Monday, October 22, 2012

Real estate equity strong into next year, says global investment firm

Institutional equity for real estate assets is expected to remain strong for the rest of the year and into 2013, even in the face of uncertainty surrounding the European debt problem and the U.S. presidential election, according to a global investment firm. Retail is attracting the most interest, with multifamily, industrial and office close behind.

Equity capital markets are active as pension funds, endowments, insurance companies, co-mingled funds and open-ended funds look for investments, according to capital markets experts at Jones Lang LaSalle, an international financial firm specializing in real estate.
 
"We're seeing a high level of interest right now in retail product as investors find themselves under-allocated in that sector.  However, we are still seeing healthy demand for multifamily (including student housing), industrial and office sectors," said Tom Fish, executive managing director and leader of Jones Lang LaSalle's Real Estate Investment Banking team. "Moreover, because demand continues to far exceed supply, with yields compressing for such deals, we're seeing a slow, but noticeable, migration of equity towards riskier transactions in secondary markets and secondary product types."

Product demand is outpacing transaction supply, but investors are being more careful about their real estate allocations compared to pre-recession times, said the company.

"In an effort to match post-recession risk tolerances with the current desire to deploy capital, we are seeing a great deal of creativity in the venture structures being offered by institutional equity investors.  The idea is to mitigate risk while still achieving the base-case yields they solved to before, while at the same time adequately compensating the operating partner for their value-add component to the deal," said James Tramuto, managing director with Jones Lang LaSalle Capital Markets. 

"Equity investors are more disciplined than they have been in the past and comprehensive underwriting and due diligence are the name of the game as we ride the slow wave of recovery," said Fish.

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