Real estate investors passing over U.S. to find good deals in Europe
Skip to main content
pilogo-NEW
Subscribe
  • Subscribe
  • My Account
  • login
  • NEWS
    • Asset owners and the coronavirus
    • Alternatives
    • Consultants
    • Coronavirus
    • Defined Contribution
    • ESG
    • Frontlines
    • Hedge Funds
    • Investing / Portfolio Strategies
    • Money Management
    • Pension Funds
    • People Moves
    • Private Equity
    • Real Estate
    • Searches & Hires News
    • SECURE Act
    • Special Reports
    • WorldPensionSummit
    • Ron Schmitz
      Pandemic drives faster transition for Virginia to private markets
      Mubadala Investment Co. logo
      Mubadala draws on portfolio in coronavirus fight
      T.J. Carlson
      Texas Muni reduces downside risk during pandemic, finding opportunities now
      Scott Davis
      ‘Triage plan’ at Indiana system helped stem losses
    • A healthcare worker provides care for a COVID-19 patient in the intensive care unit at the Saint Joseph hospital in Marseille, France, on Nov. 20, 2020.
      Private equity’s health-care role draws spotlight
      John Haggerty
      Sector’s risks need to be weighed, consultant says
      Some alternative strategies struggle in first quarter following tough 2020
      Close up of Business people shaking hands, finishing up meeting, business etiquette, congratulation, merger and acquisition concept
      Cathay Innovation Partners takes minority stake in Seaya Ventures
    • Daniel Celeghin
      Indefi hires New York-based managing director
      Hub International continues buying spree with IBG acquisition
      Callan brings on 2 executives
      Hub International agrees to buy Plan Sponsor Consultants
    • American flags outside the New York Stock Exchange
      Stock shorts collapse as no hedge fund wants ‘head ripped off’
      Michelle Dunstan
      Move to link exec pay to ESG integration growing
      The J.P. Morgan Chase logo displayed at a branch bank
      J.P. Morgan sells $13 billion of bonds in largest-ever bank deal
      John Bakarat
      Commentary: COVID-19 and real estate debt – where investors should be looking
    • Pentegra joins with EPIC to offer 3(16) fiduciary services
      Joseph Healy
      Smaller DC plans place greater focus on improving financial wellness efforts
      Interest rises in keeping retiree assets in-plan
      Pentegra launches pooled employer plan
    • MSCI urges capital markets players to act on net-zero ambitions
      Focus on human rights a challenge in China
      Michelle Dunstan
      Move to link exec pay to ESG integration growing
      WTW to cut carbon footprint of OCIO portfolios by half by 2030
    • Joel Holsinger
      Ares wants to do good – and profit – with fund
      Girls Who Invest
      MetLife plans 3 internships for Girls Who Invest scholars
      Model home
      Resmark sees niche in buying, leasing model homes
      Riscura stories
      Dystopian tales explore altered retirement reality
    • Karen Karniol-Tambour
      Bridgewater appoints 2 co-CIOs to oversee new sustainable investing group
      Hedge funds post best first-quarter return since 2000
      Jason Kephart
      Managers see good times ahead in 2021
      Jev Mehmet, CEO of Brevan Howard's Coremont unit
      Brevan Howard runs $50 billion unit like BlackRock’s Aladdin
    • New York State Common slates $400 million for renewable energy
      MSCI urges capital markets players to act on net-zero ambitions
      Sterling Bancorp to pay $12.5 million to settle Oklahoma Police suit
      American flags outside the New York Stock Exchange
      Stock shorts collapse as no hedge fund wants ‘head ripped off’
    • Carrie Peluso
      SSGA promotes executive to head of global manager research
      Invesco logo shown on the floor of the New York Stock Exchange
      watch video
      1:28
      Invesco’s bid for performance gains
      Ameriprise, Amundi add to their European rosters
      Larry Fink
      BlackRock tops $9 trillion on record inflows
    • PennPSERS boosts employee contribution rates after reporting error
      Melrose Industries to plug U.K. pension deficit by selling assets
      Public plan funding inches up in first quarter
      Louisiana Firefighters puts Boston Partners on watch
    • Daniel Celeghin
      Indefi hires New York-based managing director
      Carrie Peluso
      SSGA promotes executive to head of global manager research
      Cohen & Steers adds team for new private real estate business
      Sacha Sadan
      FCA taps LGIM executive for first director of ESG
    • European private equity deal value, volume hit records for first quarter
      Paul Morrissey
      Blackstone Growth picks managing director to lead European investing
      Bills of euro, dollar and pound currencies, among others
      Ardian closes latest buyout fund at $8.8 billion
      Hand typing on stationary iPhone at an office reception desk
      Private equity’s taste for tech spurs $80 billion deal spree
    • BentallGreenOak closes latest European fund at $2.3 billion
      Cohen & Steers adds team for new private real estate business
      Australia’s Centuria makes takeover bid for Primewest
      CalSTRS indutrial property
      Investors hungry for industrial properties
    • Andy Schreiner
      New PEPs targeting firms without retirement plans
      Jackie Walorski
      Contribution catch-up for caregivers gaining favor
      Neal and Brady
      Retirement security could be only issue both sides accept
      Retirement cartoon
      Hopes rising for retirement readiness in 2021
    • A coin representing Bitcoin cryptocurrency in the U.K.
      Cryptocurrency and digital assets
      Corporate pension contributions
      Eddy Awards 2021
      COVID-19: One year in
    • U.S. still a key market for investors
