Funds rethink pulling plug on real estate
Skip to main content
pilogo-NEW
Subscribe
  • Subscribe
  • My Account
  • login
  • NEWS
    • Asset owners and the coronavirus
    • Alternatives
    • Consultants
    • Coronavirus
    • Defined Contribution
    • ESG
    • Frontlines
    • Hedge Funds
    • Investing / Portfolio Strategies
    • Money Management
    • Pension Funds
    • People Moves
    • Private Equity
    • Real Estate
    • Searches & Hires News
    • SECURE Act
    • Special Reports
    • WorldPensionSummit
    • Ron Schmitz
      Pandemic drives faster transition for Virginia to private markets
      Mubadala Investment Co. logo
      Mubadala draws on portfolio in coronavirus fight
      T.J. Carlson
      Texas Muni reduces downside risk during pandemic, finding opportunities now
      Scott Davis
      ‘Triage plan’ at Indiana system helped stem losses
    • BentallGreenOak agrees to acquire Metropolitan Real Estate Equity
      watch video
      0:45
      Private funds weathered 2020 turmoil
      Daniel McHugh
      Aviva Investors promotes from within for real assets CIO
      Marc Rowan
      More alts managers seek expansion to retail market
    • Kieran Mistry
      Hymans Robertson picks head for new non-traditional risk transfer unit
      Troy Saharic
      NEPC brings on director of new business development
      Bill Foley
      Foley-backed SPAC agrees to $7.3 billion deal with Alight
      Jason Schwarz, chief operating officer of Wilshire,
      New owners have big plans for future of Wilshire
    • OMERS CEO Blake Hutcheson
      OMERS records worst loss since 2008 on bad COVID-19 bets
      Mitchells & Butlers turns off tap on pension contributions until April
      Jerome Powell, chairman of the Federal Reserve, adjusts his glasses during a Senate Banking, Housing and Urban Affairs Committee hearing in Washington on Sept 24, 2020.
      Powell says Fed will hold steady during economic recovery
      Institutional investors mobilize for equitable global COVID-19 response
    • Database’s debut focuses on public-sector DC plans
      DC plan sponsors differ on need for annuities – survey
      Biden’s retirement idea getting the cold shoulder
      Few participants tapped savings to weather pandemic – Vanguard
    • Emissions from a smokestack in Poland
      Asset managers facing more scrutiny on ESG issues – report
      Boris Johnson, U.K. prime minister, hosts the U.N. Security Council's virtual meeting on climate change risks in London on Feb. 23, 2021
      Progress in fighting climate change falls short – U.N.
      Justin Trudeau, Canada's prime minister, smiles during a virtual joint news conference with U.S. President Joe Biden in Ottawa on Feb. 23, 2021
      U.S. joins forces with Canada on climate change
      Signage is displayed at Harvard University Health Services in Cambridge, Mass., on April 20, 2020
      Harvard endowment’s fossil-fuel investments drop to 2% of assets
    • Donation illustration
      Jefferies will use trading commissions to do good
      Michael Arougheti
      SPACs ride wave as latest investment darling
      Spirit winners
      Prudential honors young people who are helping out
      2 U.K. pension execs take on ESG investing in new podcast
    • Robert 'Rob' Shafir listens during a Senate Permanent Subcommittee on Investigations hearing in Washington on Feb. 26, 2014
      Sculptor hedge fund hits sixth straight year of outflows
      The WallStreetBets forum on the Reddit Inc. website on a laptop computer and the GameStop logo on a smartphone in an arranged photo.
      GameStop frenzy has hedge fund managers rethinking next moves
      Gabe Plotkin, chief investment officer and portfolio manager of Melvin Capital Management, speaks during the Sohn Investment Conference in New York on May 6, 2019
      Citadel, Point72 back Melvin with $2.75 billion after losses
      Shanghai skyline
      Global hedge funds struggle even in a more open China market
    • Illinois Teachers chalks up $1.3 billion in investments, commitments
      Emissions from a smokestack in Poland
      Asset managers facing more scrutiny on ESG issues – report
      Indiana chooses PIMCO for emerging markets debt
      Boris Johnson, U.K. prime minister, hosts the U.N. Security Council's virtual meeting on climate change risks in London on Feb. 23, 2021
      Progress in fighting climate change falls short – U.N.
    • Margaret Anadu
      GSAM chooses global head of sustainability and impact
      Signage for AMP Ltd. adorns the top of a building in the Docklands area of Melbourne on May 10, 2018
      Ares, AMP eye joint venture
      Thasunda Brown Duckett
      TIAA appoints Thasunda Duckett as president and CEO
      Brightwood Capital adds senior investment professional
    • Thomas Spencer
      Oklahoma Teachers chief Tom Spencer to retire
      Swedish flags fly from a tourist souvenir shop in Gamla Stan in Stockholm on March 26, 2020
      Sweden’s AP1 gains 9.7% in 2020
      CDPQ returns 7.7% in 2020
      Cleveland-Cliffs to pour $202 million into pension plans in 2021
    • Thomas Spencer
      Oklahoma Teachers chief Tom Spencer to retire
      Margaret Anadu
      GSAM chooses global head of sustainability and impact
      Doug Heron
      Lothian Pension Fund to lose CEO this year
      Correction: PGIM Real Estate
    • Carlyle secures $4.1 billion ESG-related credit facility
      Hamilton Lane raises $3.9 billion for fifth secondary fund
      PSG closes first Europe-focused fund at $1.5 billion
      Kohlberg closes latest private equity fund at $3.4 billion
    • Sebastiano Ferrante and Jocelyn de Verdelon
      PGIM Real Estate turns to staff to fill new roles
      European managers key in on specialist strategies
      Ingrid Jacobs
      Jones Lang LaSalle brings on head of diversity and inclusion
      EQT inks deal to buy real estate manager
    • Retirement cartoon
      Hopes rising for retirement readiness in 2021
      Neal and Brady
      Retirement security could be only issue both sides accept
      Shawn O'Brien
      Annuities coming to target-date funds, but not right away
      David Ireland
      Sponsors returning to questions about in-plan annuities
