ULI 2010: Push for direct investing will be ‘temporary’

Commingled private equity real estate funds will remain a force within the property investment world, amid suggestions institutional investors’ call for more direct investments could be short-lived.

The trend among institutional investments to make direct property investments will be a temporary phenomenon as a lack of equity deals make it difficult to execute the strategy.

Delegates at the ULI spring conference in Boston were told the commingled property fund model would remain a “force” within the investment world,

Speaking at yesterday’s general session, ING Clarion chief executive officer Steve Furnary said direct deals were in part a response to the pain many LPs had experienced in the wake of the credit crisis. As an “antidote”, some had taken more control by making direct investments themselves. However, with few deals coming to market and pricing for core, stabilised, trophy assets becoming increasingly competitive, many investors could “revert back” to fund managers for help in deploying their capital, saying direct investing could be “temporary”.

Furnary added though it would with managers who had proven themselves as “fiduciaries, someone with operating capabilities and an entity that will serve them well”.

Jones Lang LaSalle’s president and chief executive officer Colin Dyer added private equity real estate LPs hadn’t “changed their approach to real estate”, despite the pain of devaluations and “finger pointing” between investors and their fund sponsors.

Dyer predicted: “The private equity funds, after getting through the hard pain and being beaten up by their LPs, will be back in full force. [Private equity real estate funds are] a very effective vehicle for institutions to effectively and cheaply enter the physical real estate markets.”