A driving factor among pension executives in raising their real estate investment is the large amount of capital available, said Stan Ross, chairman of the Lusk Center for Real Estate at the University of Southern California, Los Angeles.
Investors’ portfolios have also reaped some of the profits from the sale of properties by their investment managers, which has given them even more capital to reinvest in real estate, Mr. Ross said.
The problem among real estate investors and money managers is where to invest all of the capital.
Much of it is going into foreign real estate, Mr. Ross said. For example, 20% of CalSTRS’ real estate portfolio is allocated to predominantly opportunistic international strategies. The $14.9 billion Illinois State Universities Retirement System, Champaign, last month added a global mandate to two active real estate investment trusts run by RREEF, America and ING Clarion Partners and to a passive REIT run by Barclays Global Investors. Officials at MassPRIM are exploring investing in international real estate, although no allocation decisions have yet been made.
Although consultants do not expect overall real estate and REIT returns to continue at current levels, they could still beat stock and bond performance — or at least provide diversification.
Adding to the diversification argument, Mr. Ross noted investors were also interested in niche strategies such as development.
Last year, the majority of pension plans’ interest was “and continues to be in core but they are heavily moving into value added and opportunistic strategies,” said J. Michael Fried, chief executive officer of Phoenix Realty Group, a New York-based real estate firm investing in inner-city development projects.