    • Charging Bull, sometimes referred to as the Wall Street Bull or the Bowling Green Bull, a bronze sculpture that stands on Broadway just north of Bowling Green in the Financial District of New York City
      Top-performing managers Q4 2020
      P&I 1,000 largest retirement plans: 2021
      Retirement in emerging markets
      Outlook 2021
    • U.S. still a key market for investors
      Collected coverage of P&I's 2020 WorldPensionSummit
      Pedestrians pass a large advertisement on the Arndale Center shopping mall reading 'Act now to avoid a local lockdown' in Manchester, England
      COVID-19 puts new opportunities and risks on the agenda - WPS panelists
      Screens display stock price information over the trading floor of the NYSE Euronext exchange in Paris
      Private assets will continue to grow in portfolios – WPS panelists
  • Data
    • Research Center
    • Searches & Hires Database
    • Searches & Hires News
    • RFPs
    • Charts / Infographics
    • Sponsored Research
    • Trackers
    • Q2 2020 searches and hires overview report
      Q2 2020 money manager M&A activity summary
      Q2 2020 legal overview report
      Q1 2020 searches and hires overview report
    • Illinois Teachers chalks up $1.3 billion in investments, commitments
      Indiana chooses PIMCO for emerging markets debt
      New York Deferred Comp plan re-ups with Goldman as stable value manager
      Ann Arbor Employees taps Artisan Partners for international equities
    • Illinois Teachers chalks up $1.3 billion in investments, commitments
      Indiana chooses PIMCO for emerging markets debt
      New York Deferred Comp plan re-ups with Goldman as stable value manager
      Ann Arbor Employees taps Artisan Partners for international equities
    • Emerging Market Equity Manager Services
      Securitized Credit Manager Search
      Private Placements Asset Manager Search
      Actuarial Consultant Search
    • Taiwan Semiconductor’s No. 1 in the emerging markets book
      U.S. fixed-income returns post another positive year
      Nasdaq delivers an impressive year
      U.S. dollar's recent decline continues
    • Institutional Investors: Shared Expectations, Divergent Paths
      Global Investor Study 2016
      Workplace Financial Wellness
    • U.S. Endowment Returns Tracker
      Pension Fund Returns Tracker
      Earnings Tracker
      Corporate Pension Contribution Tracker
  • Insights
    • Opinion
    • White Papers
    • Industry Voices
    • Letters to the Editor
    • Partner Content
    • Publisher's Update
    • Tesla cartoon
      Don’t confuse wealth creation with retirement saving
      Top 1000 cartoon
      Top 1,000 retirement plans weather storm just fine
      Infrastructure cartoon
      You must go big on infrastructure, Mr. President
      Retirement cartoon
      Hopes rising for retirement readiness in 2021
    • Shifting DC Times – Winter 2021
      Bond ETFs show maturity during Covid market mayhem
      Pension Consolidation: Optimizing Scale and Maximizing Efficiency
      China is embarking on a new stage of growth
    • David Blitzstein
      Commentary: Without a national retirement policy, Americans face a future of pension crises
      Lawrence Cunningham
      Commentary: Gensler should keep Clayton’s pragmatic proxy adviser rules
      My-Linh Ngo
      Commentary: Pension funds and the role of the debt market in the fight against climate change
      Bill Peressini
      Commentary: Carbon’s elemental role in the future of impact investing
    • Writer using a typewriter
      OCIO industry needs to adopt GIPS
      Writer or journalist workplace. stock illustration
      Even as it assails China, Trump administration emulates it
      Skeptical of Main Street support for proxy adviser proposal
      Focus on manager diversity pushes asset owners’ to walk the talk
    • P&I Content Solutions
      How will gold react?
      To people shaking hands
      P&I Content Solutions
      Lessons From 2020: Today’s OCIO Model Passes a Major Test of Governance
      Sponsored Content By MassMutual
      Leveraging Data to Manage Risk
      Sponsored Content By iShares
      ETFs are becoming a cornerstone of insurance equity portfolios
    • Help us help you by supporting quality journalism
      You Must Believe in Spring
      Everything Must Change
      Tomatoes & Investments
  • Multimedia
    • Videos
    • Webinars
    • Polls
    • Slideshows
    • Charts / Infographics
    • watch video
      0:45
      Private funds weathered 2020 turmoil
      watch video
      0:59
      Secure choice and other retirement plans at a state level
      watch video
      3:33
      P&I 1,000 by the numbers 2021
      watch video
      1:33
      A look at hiring activity in 2020
    • Emerging Markets: Expanding Investors’ View
      2021: A Fixed Income Odyssey
      Technology is the New Oil: The Changing Nature of Emerging Markets
      Powering the Change: The power of diversity and inclusion
    • POLL: Working after the pandemic
      POLL: The year ahead for the 1,000 largest U.S. retirement funds
      POLL: The Biden administration’s economic plans
      POLL: Retirement issues in 2021
    • view gallery
      9 photos
      Coronavirus and the markets
      view gallery
      22 photos
      The 1,000 largest retirement funds: 2020
      view gallery
      10 photos
      Outlook 2020
      view gallery
      10 photos
      2019 as seen through the eyes of Roger
    • By the Numbers for February 2021
      Top Performing Managers of Emerging Markets Equity, 4th Quarter 2020
      Top Performing Managers of Global Equity, 4th Quarter 2020
      Top Performing Managers of Inflation-Protected Fixed Income (TIPS), 4th Quarter 2020
  • Events
    • Conferences
    • Webinars
    • Defined Contribution Spring Virtual Series
      DC Investment Lineup Virtual Series
      ESG Investing Virtual Series
      Private Markets Virtual Series
    • Emerging Markets: Expanding Investors’ View
      2021: A Fixed Income Odyssey
      Technology is the New Oil: The Changing Nature of Emerging Markets
      Powering the Change: The power of diversity and inclusion
  • Careers
  • Research Center
MENU
Breadcrumb
  1. Home
  2. Print
August 24, 2009 01:00 AM

