Institutional Investors Plan to Pull Back From Real Estate in 2017

Apr 17, 2017

The Federal Housing Finance Agency (FHFA) conducted its annual stress test of Fannie Mae and Freddie Mac, and the results were not exactly encouraging

U.S. institutional investors plan to reduce their new capital commitments to real estate by an average of 19 percent this year, according to an annual investor survey conducted by Institutional Real Estate Inc. and Kingsley Associates.

The newly released the 2017 Institutional Investors Real Estate Trends revealed that U.S. investors plan to commit $62 billion of new capital to real estate this year. Although the average new capital commitments to real estate are expected to be smaller in comparison to the 2016 commitments, 72 percent of investors still plan to be active with new commitments to real estate throughout this year. The survey’s respondents ranked industrial assets as the most attractive property type for new investments, followed by multifamily assets.

Furthermore, the survey found that U.S. core properties and value-added properties would receive the majority of new real estate investment capital, 33 percent and 27 percent, respectively. In comparison, foreign investments are targeted for seven percent of the capital and five percent was earmarked for real estate securities.

"Real estate investors have enjoyed healthy returns post–global financial crisis, but it's evident from the survey that they are showing more caution at this point in the cycle," said Geoffrey Dohrmann, president and CEO of Institutional Real Estate Inc. "U.S. investors dialed back their total return expectations for real estate from 8.7 percent last year to 7.4 percent for this year. However, on a risk-adjusted basis, respondents ranked real estate as the most attractive asset class for the seventh consecutive year."

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Phil Hall

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Apr 17, 2017

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