Real estate investors are likely to dip their toes into riskier real estate investments in 2015, while high-flying core fund returns are expected to fall back to earth, industry executives say.
“Institutional investors that have fully recovered from the meltdown of 2008 are feeling really good about their asset base and stepping off the curb and taking more risk,” said Kevin Campbell, managing director and portfolio manager in the private markets group at fund-of-funds manager DuPont Capital Management, Wilmington, Del.
Core real estate funds are expected to return 6% to 8% in 2015 from about 10% now. Investors had been using the current income of core properties as a safer investment, and now they are starting to add a bit more risk. But like private equity, there's been a great deal of capital poured into real estate, which could reduce returns, he said.
More real estate managers that invest outside the popular gateway cities and that are buying properties that go higher on the risk scale in terms of lower occupancies and capital needs are expected to receive investor dollars in 2015, Mr. Campbell and other experts said.
“Both of those markets are built on the idea of inefficiencies,” Mr. Campbell said. “Whenever there is a lot of capital chasing a limited number of good deals, I worry that the markets are becoming more efficient than they should be.”
Even so, investors are expected to retain their positive view of real estate into the new year.
“Generally, there is a positive sentiment toward the real estate sector,” said Lori Campana, managing director and partner of Monument Group, a Boston-based alternative investment placement agency firm.