Funds rethink pulling plug on real estate

Some institutional investors head for exits, but others start adding to allocations

Arleen Jacobius
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print

    Nervous about commercial real estate's plunging valuations, some institutional investors are reducing their real estate exposure but others are putting money in.

    Close to 17% — or about $18 billion — of open-end real estate fund dollars is heading for the doors, according to a survey by consultant Wurts & Associates, Seattle, while Buchanan Street Partners, Los Angeles, a real estate investment firm, calculates there is $12 billion now in redemption queues. Still, “it's not time to be running for the exits,” said Eric Petroff, director of research at Wurts. “There are a lot of investors in queues, but it's time to hold allocations and invest more (of their) allocations into debt and opportunistic real estate.”

    This year, a number of investors are expanding their allocations, committing to everything from core to opportunistic and to real estate debt. Among the bigger commitments:

    • The $8.3 billion Maine Public Employees Retirement System, Augusta, doubled its real estate allocation to a 10% target allocation;

    • The $30 billion Illinois Teachers' Retirement System, Springfield, hired Heitman to manage a $1.2 billion core real estate separate account; and

    • The $32.7 billion Maryland State Retirement and Pension System, Baltimore, committed $600 million to six real estate funds.

    Meanwhile, the Oregon Investment Council, which manages the $44.5 billion Oregon Public Employees' Retirement Fund; the New Mexico Educational Retirement Board; the New York State Common Retirement Fund; and the San Bernardino County (Calif.) Employees' Retirement Association each made real estate commitments of $100 million or less.

    Fundraising may be at its lowest point in five years, but real estate funds designed to invest in Europe fared best: The majority of the $8.9 billion funds raised in the second quarter is targeted to European real estate, with five funds raising a combined $5.3 billion, according to Preqin, a London-based research firm. The largest was Blackstone, which raised e3.1 billion ($4.3 billion) for Blackstone Real Estate Partners Europe III.

    While fundraising is tough, investors are sticking with the asset class, industry insiders say.

    “Investors will not abandon real estate based on this downturn,” said William Maher, managing director of research and strategy, North America, LaSalle Investment Management, Chicago.

    “They will continue to look at the best opportunities. Last year, the most popular style was distressed debt funds.”

