Real estate still carries the negative associations of the sub prime debt, which was one of the underlying factors behind the global financial crisis in 2008. But there are signs that the sector is being rehabilitated as investors return, drawn by the potential for both income and capital gain.
Real estate still carries the negative associations of the sub prime debt, which was one of the underlying factors behind the global financial crisis in 2008. But there are signs that the sector is being rehabilitated as investors return, drawn by the potential for both income and capital gain.
Gillian Tiltman, portfolio manager of the €100m M&G Global Real Estate Securities Fund, launched just four years ago, notes that surveys suggest investors have at last 5% and up to 15% of their overall investment portfolio in real estate-related assets.
"It should be back on your radar," she told fund buyers at InvestmentEurope's pan-European Summit in Lausanne. The fund, which invests exclusively in property securities across the world, has just registered for sale across Europe.
M&G Investments counts Prudential, the €20bn property specialist, among its corporate assets. Portfolio specialist Diana Philip says the asset class, having fallen from historic highs in 2007, is now offering great value and attractive long-term returns.
Listed real estate securities offer the liquidity investors still seek, as well as an income stream and reasonable capital growth. It avoids the restrictions which have forced German property funds holding direct assets to close because they could not sell assets fast enough to meet investors' redemption claims.
"Our message is that you can access real estate without holding property directly, via securities," said Philips. "But you really have to understand the real value of the asset, and the business model."
Tiltman said investors should remember that global property cycles are not synchronised, and inter regional correlations are lower for real estate securities. "Property is a global asset class but a local business, and we what look for is prime real estate - prime today, and prime tomorrow."
She looks for firms that have identified unique niches, for scarce assets and for what is likely to become the next ‘prime' asset. "We like the focus of companies like Simon Property Group in the US and Canada's Boardwalk. Also innovative companies like The Link, which invests in public housing in Hong Kong, even if the private market there is richly valued."
