Real Estate's Coming Of Age Spreads To The Global Stage, But Requires Heightened Risk Awareness
Nov. 28, 2006 (Des Moines, Iowa) — The search for higher returns than can likely be generated by core real estate has led institutional investors to look under every stone and allocate significantly more capital to value-add, opportunistic and offshore real estate strategies. These and other findings are addressed in the fourth annual release of one of the real estate industry's most comprehensive annual forecast reports for the U.S. real estate market - Expectations & Market Realities in Real Estate: 2007 - No Stone Unturned, The Global Search for Real Estate Alpha.
Unlike any other in the business, this report combines the qualitative and quantitative analysis of two of the industry's foremost research firms - Real Estate Research Corporation (RERC) and Torto Wheaton Research - with the extensive transaction, asset management and research expertise of Principal Real Estate Investors, the fourth largest real estate investment manager in the U.S.
This year's report analyzes the forces driving investor migration up the risk spectrum in search of higher total returns and addresses key trends impacting real estate space and capital markets. In addition, following several years in which virtually all real estate volatility has been on the upside, the report cautions against risk complacency as investors search for real estate alpha. "In an era of post-cap rate compression, increased interest rates and slowing global and U.S. economies, the key to top-tier investment performance will be successful execution at the property level in the form of sustained rent growth and excellence in investment navigation," said Randall C. Mundt, president and chief investment officer of Principal Real Estate Investors.
Kenneth P. Riggs, Jr., president and CEO of RERC, agrees. "Moving up the risk spectrum in an attempt to exploit market inefficiencies makes sense in today's maturing real estate market," he said. "While the targeted total returns for value-add, opportunistic and off-shore strategies are more attractive than those from core real estate, measuring the degree of risk associated with these strategies is made difficult by lack of historical data and low market transparency."
Noting that while caution in investing is advised, Raymond G. Torto, principal and chief strategist of CBRE/Torto Wheaton Research, said, "real estate today is priced for perfection, not for any type of correction."
Specifically, the report addresses:
- Capital continues to pour unabated into real estate, but underlying investor composition is changing.
- Continued cap rate compression and full pricing of core property types is driving U.S. investors to embrace a broader spectrum of value-add, opportunistic, specialized, property types and offshore real estate strategies.
- Increasingly global capabilities of investment managers, a proliferation of international and global fund offerings and gradually declining regulatory and tax barriers to foreign ownership of real estate have made it increasingly feasible for investors to search for best relative value on a global basis.
- Real estate appears to be positioned to perform well in the long run, in both an absolute and relative sense, but as investment strategies branch out into less familiar territory amid a slowing economy, heightened investor risk awareness is warranted.
Individual copies of Expectations & Market Realities in Real Estate: 2007 - No Stone Unturned, The Global Search for Real Estate Alpha can be purchased for $195 each by contacting RERC at www.rerc.com or 319-352-1500. Members of the media, to request a complimentary copy of the report, please contact:
- Principal Real Estate Investors: Laura Dunn, 515-246-4907, dunn.laura@principal.com; or Tina Marchetti, 515-248-0065, marchetti.tina@principal.com
- Real Estate Research Corporation: Barb Bush, 319-352-1500, bbush@rerc.com
- CBRE/Torto Wheaton Research: Katy McMahon, 617-912-5226, kmcmahon@tortowheatonresearch.com
About Real Estate Research Corporation
Celebrating 75 years of service, RERC is recognized throughout the industry as one of the nation's longest serving and most respected authorities dedicated to independent real estate research and analysis, valuation, general real estate consulting, independent fiduciary services, portfolio services, and litigation support. This is the twenty-sixth year RERC has produced an annual forecast report, beginning with Emerging Trends in Real Estate in 1980 (issued fall 1979) and continuing through Expectations & Market Realities in Real Estate: 2005 (issued fall 2004). More detailed information about RERC is available at www.rerc.com.
About Torto Wheaton Research
Torto Wheaton Research, a business unit of CB Richard Ellis, is the premier provider of real estate forecasting and investment strategy services. Founded in 1982, its research and investment strategy services cover all quadrants of the real estate markets, including public, private, debt and equity. Get more detailed information about Torto Wheaton Research at www.tortowheatonresearch.com.
About Principal Real Estate Investors
Principal Real Estate Investors is the fourth largest institutional real estate manager in the United States based on tax-exempt assets under management1 and manages or subadvises $36.2 billion in commercial real estate assets. The firm's real estate capabilities include both public and private equity and debt investment alternatives. Principal Real Estate Investors is the dedicated real estate group of Principal Global Investors.
About Principal Global Investors
Principal Global Investors is a diversified asset management organization and a member of the Principal Financial Group®, with expertise in equities, fixed income and real estate investments, as well as specialized overlay and advisory services. Principal Global Investors manages $176.5 billion in assets primarily for retirement plans and other institutional clients.2
About the Principal Financial Group
The Principal Financial Group® (The Principal®)3 is a leader in offering businesses, individuals and institutional clients a wide range of financial products and services, including retirement and investment services, life and health insurance and banking through its diverse family of financial services companies and national network of financial professionals. A member of the Fortune 500, the Principal Financial Group has $215 billion in assets under management4 and serves some 16.4 million customers worldwide from offices in Asia, Australia, Europe, Latin America and the United States. Principal Financial Group, Inc. is traded on the New York Stock Exchange under the ticker symbol PFG. For more information, visit www.principal.com.
1) As of June 30, 2006. Pensions & Investments magazine annual survey of real estate managers, Oct. 16, 2006
2) As of Sept. 30, 2006. Principal Global Investors is the asset management arm of the Principal Financial Group® (The Principal®), and includes the global asset management operations of the following members of The Principal Financial Group: Principal Global Investors, LLC, its U.S. and foreign advisory affiliates, and the asset management operations of Principal International, Inc. and its member companies.
3) "The Principal Financial Group" and "The Principal" are registered trademarks of Principal Financial Services, Inc., a member of the Principal Financial Group.
4) As of Sept. 30, 2006.