    A few investors entered queues to exit open-end funds because they were afraid valuations would continue to fall and they wanted to get in line to retrieve their money before the portfolios took the biggest hit, Mr. Maher said.

    Some investors are reconsidering their decisions to pull out of queues, Mr. Petroff said.

    “A lot of our clients had queued up and some of our consultants have managed to convince them to get out of the queue,” Mr. Petroff said. “We trying to say, 'Don't dump real estate because it's down 20% and you're worried about further losses. Commercial real estate is doing what it is supposed to do.'”

    Still, commitments are being made now for future investments. For example, Maine's newly expanded real estate allocation is to be committed gradually over the coming three years.

    “By and large, it is not a rush of money in. Investors are changing allocations to take advantage of buying opportunities over the next three to four years,” Mr. Maher said.

    Investors and managers do not expect a rush of investment opportunities for another few years.

    Executives at LaSalle have their “antennae up, planning to start taking action in 2010, 2011 and 2012,” Mr. Maher said. “Values declined 35%, and we expect they will eventually go down by 40% to 50%. At that point, returns should be very attractive.”

    Much of the future investment opportunities might come from real estate investment managers that are forced to sell properties, industry insiders said.

    Some $347 billion of real estate bank debt and $1.4 trillion in commercial mortgage-backed securities are coming due within the next five years, according to the Oregon Investment Council's real estate annual plan, which cited an April 2009 real estate report by Deutsche Bank.

    So far, this year the Oregon Investment Council, Tigard, had committed $22.5 million to real estate funds as of July 29, with three other potential commitments pending. The council committed $1.5 billion to real estate in 2008, according to its plan.

    In 2009 and 2010, the Oregon Investment Council is considering investments in core properties with good cash flows such as trophy office buildings and apartment buildings in top locations from distressed sellers, the annual plan said. Debt investments, industrial properties, global value-added investments and selective secondary opportunities also might be on the table for the state fund.

    “There are those (real estate managers) who will be forced to sell — into a horrible market — because of debt coming due, unextendable fund termination dates or redemption queues,” said Theodore M. Leary Jr., president, Crosswater Realty Advisors, Los Angeles.

    Moving to core

    Some investors are shifting to core from opportunistic and value-added strategies, waiting to pick up bargains. Earlier this year, for example, the $3.3 billion San Diego City Employees Retirement System changed its $477 million real estate portfolio's suballocations to 50% each for core and non-core, from 30% core and 70% non-core, as part of the portfolio's investment plan.

    “If you don't need to sell now, you shouldn't sell. Most investors understand that and are trying not to sell. But there will be owners who will have to sell. And the easiest properties to sell will be the best assets,” said Wade Judge, LaSalle's chief investment officer, North America.

    Those “best properties” have not hit the market in any significant amount yet, Mr. Judge said.

    Recommended for You
    Read the print edition of P&I
    Read the print edition of P&I
    Citadel's Ken Griffin gives $125 million to Chicago museum; name will change
    Citadel's Ken Griffin gives $125 million to Chicago museum; name will change
    Gender diversity is improving on FTSE 350 boards
    Gender diversity is improving on FTSE 350 boards
    Lessons From 2020: Today’s OCIO Model Passes a Major Test of Governance
    Sponsored Content: Lessons From 2020: Today’s OCIO Model Passes a Major Test of Governance
    sponsored
    Events
     
     
    Sponsored
    White Papers
    Shifting DC Times - Winter 2021
    Bond ETFs show maturity during Covid market mayhem
    Pension Consolidation: Optimizing Scale and Maximizing Efficiency
    China is embarking on a new stage of growth
    GP-LED OPPORTUNITIES AT THE SMALLER END OF THE MARKET
    Gold Outlook 2021
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    pilogo-NEW
    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    150 N. Michigan Ave.
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2021. Crain Communications, Inc. All Rights Reserved.
    • NEWS
      • Asset owners and the coronavirus
      • Alternatives
      • Consultants
      • Coronavirus
      • Defined Contribution
      • ESG
      • Frontlines
      • Hedge Funds
      • Investing / Portfolio Strategies
      • Money Management
      • Pension Funds
      • People Moves
      • Private Equity
      • Real Estate
      • Searches & Hires News
      • SECURE Act
      • Special Reports
      • WorldPensionSummit
    • Data
      • Research Center
      • Searches & Hires Database
      • Searches & Hires News
      • RFPs
      • Charts / Infographics
      • Sponsored Research
      • Trackers
    • Insights
      • Opinion
      • White Papers
      • Industry Voices
      • Letters to the Editor
      • Partner Content
      • Publisher's Update
    • Multimedia
      • Videos
      • Webinars
      • Polls
      • Slideshows
      • Charts / Infographics
    • Events
      • Conferences
      • Webinars
    • Careers
    • Research Center