Prudential Financial held onto its top position in P&I's rankings as the largest manager of worldwide institutional real estate assets with $98.4 billion, up 13% from last year. MetLife Investment, which did not participate in last year's survey, was second with $90.1 billion. TIAA-CREF was third with worldwide assets of $84.4 billion, up 11% from last year.
For managers of U.S institutional tax-exempt assets, TIAA-CREF once again was in first place, reporting $56.2 billion, up 17%. Prudential Financial — whose assets represent both Prudential Real Estate Investors and Prudential Mortgage Capital Co. — was second with $48.4 billion for the year, up 4%. J.P. Morgan Asset Management rounded out the top three with U.S. institutional tax-exempt assets up 4.5% to $47.3 billion.
TIAA-CREF's asset increase came from a combination of asset appreciation and property acquisitions, said Phil McAndrews, senior managing director and chief investment officer, global real estate, in an e-mail.
During the year, TIAA-CREF was a net buyer of U.S. real estate, making 34 acquisitions totaling $3.2 billion vs. 28 property sales totaling $1.5 billion in the 12 months ended June 30, 2014, Mr. McAndrews wrote. In September 2014, the firm raised $260 million for its sixth multifamily housing fund, CASA VI, Mr. McAndrews added. Adding leverage the fund will be able to buy about $420 million of properties, he said.
J.P. Morgan was also a net buyer of properties during the survey period, said Joseph Azelby, managing director and CEO, global real assets, J.P. Morgan Asset Management. Overall, the growth is a combination of appreciation and increased capital flows into funds with returns “still in the double digits,” he said.
“All systems seemed to be firing last year,” said Eric Adler, London-based CEO of Prudential Real Estate Investors. “Our transaction volume, which incorporates both buying and selling, was as high as I've ever seen it. We took advantage of growth in values to sell, particularly from our closed ended funds.”
The $36 billion in assets going to opportunistic strategies — an increase of 245% — shows investors added risk to their real estate portfolios. Core and value real estate strategies rose 17% each to $213.9 billion and $39.7 billion, respectively.
J.P. Morgan Asset Management still has queues to get into its core and value-added funds, Mr. Azelby noted. J.P. Morgan was No. 2 in the core ranking and No. 1 in value-added strategies for U.S. tax-exempt assets.
“We had good flows across our core through value add strategies. Investors are more confident and taking more risk, but the core space is still attractive,” Mr. Adler said. “In the low interest rate environment, comparative yields are still compelling for investors.”
Foreign capital investment in the U.S. continues to rise, with $42.5 billion placed across all property types in the 12 months ended June 30, according to Jones Lang LaSalle, far outpacing domestic buyers five-to-one on a net basis, keeping valuations and competition high, Jones Lang's Mr. Coghlan said
Prudential topped the list of managers of U.S. assets for foreign clients with $10.2 billion, an increase of 54.55% from the previous year. Following was TIAA-CREF, with U.S. assets for foreign clients up 4% to $4.9 billion, and Clarion, whose assets grew a whopping 38% to $4.7 billion.
“There's no doubt foreign flows are greater than in the past,” said David Gilbert, CIO and head of acquisitions at Clarion Partners LLC. “We've seen some of the greatest flows into the U.S. from Canada. Pension funds and retirement systems are growing pretty rapidly and have exhausted the investment opportunity (in real estate) in Canada. It's (the U.S.) a natural spillover.”
A big question is whether the volatility in commodities and the drop in energy prices will dampen capital flows from foreign investors, Mr. Gilbert said. “It might but ... foreign institutions are underinvested in real estate and are just playing catch up,” he added.
Assets of REIT managers rose 7%, outpacing the FTSE NAREIT indexes, even though REIT shares were in selloff mode through the summer.
BlackRock once again was the top manager of REIT assets with $95.4 billion, up 17%. The firm also had $32.4 billion in REIT assets managed for U.S. institutional tax-exempt clients, also up 17%.
Vanguard Group was second with total REIT assets increasing by 6% to $47.6 billion and U.S. tax-exempt assets were up by 19% to $5.7 billion; Cohen & Steers was in the third slot with total REIT assets under management up 19% to $35.8 billion, while U.S. institutional assets dipped 3% to $3.8 billion.