      Collected coverage of P&I's 2020 WorldPensionSummit
      Pedestrians pass a large advertisement on the Arndale Center shopping mall reading 'Act now to avoid a local lockdown' in Manchester, England
      COVID-19 puts new opportunities and risks on the agenda - WPS panelists
      Screens display stock price information over the trading floor of the NYSE Euronext exchange in Paris
      Private assets will continue to grow in portfolios – WPS panelists
  • Data
    • Research Center
    • Searches & Hires Database
    • Searches & Hires News
    • RFPs
    • Charts / Infographics
    • Sponsored Research
    • Trackers
    • Q2 2020 searches and hires overview report
      Q2 2020 money manager M&A activity summary
      Q2 2020 legal overview report
      Q1 2020 searches and hires overview report
    • New York State Common slates $400 million for renewable energy
      Texas County commits $100 million to another Taconic credit fund
      GPIF prepares to make first direct alternatives allocations
      Ohio State Teachers calls on Hellman & Friedman buyout fund
    • New York State Common slates $400 million for renewable energy
      Texas County commits $100 million to another Taconic credit fund
      GPIF prepares to make first direct alternatives allocations
      Ohio State Teachers calls on Hellman & Friedman buyout fund
    • Emerging Market Debt Manager Services
      Real Assets Consultant
      Passive Investment Management Services
      Active Extended Global Credit Manager Search
    • Private real estate funds continue rebound
      Managed account adoption stalls in 2020
      U.S. bonds have worst quarterly return since 1981
      Stable value retains edge over money market funds
    • Institutional Investors: Shared Expectations, Divergent Paths
      Global Investor Study 2016
      Workplace Financial Wellness
    • U.S. Endowment Returns Tracker
      Pension Fund Returns Tracker
      Earnings Tracker
      Corporate Pension Contribution Tracker
  • Insights
    • Opinion
    • White Papers
    • Industry Voices
    • Letters to the Editor
    • Partner Content
    • Publisher's Update
    • Marcie Frost
      CalPERS: Urgency underscores all areas of providing retirement security
      BPTW cartoon
      P&I’s Best Places to Work marking a milestone
      CalPERS cartoon
      Urgency underscores CalPERS' search for a CIO
      Multiemployer plans cartoon
      Money — but no fixes — for multiemployer plans
    • Bipsync Client Stories: RMS in Action at Pensions and Superannuation Funds
      COVID-19 Makes LP Portfolio Management More Important Than Ever
      China: the outlook is bright for longer-term investors
      Finding Differentiation in Securitized Assets
    • John Bakarat
      Commentary: COVID-19 and real estate debt – where investors should be looking
      Jake Remley
      Commentary: Inflation expectations vs. reality in the bond market
      Greg Shea and Steven Kindred
      Commentary: The solution for yield-seeking allocators may be hiding in plain sight
      Jim Park
      Commentary: Asian Americans, Pacific Islanders face ‘bamboo ceiling’ in money management
    • Marcie Frost
      CalPERS: Urgency underscores all areas of providing retirement security
      Writer using a typewriter
      OCIO industry needs to adopt GIPS
      Writer or journalist workplace. stock illustration
      Even as it assails China, Trump administration emulates it
      Skeptical of Main Street support for proxy adviser proposal
    • P&I Content Solutions
      Research for Institutional Money Management
      P&I Content Solutions
      Top questions for institutional investors
      Sponsored Content By Newton Investment Management
      Growth and Innovation in Emerging Markets
      P&I Content Solutions
      Fixed income 2021
    • Help us help you by supporting quality journalism
      You Must Believe in Spring
      Everything Must Change
      Tomatoes & Investments
  • Multimedia
    • Videos
    • Webinars
    • Polls
    • Slideshows
    • Charts / Infographics
    • Invesco logo shown on the floor of the New York Stock Exchange
      watch video
      1:28
      Invesco’s bid for performance gains
      watch video
      1:23
      The passive fixed-income glut
      watch video
      1:38
      Is it time for DC plans to embrace private equity?
      watch video
      5:39
      The coronavirus pandemic: One year later
    • New Outlook on Income: A Framework for Evaluating DC Retirement Income Solutions
      Investing in infrastructure at the right price
      Time for Action: Shifting Pension Dynamics from a Macro and Regulatory Relief Perspective
      Understanding the PEP Evolution
    • POLL: Cryptocurrency investing
      POLL: The Biden infrastructure plan
      POLL: Retirement income solutions
      POLL: Working after the pandemic
    • view gallery
      9 photos
      Coronavirus and the markets
      view gallery
      22 photos
      The 1,000 largest retirement funds: 2020
      view gallery
      10 photos
      Outlook 2020
      view gallery
      10 photos
      2019 as seen through the eyes of Roger
    • By the Numbers for April 2021
      Graphic: The state of DC plans
      Graphic: Invesco’s bid for performance gains
      Private real estate funds continue rebound
  • Events
    • Conferences
    • Webinars
    • DC Investment Lineup Virtual Series
      ESG Investing Virtual Series
      Private Markets Virtual Series
      Retirement Income Conference
    • New Outlook on Income: A Framework for Evaluating DC Retirement Income Solutions
      Investing in infrastructure at the right price
      Time for Action: Shifting Pension Dynamics from a Macro and Regulatory Relief Perspective
      Understanding the PEP Evolution
  • Careers
  • Research Center
MENU
Breadcrumb
  1. Home
  2. ALTERNATIVES
June 13, 2016 01:00 AM

