Real-Estate Investors Heading Overseas, Creating Opportunities at Home
Real estate investors are going global. Seeking to avoid the troubled housing market. U.S. investors are heading overseas as international real estate emerges as a more viable asset class. Global real estate mutual funds in the U.S currently manage roughly $16.8 billion, according to Morningstar. That’s including more than $5.8 billion in new inflows this year alone. Once a rarity outside the U.S., more countries are also entering the REIT market, giving investors a chance to take advantage of booming property markets around the world. Meanwhile, investment professionals at home are capitalizing on the trend. According to executive recruiting firm, A.E. Feldman, top firms are looking for candidates with expertise in real estate.
International public real estate has attracted significant investor attention recently. The Dow-Jones Wilshire ex-US Real Estate Index has returned 34.1% over the last 12 months, according to research compiled by Hammond Associates. Annualized over the last three years, the index returned 28.2%, outperforming U.S. REITs. Joe Azelby, global head of real estate and infrastructure at JP Morgan Asset Management told the WSJ, “We’re seeing great interest from our high-net-worth investors who want a global approach to their real-estate allocation.” Azelby added that a widely held view among clients “is that there are real growth opportunities in real estate when you look at the growing economies around the world and the massive urbanization taking place.” Despite some concerns over valuations, Hammond says the long-term trends of the international real estate market appear to be favorable. The firm concludes that the fundamentals underpinning the commercial real estate market, such as falling vacancy rates, limited supply in attractive markets, strong economic growth and relatively low interest rates, are attractive and could drive prices and rents higher in many countries.
The global real estate market has also become more attractive in terms of transparency and liquidity, according to a recent report from Merrill Lynch and Capgemini. Considering direct real estate investment alone, the report also found that global transaction volumes increased by 38% from 2005 to 2006, reaching $682 billion. Inclusive of REIT investments, the total transaction volume was $900 billion.
The U.S. was the first to establish REITs back in 1960. Now, there are at least 20 countries that allow REIT-like investment vehicles. Both Germany and the United Kingdom recently finalized REIT legislation. Italy, Finland, Spain, China, and India are also currently considering corporate REIT structures. And according to Fidelity, the rapid pace of new REIT legislation in recent years, it’s a safe bet that the securitization of overseas real estate may continue to grow at a decent clip.
As a result, A.E. Feldman says real estate jobs for investment professionals are growing. Firms are seeking candidates with real estate investment and structuring experience as well as a good understanding of surrounding legal, tax and commercial issues.
