Real estate money managers are seeing the equity in their property investments begin to dissolve.
Combined worldwide taxable and non-taxable assets of the top real estate managers — excluding real estate investment trusts — sank 30% to $710 billion in the year ended June 30, according to Pensions & Investments' annual survey of the largest real estate managers.
U.S. institutional tax-exempt assets of the top 50 managers declined 26% to $316.3 billion. This year, 100 managers reported total real estate assets, down from 103 managers that reported in 2008.
During the survey period, the NCREIF Property index returned -19.6%.
Fifty-five percent of the U.S. institutional tax-exempt real estate assets are managed by the top 10 managers on the list. Not one manager in the top 10 increased its U.S. institutional tax-exempt assets under management and six managers lost less than the NCREIF Property Index for the 12 months ended June 30.
“The overriding big issue is that any investor who bought real estate in any sector within the last three years with leverage of 70% or more has lost most, if not all, of the equity in their properties,” said Scott Farb, managing principal-Los Angeles for the consulting firm, Reznick Group. “Think of all of the deals that closed in the last three to four years when competition was fierce and everyone was jumping in. Today is a whole new paradigm.”
Some managers attributed the decline in U.S. institutional tax-exempt assets under management to taking their lumps early and marking down the values of their properties.
“We attribute the decline to what we believe are realistic write-downs in value, combined with lower investments into our funds from new clients,” said Theresa Miller, spokeswoman for Prudential.
And real estate managers will be facing further declines as the market adapts to fundamentals like increased vacancy rates, said Bill Krauch, managing director of ING Clarion Partners, New York. While ING Clarion's U.S. institutional tax-exempt assets dropped 26% to $10.7 billion during the 12-month survey period, the firm retained its No. 8 rank on the list of top managers of U.S. tax-exempt assets. The decline in U.S. institutional assets is the result of a drop in valuation and redemptions from its open-end funds, he said.