ULI 2009: consistent 20% returns from real estate ‘unrealistic’

As transaction volumes start to slowly pick up in the US, real estate professionals at the ULI conference argue that investors need to “get real” over return expectations.

Consistently generating 20 percent-plus returns from real estate is “unrealistic”, with investors urged to “get real” over return expectations, the ULI annual fall conference has heard.

Urban Land Institue chairman Jeremy Newsum said in the wake of the credit crisis there needed to be a re-evaluation of expected yields from property. “The idea that you can generate 15 percent to 20 percent returns consistently from just owning real estate is unrealistic,” Newsum said during a media briefing.

He added there would always be some opportunities to make outsized returns but “not for most real estate. Too many people assumed make that much return consistently. We need to have a realistic view that [real estate] is a long term asset.”

The need for fund managers and investors to be more realistic over return expectations was a debate repeated during the course of the conference in San Francisco this week.

AMB Property Corporation chairman and chief executive officer Hamid Moghadam said yesterday it was time for all parties to start talking about “real numbers”.

“I don’t know where the 15-20 percent money is going to get invested,” he argued during a capital markets debate.

He was joined by Rockwood Capital Group senior managing director Robert Gray who said today the industry would target discounts and cash yields but also had to “get real” in relation to achieving high yields on all assets.

“You are just not going to get yields by following the flock,” Gray said. He added that to achieve higher yields in the current market distress investors should target real estate assets that had been “hurt the most”, such as hotels, residential and land.