Clear blue skies and swanky beachfront property gave the members of the 2008 Editorial Advisory Board for The Institutional Real Estate Lettera brief respite from the stormy capital market conditions of the past six months. Gourmet food, cocktail hour and beach volleyball aside, the participants were there to get down to business and discuss the changing investment market conditions and the effects on their commercial real estate portfolios.
From the Current Issue
During the second half of 2007, a group of investors — including opportunity funds, hedge funds and a few sophisticated debt investors — used credit default swaps against single name CMBS and the CMBX indices to completely reprice the cost of real estate debt and equity. Today, similar investors are pushing down the price of property derivatives traded against the NCREIF Property Index (NPI).
The triple threat of a massive credit crunch, a sharp economic slowdown and turmoil in the equity markets keeps U.S. real estate investors up at night, worrying about their portfolios. Those who ventured into international real estate in recent years are sleeping much more soundly. Higher growth rates abroad and a falling U.S. dollar are boosting some international real estate returns to levels that exceed the performance of domestic portfolios.
Private real estate investment funds, commonly called opportunity funds, continue to be a popular vehicle for pension funds investing in real estate. To invest in the opportunity fund, each investor executes a subscription agreement. Subscription agreements include general provisions applicable to all investors, as well as various questions, representations and warranties that are specific to specified categories of investor.
Interest in real estate fund of funds investing is on the rise in the United States, offering a way to invest in a greater number of real estate private equity funds while limiting the number of manager relationships juggled by an already overextended staff.
Rachel McMurdie, assistant editor of The Institutional Real Estate Letter, spoke with Terry Ahern, a principal and founder of real estate consulting firm The Townsend Group, to get the scoop on the opportunities and challenges for real estate investors in today’s marketplace.