Updated with correction
Buoyed by rising property values, total worldwide assets of the largest institutional real estate money managers responding to Pensions & Investments' annual survey grew 9% to $882.2 billion in the year ended June 30, exhibiting slower growth than the 11.7% of last year's survey.
Managers' assets for U.S. institutional tax-exempt clients also grew 10% to $414.4 billion, of which the real estate equity assets grew 11% to $326.7 billion. Discretionary assets for U.S. institutional tax-exempt investors rose 7% to $340.4 billion during the period.
Among the 50 largest managers for U.S. institutional tax-exempt clients, assets rose 9% to $376.9 billion, of which the real estate equity assets increased 5.6%, to $286.1 billion.
Managers' mezzanine assets grew 48% to $4.57 billion; the top 10 mezzanine managers accounted for 94.5% of that total. Hybrid debt exhibited tremendous growth as well, up 48% also to $4.4 billion.
Real estate investment trust managers' total worldwide assets were up 22% to $360.8 billion, while REIT securities managed for U.S. institutional tax exempt clients increased 12% to $95.1 billion in the 12 months ended June 30.
During the survey period, the NCREIF Property index return was 10.73%. The FTSE NAREIT All REITs index, which includes both equity and mortgage REITs, was up 34.37%, while the FTSE NAREIT All Equity REITs index, which excludes mortgages, was up 33.81%, according to data provided by the Washington-based National Association of Real Estate Investment Trusts.
The top 10 real estate managers of U.S. institutional tax-exempt assets continued to gain market share, managing 52.4% of the total assets reported by all 96 managers in that universe. This is relatively flat from last year's survey results when 52.8% of the U.S. institutional tax-exempt real estate assets were managed by the 10 largest managers.
Not included in the rankings was the Blackstone Group, which did not complete the entire survey but provided some data for the first time this year. As of June 30, Blackstone Real Estate's assets under management worldwide — defined as equity value net of leverage and unused capital commitments — totaled $63.9 billion, with an estimated $21.3 billion managed for U.S. tax exempt investors.
During the survey period, asset valuations in certain locations such as the gateway cities like New York and San Francisco increased significantly, said Nancy Lashine, managing partner and co-founder of New York-based placement agent firm Park Madison Partners.
“Prices were going up; core was going up by a lot,” Ms. Lashine said.
There continued to be a lot of demand for core open-end funds, but in the first part of 2013, slightly riskier strategies gained more interest from institutional investors, she said.
Indeed, according to this year's survey results, the 10 largest managers of core real estate for U.S. institutional tax-exempt clients was up 16% to $157.4 billion, but assets at the riskier end of the scale were up somewhat more, with the top 10 managers of opportunistic strategies growing 26% to $18.3 billion and the largest value added managers up 19% to $39.5 billion.
Managers' investment for foreign clients in U.S. real estate is up 18% to $46.6 billion.
Foreign investors continue to view the U.S. as a destination of choice for their real estate investment dollars, said Peter Rogers, investment consultant at Towers Watson & Co. in New York.
Some of the larger foreign institutional investors such as sovereign wealth funds are large enough to find ways to minimize the tax burdens but smaller and midsize foreign investors are finding the tax burden “too daunting,” Mr. Rogers said.
The U.S. has been one of the most attractive markets, and over the past 12 to 18 months there was more focus from European and Asian, as well as U.S., investors looking to invest in the U.S., said Paul A. Vosper, chief operating officer and co-head in the London office of Morgan Stanley Alternative Investment Partners real estate group, which invests in non-core strategies.
Michael McMenomy, global head of investor services at CBRE Global Investors agreed: “The inbound capital (into the U.S.) from institutions outside of the states and in particular Germany and sovereigns out of Asia has been tremendous.”
“It's been frustrating for the U.S.-domiciled capital as those bidders are aggressive,” Mr. McMenomy said.
At the same time, international assets managed for U.S. clients were relatively flat at $32.8 billion.
The macro fallout with slower growth rates in India and China, a delay in deleveraging and attractive domestic opportunities kept U.S. capital at home, said Mr. Vosper.