U.S. institutional investors are investing in international real estate at a furious pace.
In search of high returns and low correlation to other asset classes, executives at some pension plans, endowments and foundations are putting newly increased real estate allocations into non-U.S. properties. Others are shifting domestic real estate allocations to international.
Global investment in real estate grew 12% last year to $457 billion. Of this total, the volume of investments made outside investors' home countries grew 21%, to $99 billion, according to a recent study by Jones Lang LaSalle, Chicago. Some 80% of this cross-border investment was outside the United States, with U.S. and Canadian investors investing mostly in Europe, the survey noted.
In the past, U.S. institutions were "back-door" investors overseas. They invested in opportunity funds that were allowed to invest overseas, said Charles Lowrey, chief executive officer of Prudential Real Estate Investors, a subsidiary of Prudential Financial Inc., Newark, N.J.
Now, institutional investors are barging through the front door, a sensible move, Mr. Lowrey said. While at least $50 billion has been committed this year to worldwide real estate by U.S. institutions, only 40% of the investible real estate is located in the United States, he said. This imbalance is drawing institutional investors abroad.
"We are well on our way to the globalization of real estate investing in the U.S.," Mr. Lowrey said.