If any more evidence were required that the real estate business is in the heavy metal phase of its expansion, Real Capital Analytics just supplied the proof.
From the Current Issue
The question that has long been hanging in the balance for investors is whether overseas adventures are a path to riches or the road to perdition.
There is a Darwinian struggle taking place in the retail sector. It has been under way for quite a while, but the economic calamity of 2007–2009 accelerated the trend, sending dozens of once-healthy U.S. shopping malls into a financial downdraft. The strongest malls — the so-called fortress malls — are solidifying their dominant market positions while many weaker malls are trapped in a death spiral with limited potential for rescue.
The first concern for most investors today is capital or, more specifically, too much of it. Central banks around the globe have been vigorously engaged in a multi-year program of quantitative easing, a euphemism for government-sponsored bond-buying programs. Central banks have been printing new money to buy up mostly government or government-backed bonds on the open market. In the United States alone, the Federal Reserve’s activities have driven money supply from $7.6 trillion in 2008 to more than $11.2 trillion at the end of 2013, a 40-plus percent run-up.
Once upon a time, there was hope that the real estate meltdown that followed the global financial crisis might prompt an opportunity to develop new and creative fee structures that would better align the interests of investors and investment managers.
For the 29th consecutive year, Byron Wien, vice chairman of Blackstone Advisory Partners, issued his list of surprises for the new year regarding economic, financial and political matters. The most prophetic of Wien’s prognostications is one of the four “also-rans” that did not quite make his list of surprises. To wit: Chris Christie and the moderates fade in popularity. No, Wien did not foresee the so-called Bridgegate scandal that is sinking the New Jersey governor’s political fortunes, but he deserves credit for even thinking the luster might fade from the heretofore bulletproof Christie.
Only 23 private equity real estate funds recorded final closings during fourth quarter 2013, according to Institutional Real Estate FundTracker. However, what the group lacked in numbers, it more than made up for in firepower. The 23 funds collectively raised $23 billion of equity capital; that’s right, the average fund size equaled $1 billion, thanks to eight fund closings of significantly more than $1 billion. The strong fourth-quarter showing pushed up the 2013 year-end totals to 118 fund closings with aggregate equity capital of $70.5 billion, a nearly 20 percent increase from 2012’s total of $59.0 billion.
Evidence that a sustained economic recovery is well under way in the United States continues to build — literally and figuratively. U.S. construction starts grew again during 2013, advancing 6 percent over the 2012 total to $516.8 billion, according to data from McGraw Hill Construction. While it is not quite the 10 percent gain experienced in 2012, it is a positive sign for continued recovery after the modest 2 percent gains seen in 2010 and 2011.
The logistics recovery and expansion cycle strengthened and became more consistent around the world during the past year. Initially, the pattern of recovery was varied. Demand and rent expansions were led by structurally undersupplied markets in emerging economies such as Shanghai and São Paulo. In time, the U.S. recovery built momentum as well, improving notably during the past 18 months, which has led vacancies below historical averages and prompted reports of rent spikes across more markets. The ongoing healing in global financial markets is translating to strength for real estate capital markets. Cap rate declines continued during the past year, taking levels toward (or below) their prior cyclical lows in many markets, including in the largest markets in the United States, Japan and China.
The U.S. Office of Management and Budget designates 366 American cities as metropolitan statistical areas. Fifty of these 366 MSAs contain the majority of the nation’s hotel rooms. For purposes of investing in these locations, hotel capital suppliers rely on ad hoc taxonomies to organize geographic markets along quality lines with labels such as top-tier cities, secondary and tertiary cities, coastal cities and gateway cities.
Every year in January, Institutional Real Estate, Inc. holds its annual CEO Sponsor Briefing event where IREI officials meet with the company’s publication sponsors to present and discuss the preliminary results of the annual investor survey. The survey has been a collaboration between IREI and Kingsley Associates for 18 years, and this year’s release of the Global Annual Institutional Investor Survey is the first time investors outside the United States have been included in the research. The survey is forward look at investors’ plans for the coming year. The previous year’s data is also used to compare what investors actually did vis-à-vis what they had said they planned to do in the prior year’s survey.
One of the many challenges facing real estate managers and plan sponsors is training new employees, as well as providing continuing education to their existing staff members. These educational objectives are constrained by limited time, lack of resources and money, inconsistencies in teaching, and the opportunity costs associated with other corporate activities. Moreover, today’s investment management industry requires highly specialized knowledge that is constantly changing over time.
Amid fears of rising interest rates, investors are increasingly viewing real assets as the real deal going forward. In 2014, real assets are expected to represent 14 percent of investment consultants’ new search activity, more than doubling the level from 2013, according to the 2014 Global Investor Survey from eVestment and Casey Quirk.
Who says Americans — or citizens of other industrialized nations — don’t know how to save for their Golden Years? Retirement assets in the 13 major global markets increased 9.5 percent to a record $32 trillion as of Dec. 31, 2013. Towers Watson’s annual Global Pension Assets Study also reports that U.S. institutional assets reached an all-time high of $18.9 trillion, up 12 percent from 2012. U.S. assets make up about 59 percent of total global assets, up from 56 percent. Japan and the United Kingdom have the next greatest share of assets at 10 percent each.
As an active participant in the real estate development and investment business for more than 60 years, we have observed and participated in numerous megatrends in the United States. These have been varied — from the large-scale urban mixed-use growth of the 1960s and 1970s, to the institutional investor diversification into equity real estate of the 1980s, to the globalization of U.S. real estate equity sources during the 1980s and 1990s, to the growing global investment focus on primary (Tier 1.0) U.S. markets during the 1990s and 2000s.