It's become a dog-eat-dog world for real estate investment firms hungry for new business.
Managers are looking to increase their assets under management by taking over investment mandates from other managers, rather than finding new allocations from institutional investors.
It's a matter of survival. U.S. institutional tax-exempt real estate assets under management for the top 50 managers fell 26% to $316.3 billion in the year ended June 30, according to Pensions & Investments' annual survey of the largest real estate managers (P&I, Oct. 19). At the same time, returns have remained negative, with NCREIF returning -3.32% in the third quarter, a slight improvement from -5.2% in the previous quarter.
Individually, real estate managers have been showing negative returns nearly across the board with single digit negative earnings the new positive return, industry insiders say.
While good times might roll again for real estate money managers — two to three years from now — not all firms will remain standing. With fundraising down and few investors making new real estate commitments, managers are trying to pick off assignments from seemingly weaker competitors.
“As 2010 turns to 2011, we will be looking at the best investment opportunity that we've seen in my lifetime,” said Gary Koster, Americas leader-real estate fund services at Ernst & Young LLP, New York. “The key is to get from here to there ... to survive through 2011 with your firm intact.”
As the recession and downturn in real estate weakens some managers, other, healthier managers are picking up business from real estate investment firms embedded in troubled parent companies, such as banks and insurance companies that are shifting out of the investment management business.
“Clearly, some of the management firms that are part of larger organizations are reviewing their overall business, deciding which businesses to keep and which businesses not to keep,” said Maury Tognarelli, president and CEO of Heitman LLC, Chicago.