Real estate is expected to remain in favor with investors in 2013, but good deals and managers with attractive investment opportunities will be harder to come by, industry insiders say.
In 2012 there were two types of real estate: core properties mainly in coastal cities that everyone wanted — and everything else.
“Real estate is in favor because everybody is looking for yield and stability, and that is hard to find in the bond world,” said Nancy Lashine, managing partner and co-founder of New York-based placement agent firm Park Madison Partners. “We assume some of those values will start to converge,” meaning prices of higher-valued properties will fall while prices of more common properties will rise.
The reason is that some of the less desirable cities such as Dallas and Phoenix are growing, but that growth is not being reflected in property values of those cities, she said.
Austin Khan, chief investment officer of Los Angeles-based real estate investment manager Ethika Investments LLC, said he has seen prices in the most desirable cities surpass pre-crisis levels.
This is why in 2013, Mr. Khan said he expects value-added and opportunistic real estate to become more attractive, especially in places like Minneapolis and San Antonio, where there is strong employment growth and quality properties at lower prices.
Mr. Khan also said some investors are taking the opportunity to sell properties while values are high.
“We are seeing a lot of people finding opportunities to sell to the market. They sell because the recovery is solid and also because of foreign capital coming in that wants to acquire trophy assets at prices that are ever escalating,” he added.
A recent UBS Global Asset Management report contends that while the values of core real estate in gateway cities — New York and San Francisco, for example — are being pushed ever higher, the asset class should continue to perform well compared with fixed income. “Core real estate yields relative to government bond yields are above their long-term averages,” the report noted. “We expect core real estate investments will continue to perform strongly.”