Real estate investors passing over U.S. to find good deals in Europe

Funds, managers think anticipated recovery will offer opportunities

Arleen Jacobius
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Colm Lauder thinks some U.S. investors might be hedging their bets with European real estate in case markets soften after the presidential election.

    With only pockets of competitively priced investment opportunities in the U.S., real estate investors are roaming Europe looking for bargains.

    U.S. institutional investors are moving more capital across Europe than ever before.

    For example, officials at the $187.4 billion California State Teachers' Retirement System are selling off domestic real estate in favor of properties in Europe. In May, the $34.3 billion Illinois Municipal Retirement Fund, Oak Brook, launched a search for a core open-end European real estate fund manager for a $100 million account.

    The $14 billion New Mexico Public Employees Retirement Association invested up to $75 million in real estate debt fund DRC Capital European Real Estate Debt Fund III; while the $24 billion Texas Municipal Retirement System and $3.7 billion Houston Firefighters' Relief & Retirement Fund committed $100 million and $25 million, respectively, to Kildare European Partners II, an opportunistic real estate fund.

    Europe also is a target of managers. The five largest real estate funds doing road shows — targeting a combined $17 billion — will have exposure in Europe, according to London-based alternative investment research firm Preqin. The five are Blackstone Real Estate Partners Europe V, focusing on Western Europe; Blackstone Real Estate Debt Strategies III, targeting Europe and North America; Oaktree Real Estate Opportunities Fund VII, a global fund; Colony Distressed Credit & Special Situations Fund IV, also investing in Western Europe; and Hermes Real Estate Senior Debt Fund, investing in the U.K.

    Opportunistic managers were the first to invest in Europe to take advantage of distressed opportunities. Now, U.S. institutional investors are directing massive amounts of capital to Europe to take advantage of the region's anticipated recovery, said Sabina Kalyan, a managing director and head of European research in the London office of real estate manager CBRE Global Investors.

    Real estate investors and managers think the U.S. market is overpriced and quantitative easing is coming to an end, which could lead to higher interest rates and cause the U.S. economy to slow. And that would be bad for real estate. Rents in hot markets such as New York and San Francisco are already starting to drop.

    “The U.S. has had the best years of its cap rate compression behind it,” Ms. Kalyan said.

    Europe is in the early stages of a classical economic recovery, so there is more opportunity for real estate investment growth, she added.

    Looking at the cycle

    “U.S. investors are looking at where Europe is in the cycle and they see opportunity,” said Colm Lauder, a vice president at MSCI Inc. based in London. “Investors are seeing good value and a good diversification benefit for U.S. portfolios.”

    Investors also are diversifying their portfolios in case the U.S. markets weaken after the presidential election, he said.

    About 50% of real estate investors worldwide indicated plans to invest in Europe over the coming 12 months, a June 7 report by Preqin said.

    Investors and real estate managers also are moving beyond trophy assets in gateway markets such as London and Paris and now scouting for deals in Ireland, Italy and France, said Joe Valente, a managing director and head of research and strategy, European real estate, in the London office of J.P. Morgan Asset Management.

    U.S. investors and their managers are going abroad, betting that the lagging economic recovery in Europe will afford good buys. The continued quantitative easing measures in Europe is keeping long-term interest rates low and even negative in some countries, benefiting real estate.

    “In the short term, QE has been a real positive on the (real estate) market,” Mr. Valente said.

    "It's not cheap here'

    But how it plays out in the longer term is a different question. “We're in the midst of the biggest financial experiment the world has ever seen, and no one knows exactly how that is going to unwind.”

