
The survey results reflect a significant shift in investor sentiment from just four years ago, when most private equity real estate investment managers and investors focused on commingled funds as their primary capitalisation structure. “There are a lot of investors who want discretion over how dollars are put out,” said Insolia. While not all investors have the capacity to underwrite deals, those who have the wherewithal to do so “are absolutely looking at joint ventures and other alternatives where they have discretion over the deployment of capital into investments.”
As for commercial real estate investment opportunities, the largest percentage of overall respondents – 45 percent – view the recapitalisation of existing investments as their top opportunity in 2012, followed by property acquisitions from third parties and distressed debt acquisitions. Unsurprisingly, almost 50 percent of owners and operators see property acquisitions from third parties as the most sizable opportunity, while 35 percent of lenders favor distressed debt.
Survey respondents, however, were more divided on the effect of US legislative and regulatory changes on capital flows into US real estate. Nearly 54 percent of overall respondents believed that new and proposed legislation such as the Dodd-Frank Act and the Volcker Rule will have no impact on capital flow into the overall real estate capital markets, although 37 percent expect such initiatives to affect transaction and fund structures. Almost 43 percent of participants, however, said the measures will constrict capital flows into US real estate.