They're back.
Lines of investors waiting to get in are starting to form at open-end core real estate funds for the first time since the financial crisis.
“There's a lot of interest in core, even though everyone thinks it's very, very fairly priced,” said Brad Morrow, senior private markets consultant in the New York office of Towers Watson & Co. “It's a continued flight to quality.”
If there is another economic downturn, investors believe that lower-quality properties in less desirable areas would drop in value further and stay down longer than stabilized, higher quality real estate, he said.
While not all core open-end fund managers on Pensions & Investments' list of the top 10 real estate equity managers report investor queues, they all say there have been strong flows into their core funds.
J. P. Morgan Asset Management now has queues of up to a year for its open-end core funds, said Joseph Azelby, managing director at J.P. Morgan Asset Management in the New York office, where he is head of the firm's global real assets group.
“People are still somewhat risk averse,” Mr. Azelby said. “The (real estate) market is still very good and continues to perform well. “
J.P. Morgan has regained half of what it lost in the downturn, he added.
Investors and J.P. Morgan executives believe the real estate market, including core, still has room to grow. “There's demand today for core and demand for at least a year,” Mr. Azelby said.
Prudential Real Estate Investors also has queues for its open-end core funds.
“There are definitely queues, but they are reasonable queues,” said Eric Adler, London-based global chief investment officer for Prudential's real estate business. Investors can see that they will get their money invested within a reasonable amount of time, he explained.
At Prudential, the lines began forming in earnest in 2012, he said.
“We're in a good spot right now,” Mr. Adler said. “Really, 2012 saw the turnaround for us in a meaningful way.”
TIAA-CREF also has a “slight” queue for its two core open-end funds, said Tom Garbutt, senior managing director and head of global real estate in the New York office.
“So far, we're clearly seeing an increase in the amount of capital to our open-end funds and … we have been quite successful placing the capital,” Mr. Garbutt said.
David Gilbert, chief investment officer of Clarion Partners, New York, said his firm had increased capital flows from existing and new clients, predominantly in core investment strategies.
“Roughly two thirds of the year-to-year increase (in 2012) was due to new capital inflows with the remainder attributable to capital appreciation,” he wrote in an e-mailed response to questions.
Mr. Gilbert declined to discuss whether Clarion Partners' open-end funds have queues.
Sources said that Clarion Partners does not yet have queues, but the flows into its open-end funds are strong but manageable.
