Real estate functions as an income-generator, diversifier and hedge against inflation — lots of roles for one supporting actor. Those roles have not changed much because of the global financial crisis of 2008. But the crisis scared investors, causing many funds to turn to the perceived safety of core assets. The bandwagon is crowded, and long queues are waiting for core property funds.
From the Current Issue
Institutional investors have grown accustomed to building portfolios using modern portfolio theory and efficient frontiers with neatly organized asset classes that fit into clearly defined investment buckets. But that is changing. The effects of the financial crisis have affected investors’ overall approach to portfolio construction, and that shift, combined with the unprecedented variety in real estate investment choices, has improved the ability to diversify real estate portfolios.
The United States is nearly three years into the economic recovery that began in the summer of 2009, and only now is the U.S. commercial property sector beginning to show tangible signs of progress on the historical deleveraging that has weighed on the market and the broader economy since 2007. The inevitable need for fresh equity to facilitate the recapitalization of the nation’s property market is finally at hand
We normally associate strikes with striking employees. However, Larry Kudlow of MSNBC has correctly pointed out that it is corporations that are presently on strike, a capital strike. What some may not realize is that a capital strike also can include a hiring strike, which is what is going on today. Yes, it is true that corporations have been hiring but the rate of hiring is nowhere near proportional to the recovery in retail sales, GDP or corporate profits.
We have weathered a significant market downturn. Investors expect more information; they want more control; they want liquidity; and, in some cases, they want retribution. General partners worry: How do I deliver bad news? How do I make my investors happy now? And, most importantly, How do I convince them to invest more capital with me?
Bill Estabrook of Ohio Police & Fire Pension Fund recently spoke with Mike Consol, editor of The Institutional Real Estate Letter – North America, about the biggest challenges and successes his organization has experienced, and what pension funds must do to stay on a growth trajectory in a tumultuous investment environment.