(updated with correction)
Real estate money managers are still losing assets, but the outflows look to be slowing from the massive hemorrhage of 2008-'09.
Total assets — excluding real estate investment trusts — of the 100 real estate managers in Pensions & Investments' annual survey dipped 5% to $677 billion in the year ended June 30.
Last year, total assets plummeted 30%.
During the survey period, the NCREIF Property index returned -1.48%.
For real estate debt strategies, two of three debt classifications increased this year. Hybrid debt rose 6% to $3.5 billion and mortgages were up 17% to $120 billion, while mezzanine dropped 18% to $8 billion.
U.S. institutional tax-exempt assets of the top 50 managers fell 5.2% to $303 billion. And 53% of the U.S. institutional tax-exempt real estate assets are managed by the top 10 managers, down from 56% in last year's survey.
The institutional real estate story this year “was hot competition for core real estate, class A properties,” said. Gary Koster, global leader, real estate fund services in Ernst & Young's New York headquarters. But “outside the major markets, real estate fundamentals continued to erode.”
Those fundamentals, including tenant occupancy and property values, continue to deteriorate as the real estate market is close to bottoming out, he said. Institutional investors also are looking closer at real estate managers before they invest, Mr. Koster said.
In the rankings, TIAA-CREF managed to hold on to the top spot for managers of U.S. tax-exempt assets, even though its assets under management fell 12% to $30.9 billion. The firm's real estate equity assets dropped by 11% to $13 billion.
“It was not a pretty time in the industry in general,” said Tom Garbutt, senior managing director and head of global real estate from TIAA-CREF's New York headquarters.
TIAA-CREF spent a great deal of time keeping occupancy up, he said. “There was a lot of hand holding,” Mr. Garbutt said. “It paid off. Today our properties are more than 90% occupied.”
Making it tougher is that the real estate market during the survey period was “a very illiquid time,” he said. “Capital became uncomfortable with the asset class in 2008 and it continued to 2009.”
Uncertainty in the market drove valuations down, he said.
Mr. Garbutt said he saw a big change in investor attitudes toward real estate starting at the end of the second quarter. ”You could feel the difference,” he said. Investors now want stable, high-quality properties in highly valued locations, he said.
“We are bouncing along the bottom now; while it is still a tough place to be, there is increasing predictability,” Mr. Garbutt said.
Allen Smith, CEO of Prudential Real Estate Investors, also is seeing increased global demand for core properties. “Clearly, yield is what people are pursuing,” he said.
Parsippany, N.J.-based PREI retained its second place spot on the list of top managers of U.S. tax-exempt assets; assets dipped only 3.6% in the 12 months ended June 30. And values have risen significantly since the second quarter of 2009, when the real estate market hit its bottom, Mr. Smith said.
“The tenor of the environment is much different, and the sentiment is more positive than a year ago,” Mr. Smith said.
PREI executives have seen inflows from investors for select strategies and global regions, he said.