"What is the effect of flow of money and interest rates on the performance of the investments? As a manager I'm worried about delivering to my investors what they expect. When we originally invested, we contracted on the benchmark or hurdle at the time. … You worry because you don't want to underperform."
Real estate managers are preparing to sit down with institutional investors for their quarterly meetings to discuss performance and the outlook for the future, Mr. McIntosh said.
"With prices going up, the conversation is a challenging conversation," he said.
Institutional investors continue to lower their return expectations for most property types, according to the most recent survey of institutional real estate investors by Real Estate Research Corp., Chicago. In the second quarter, investors' required returns remained the same or dropped 10 to 30 basis points for all property types except industrial and suburban office, the RERC survey said. The second-quarter 2004 expectations were lower than before the 2001 recession.
Respondents said properties across all sectors with low vacancies in markets with good economic conditions where a strong recovery is expected should do very well.
Institutional investors are expected to increase their real estate allocations to 10% to 15% in the next 10 years from 5% now, according to a recent study by Deloitte Development LLC, New York.
‘As the population ages, pension funds increasingly require higher levels of cash flow, and greater predictability for those cash flows," the report stated. "Real estate addresses both of these needs, particularly in the `core' and `core-plus' styles that dominate most pension fund investment programs."