Interest in real estate is building again. A survey of professionals finds that, while muted in some respects, institutional and other investors “are in” for 2013.
We tend to look at institutional investors as among the most savvy and informed players in finance. And there is little reason to challenge that maxim.
For those looking to invest in real assets such as strategic land, a report titled, “Emerging Trends in Real Estate, The Second Act: Optimism Returns 2013 Europe,” says that real estate as an investment in Europe is one of the brighter spots in the Eurozone Crisis environment. Half the respondents to the research for this report affirmed that they are optimistic about real estate in very general terms. Relative to institutional investors, the report offers the following:
• Europe largely remains a difficult sell to the more conservative international institutional investors from the United States and Asia, which would have traditionally invested in the region through core funds.
• One in five (21 per cent) institutional investors in real estate businesses say that sustainability (environmentalism) will have an increasing impact on their business, and this isn’t necessarily a negative. “Sustainability is also about how that shopping centre works with the community around it,” said one respondent. “What role are you playing in the local life of that place? This is the next stage of the sustainability debate.”
• Undervaluation of some properties enables productive investments with little risk. “Banks are pricing good assets with just one or two impairments as secondary because they are worried about values falling further on account of these issues. But investors say they’re attractive because all they need is a touch of TLC to improve prospects.”
• “For residential investors, especially in the United Kingdom and Germany, 2013 will be a key year,” says the report, providing the following quotes from survey respondents: “Residential is the best bet, as a basic need” and “We believe in residential assets in stable E.U. countries. This will only get better over the coming period.”
• Developers and institutional investors, as well as REITs, are following the wisdom of small landlords by increasing participation in the private rented sector. The bet factors in a protracted period in which working young professionals may not be able to buy but instead can afford higher rents. Also, “there is a lot of latent demand for purpose-built stock that allows tenants long leases.”
• Local authorities have begun working closely with pension funds and institutions to build housing on public lands to meet the exceptional social need.
So while institutional investors pursue a mix of real estate asset types, there clearly are signs that this is a category of interest and widespread participation. As should be clear, raw land as well as built properties are far from passive and liquid investments – professionals are required to guide the investment through its various stages over multiple years. Individuals who are interested in raw land investment are encouraged to work with professional, independent investment advisors to identify if and when a land investment fits into their investment risk matrix.
*Compiled and reported by the Urban Land Institute and PwC from completed surveys of 500 industry experts, including investors, property fund managers, developers, property companies, lenders, brokers, advisors, and consultants.