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Monday, 19 November 2018

Institutional Investors Increase Allocation to Real Estate

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Commercial Real Estate Direct Staff Report

Institutional investors that recently were surveyed have increased their allocation to real estate by 30 basis points this year to 10.4 percent.

That's the highest allocation to the asset class since Hodes Weill & Associates and Cornell University started surveying institutions in 2013, when they had allocated 9.1 percent to the class.

Hodes Weill and Cornell received responses from 208 pension funds, insurance companies, sovereign wealth funds, government-owned entities, endowments and foundations with about $11 trillion in assets under management and $1 trillion in real estate investments. They compiled the data in their annual Institutional Real Estate Allocations Monitor.

Institutions expect to increase their allocation another 20 bps next year, but that is skewed by those in Asia, Australia, Europe, Middle East and Africa, where allocations are projected to increase 40 bps. North American investors are expected to maintain the same allocation next year.

Doug Weill, who founded Hodes Weill with former Credit Suisse colleague David Hodes in 2009, noted that U.S. institutions are concerned about increasing interest rates and high asset valuations.

To that end, they are increasing their focus outside of the U.S. In fact, 74 percent of North American institutions planned on investing outside of their native country this year, up from 66 percent last year. Weill noted that Europe is a few years behind the U.S. in terms of the real estate cycle, so strong opportunities might still be available. And Asian economies are viewed as potentially having high-growth potential.

Allocations are unlikely to decrease, even if the current cycle turns south, Weill noted, adding that real estate provides a diversification for investors and generates higher risk-adjusted cash yields than other asset classes. Public and private equity markets, in which investors otherwise might plow their real estate capital, also are at or near their peak values.

"Real estate is not alone in where it is from a valuation standpoint," Weill said. "It's viewed as quite favorable. We think the long-term trend is real estate is becoming a more significant component of institutional portfolios."

Last year, real estate held by institutions generated a 9.2 percent average annual return, 50 bps greater than last year and 100 bps above its target return.

About 61 percent of the institutions surveyed have a targeted allocation to real estate of more than 10 percent. Also, 30 percent of survey respondents increased their target allocations this year, while 30 percent decreased their target.

Although the respondents have a 10.4 percent target allocation, they invest only 9.5 percent of their assets in real estate. And about 60 percent of institutions are under-invested relative to their target.

Value-add strategies are the most common among survey respondents, with 90 percent saying they plan on pursuing such deals this year, up from 86 percent last year. Meanwhile, 63 percent said they would pursue core deals, down from 69 percent last year, while 75 percent plan on investing in opportunistic deals, up from 72 percent last year.

Comments? E-mail Tim Casey or call him at (267) 397-3347.


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  • Subject: Institutional Investment (INS), Research (RES)
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Data Digest







Top Bookrunners Domestic, Private-Label CMBS - 2017
Investment Bank #Deals Vol$mln MktShr%
Goldman Sachs 17.59 11,819.34 13.68
JPMorgan Securities 14.52 10,968.11 12.70
Citigroup 12.04 10,012.71 11.59
Wells Fargo Securities 14.02 9,936.06 11.50
Deutsche Bank 12.55 9,879.74 11.44




cppichart FP



CMBS 2.0 Spreads


Top CMBS Loan Contributors - 2017
Lender #Loans Vol$mln MktShr%
Goldman Sachs 146.89 11,719.34 13.63
JPMorgan Chase Bank 117.68 10,114.14 11.76
Deutsche Bank 198.48 9,689.97 11.27
Morgan Stanley 166.18 8,539.78 9.93
Citigroup 199.05 8,088.24 9.41





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