Download “Real Estate” for Investment?

ERES 2015 Istanbul - Pan-3 Taskisla Room 127
Friday 26 June, 09.00 – 10.30
Research Impacting on Investing in
Non-mainstream Assets or Countries
Participants
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Introduction
Panel Chair:
Dr Robin Goodchild FRICS, International Director – Global Research & Strategy
& Visiting Professor, University of Aberdeen Business School
Property Portfolio Exposures around the World ye 2014
Offices generally predominate
0%
Australia
Austria
Belgium
Canada
Czech Rep.
Denmark
Finland (KTI)
France
Germany
Hungary
Ireland
Italy
Japan
South Korea
Netherlands
New Zealand
Norway
Poland
Portugal
South Africa
Spain
Sweden
Switzerland
UK
USA
25%
50%
75%
100%
Office
Retail
Residential
Industrial
Other
Source: MSCI/IPD 2015
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Property Portfolio Exposures: Change can happen:
US Residential Exposure has steadily increased to 25% since late 1980s
50%
Property Type Share
of US NCREIF Index
45%
40%
Office
35%
30%
Apartments
25%
Retail
20%
15%
Industrial
10%
5%
0%
1981 1983 1985 1988 1990 1992 1994 1997 1999 2001 2003 2006 2008 2010 2012
Apartments
Source: NCREIF
Industrial
Office
Retail
Data to 4Q 2013
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What Constitutes Property for Investment Purposes?
A Review of Alternative Real Estate Assets
Colin Lizieri
Cambridge Real Estate Research Centre
University of Cambridge
European Real Estate Society, Istanbul, 2015
Background and Context
 Background
• Short Paper Commissioned by IPF in context of the
growth of “Non-Traditional Property Sectors”
o IPD UK From 4%  11% 2003-2013
o What Constitutes “Real Estate” for Investment?
o What Are Characteristics of Alternative Sectors?
o What Challenges Do Investors Face?
Methods
• Extensive Literature Review & Data Analysis
• Structured Interviews with Market Participants
• Discussions with Steering Group
Five Key Issues
Asset Allocation
• What definitions and divisions are appropriate to inform
asset allocation and implementation?
Asset Type
• How is the asset used and how does that usage influence
risk and return for investor?
Type of Income
• How much contractual certainty is there and how much
exposure to operational/business risk?
Structure and Ownership
• What is boundary between a real and a financial asset?
Institutional Factors
• What structures and skills needed to manage assets?
Asset Allocation Considerations
 Real Estate / Real Assets?
• Tangibility – Physical Assets?
• Inflation-Hedging Characteristics
 Risk-Return Behaviour
•
•
•
•
•
Risk adjusted returns and correlations
Contractual versus non-contractual income
Exposure to business and operational risk
Liquidity and exit strategies
Exposure to systematic risk factors
 Management Issues
• What knowledge and skill sets are required?
• Which teams have most appropriate skills?
• Reputational risks? Healthcare for example.
What Is “Alternative Real Estate”?
How Coherent is it as an Investment?
 What Might Be Included?
•
•
•
•
•
•
•
•
•
•
Hotels and Hospitality
Leisure & Related
Residential Investment
Student Housing
Healthcare and Seniors Housing
Agriculture, Forestry and Rural Land Use
Data Centres
Energy, Waste, Renewables
Economic and Transport Infrastructure
Real Estate Debt Products and Vehicles?
Do These Have Coherent, Common Features?
• Common or distinct drivers of Risk and Return?
Evidence From Literature
 Research Hampered by Data Inadequacies
 Portfolio and Risk-Return Studies
• Alternatives diversify within real estate portfolio?
• Some alternatives common risks with financial assets
• Business-driven cashflow alters return patterns
 Infrastructure Research
• Some studies find RE and infrastructure are complements
• Diversification properties appear to diminish in crises
• Key differences by type of infrastructure
 Behaviour Varies by Type of Alternative
• No consistent common features ...
Some US Evidence: Correlation Structures
NPI
Retail
Office
Indust.
Hotel
Aptmnt
Timber
NPI
1.000
Retail
0.887
1.000
Office
0.967
0.833
1.000
Industrial
0.978
0.829
0.988
1.000
Hotel
0.912
0.783
0.884
0.899
1.000
Ap’tment
0.972
0.852
0.933
0.947
0.856
1.000
Timber
0.307
0.335
0.272
0.279
0.421
0.208
1.000
Farmland
0.185
0.309
0.185
0.137
0.203
0.146
0.697
Source: NCREIF Quarterly 1998-2013
Hotels and Apartments More Like Traditional Real Estate
Timber and Farmland Behave Distinctly
Farmland
1.000
Income Security and Operational Risk
Cashflow from Lease or M’gmt Agreement?
• Most investors have concept of “operational risk”
• Divergence of views on consequences:
o Some seek to manage it and want explicit exposure
o others cautious: full implications understood within business?
 Operational Expertise to Manage?
• Are real estate skills appropriate for alternative assets?
• What are costs of operational management?
Financial & Management Structures
 Ownership, Capital Structures and Vehicles
• Private vs public distinction – REITs still not seen widely as a
means of long term real estate investment.
• Senior vs Mezz debt in terms of fixed income / real estate
• Segment not distinguishing feature.
Management Structure and Required Skills
• Flexibility of small managers versus larger managers
• Which team has the most appropriate expertise?
Some Conclusions
 Last decade seen shift in attitude to role of real
estate in portfolios & contribution to risk
 Benchmarking, targets, mandates more
accommodating to non-traditional assets
 Yield pressures encouraged hunt for cashflow
 No clear delineation/definition of “real estate”
 Ownership and asset exposure key issue
 Operational risk depends on structure
 Some RE vehicles still treated as debt or equity
 Broadening assets poses skill/management issues
Future Research / Policy Tasks
 Tension between asset allocation and
implementation – do allocators get what they
want? is alignment possible?
 Operational risk and value relationship
 Infrastructure and risk-return relationship
between different types of infrastructure and
real estate assets
 Systematic risk exposures of different types of
real estate assets and vehicles
What Constitutes Property for Investment Purposes?
A Review of Alternative Real Estate Assets
Colin Lizieri
Cambridge Real Estate Research Centre
University of Cambridge
European Real Estate Society, Istanbul, 2015
Research Impacting on Investing in
Non-mainstream Assets or Countries
Research Group Panel:
Francois Viruly – University of Cape Town
Matthias Thomas – INREV
Bert Teuben – MSCI, Netherlands
Jacques Plas – Generali Real Estate, France
Colin Lizieri – University of Cambridge
Moderator: Robin Goodchild – LaSalle, UK
Property Research in the Real World: Practical Applications
property research course 1 & 2 December, Cambridge, £790 pp
The course, running for the 2nd time this year, was created to fill a gap in the market to help property
researchers develop new skills, and is unique in its offering.
This 2-day course is an initiative by the Society of Property Researchers in the UK in conjunction with
the University of Cambridge, Institute of Continuing Education. The fees include all teaching, meals and
accommodation for one night at Madingley Hall, and are currently subject to an amazing £310 discount
if you book by 31st July 2015 (Fee: £790 instead of £1,100). Bookings close on 30th October.
The course is divided into three modules:
1. What is property research?
2. Applied research methods
3. Property investment and strategy
The four professors responsible for the course are very well-known:
Professor Colin Lizieri, Dr Robin Goodchild, Dr Paul McNamara and Professor Andrew Baum.
For further information visit http://www.sprweb.com/spr-course/course
LaSalle Investment Management | ERES joint seminar | 19
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