    “There is more new interest in Europe today,” said Nancy Lashine, managing partner and founder of New York-based placement agent Park Madison Partners. “There's a general sense of caution in the U.S. as the U.S. markets continue to appreciate and reach or exceed prior peak pricing. It's not cheap here, and so they (investors) are looking to see if properties are cheaper anywhere else.”

    Ms. Lashine agreed there is a prevailing view that opportunities exist in Europe because the recovery across many parts of the Continent lags the U.S., and investors are pursuing that investment view.

    Jonathan Grabel, chief investment officer of the New Mexico Public Employees Retirement Association, Santa Fe, noted the U.S. has outperformed the rest of the world in most asset classes for years. Over the past five years, domestic equities dramatically outperformed the rest of the world by an annualized 500 basis points, he said.

    “That kind of performance is not sustainable,” he added. So officials are looking elsewhere. PERA's investment in European real estate debt is an example of the opportunities that exist outside the U.S. due to macro factors, he said.

    At CalSTRS, executives are investing in European real estate in part because the recovery there is two or three years behind the U.S., leading to the potential for lower prices in the region. “From a pricing standpoint, some assets in Europe appear to be more attractive than those in the U.S.,” said spokesman Ricardo Duran.

    For example in the first quarter, CalSTRS committed e100 million ($88.4 million) to Blackstone Real Estate Partners Europe V, according to the latest real estate activity report. Much like the pension fund is doing with its public equity portfolio, CalSTRS is selling U.S. assets to take on a more global profile with its real estate portfolio. The fund has a 13% real estate allocation; the split between U.S. and foreign could not be learned by press time.

    There is a lot of real estate debt opportunity in Europe, especially originating new loans, said Park Madison's Ms. Lashine. Fewer European banks are actively offering real estate loans, and banks that are providing mortgages are more likely to lend on core real estate. And even then, most of the banks are only willing to lend up to 50% of the property's value, she said. “If you are a U.S. investor, you are used to getting close to 60% loan-to-value.”

    The opportunity exists for real estate managers to provide mezzanine loans and to lend on less stable real estate, which is potentially more rewarding for investors, she said.

    But not everyone agrees. J.P. Morgan's Mr. Valente said the real estate debt origination investment opportunity “is largely gone.”

    “As the banks have returned to the market, those debt funds are becoming increasingly uncompetitive and are having to take on additional risk ... in order to generate the sort of returns promised to their investors,” he said.

    Related Articles
    Sovereign wealth funds favor real estate, and the U.S., Invesco report finds
    Moody's says Bank of Ireland's rising pension deficit is credit negative
    Blackstone closes Strategic Partners Real Estate Fund VI at $1.3 billion
    Real estate allocations up as investors seek security
    Italy votes no in referendum; managers raise concerns over markets and banking …
    BlackRock's head of European mortgage strategies departs
    Recommended for You
    Sector’s risks need to be weighed, consultant says
    Sector’s risks need to be weighed, consultant says
    Private equity’s health-care role draws spotlight
    Private equity’s health-care role draws spotlight
    Some alternative strategies struggle in first quarter following tough 2020
    Some alternative strategies struggle in first quarter following tough 2020
    Fixed income 2021
    Sponsored Content: Fixed income 2021
    sponsored
    Events
     
     
    Sponsored
    White Papers
    Bipsync Client Stories: RMS in Action at Pensions and Superannuation Funds
    COVID-19 Makes LP Portfolio Management More Important Than Ever
    China: the outlook is bright for longer-term investors
    Finding Differentiation in Securitized Assets
    Green and sustainable bonds in emerging markets
    Portfolio Protection: One Size Fits None
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    April 5, 2021 Page One

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    pilogo-NEW
    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    150 N. Michigan Ave.
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2021. Crain Communications, Inc. All Rights Reserved.
    • NEWS
      • Asset owners and the coronavirus
      • Alternatives
      • Consultants
      • Coronavirus
      • Defined Contribution
      • ESG
      • Frontlines
      • Hedge Funds
      • Investing / Portfolio Strategies
      • Money Management
      • Pension Funds
      • People Moves
      • Private Equity
      • Real Estate
      • Searches & Hires News
      • SECURE Act
      • Special Reports
      • WorldPensionSummit
    • Data
      • Research Center
      • Searches & Hires Database
      • Searches & Hires News
      • RFPs
      • Charts / Infographics
      • Sponsored Research
      • Trackers
    • Insights
      • Opinion
      • White Papers
      • Industry Voices
      • Letters to the Editor
      • Partner Content
      • Publisher's Update
    • Multimedia
      • Videos
      • Webinars
      • Polls
      • Slideshows
      • Charts / Infographics
    • Events
      • Conferences
      • Webinars
    • Careers
    • Research Center