Sovereign Wealth Funds could, potentially, invest as much as $725 billion over the next seven years, states a new report by CB Richard Ellis Group. While more than half of the SWFs are believed to already hold direct investments in commercial property, allocations could rise substantially.
“Given that the real estate sector’s investment characteristics — current income combined with long-term appreciation closely match SWF requirements, we expect them to increase their weighting of commercial property to approximately 7 per cent of their total assets,” suggests Ray Torto, Chief Global Economist at CB Richard Ellis.
With SWF’s assets currently estimated at nearly $4 trillion, a 7 per cent allocation would mean worldwide commercial real estate investments totaling $280 billion. Middle East based SWFs, already on the prowl to pick up choice real estate, now account for four out of the top six commodity-based funds with an estimated value of $1.74 trillion. “Typical safe havens will include central London, but other trophy real estate targets will figure such as Abu Dhabi Investment Council’s acquisition of New -York’s Chrysler Building earlier in the year,” says Nick Maclean, CB Richard Ellis’ Managing Director for the MENA Region.
Over a longer horizon, the SWFs’ potential for property investment is rated even more significant and potentially could reach total assets of $12 trillion by 2015. A 7 per cent allocation implies SWFs would make approximately $725 billion of net property investments over the next seven years.” The SWFs’ increased exposure may have other positives as well, such as helping stimulate a recovery in the secondary market for real estate debt. ‘The dislocations within the debt market may provide attractive investment opportunities for equity-rich SWFs with long-term investment horizons’, the report notes.
Thus far, SWF property investments have been largely concentrated in the US and the Middle East, ‘Although SWFs are likely to continue to focus on core real estate product in major markets, they will have to put capital to work in new geographies and emerging sectors,” opines Michael Haddock, Director EMEA Research, CB Richard Ellis.
“Favoured future destinations are expected to include Japan, the UK and other countries with currencies that are not held in the SWF’s foreign reserves.
“SWFs will have to look to both the indi¬rect investment market and the debt mar- ‘ ket to fully meet their objectives in the real estate sector. It is also very possible that we will see outright acquisitions of property companies, listed and unlisted as a way of assembling a significant direct real estate portfolio rapidly as well as acquiring the property management infrastructure to go with it.”
