Archive for October, 2011

Good Time for CRE Says BlackRock Report

Sunday, October 16th, 2011
 
Noted investment manager BlackRock Inc. (NYSE: BLK) is recommending commercial real estate (CRE) as an attractive asset class, noting that unlevered core U.S. CRE could deliver average annual returns of 6%-7.5% over the next decade.
 
According to a new report by the firm, U.S. Real Estate: Buy, Hold or Fold, commercial real estate offers institutional investors “attractive income yields vs. stocks and bonds.”
 
BlackRock manages global assets of some $3.66 trillion.
 
“While we don’t advocate an overweight to real estate given the significant economic uncertainties, we believe that it is still a good time for strategic institutional investors to be fully allocated to CRE if they are not already” note report authors Floris van Dijkum, Managing Director for BlackRock’s Real Estate Equity Group, and Elysia Tse, a Vice President for BlackRock’s Real Estate Equity Group.
 
Here is the report’s executive summary (click here for the full report):
 
Coming out of the most devastating CRE downturn in history, pricing for well-leased, stabilized properties in most US markets is strong with capitalization rates in the 4% to 6% range. This paper explores whether buying at such tight yields is appropriate.
 
With expectations of subdued economic growth over the next decade, BlackRock forecasts unlevered core US CRE to deliver between 6% to 7.5% average annual returns during the same period. Although these returns are lower than historical averages, they are higher than the expected returns for fixed income. Additionally, core US CRE appears attractive when compared to the expected returns for stocks (which are leveraged) over the next decade. As a result, CRE offers a compelling investment option among investors seeking yield, particularly in light of the 10-year Treasury yielding below 2%.
 
Real estate is typically a long-term investment. Over the long-term, CRE offers a compelling blend of high income and competitive risk-adjusted returns when compared to other asset classes. We recommend institutional investors to only consider strategic allocations to CRE in the context of a long-term investment perspective. While we don’t advocate an overweight to real estate given the significant economic uncertainties, we believe that it is still a good time for strategic institutional investors to be fully allocated to CRE if they are not already. For those who currently have an overweight to real estate, it could also be a good time to dial back on risk and bring the allocation back to neutral.

Zell Closes Largest Fund with $650M

Sunday, October 16th, 2011
 
Chicago-based Equity International (EI), led by chairman Sam Zell, raised $650 million in its fifth investment fund, which will focus on emerging market opportunities.
 
EI Fund V is the fifth in a series of investment funds created by EI since its inception in 1999. Through these funds, EI has raised over $2 billion and invested in 21 portfolio companies representing a wide spectrum of real estate-related sectors, including homebuilding, retail property, corporate property, warehousing and distribution, hospitality, senior living and specialty finance.
 
EI is perhaps best known for developing a group of international companies including Homex (NYSE:HXM) and Corporate Properties of the Americas in Mexico, and Gafisa (NYSE:GFA), BR Malls (Bovespa:BRML3) and Bracor in Brazil.
 
“Fund V reflects the natural evolution of our business and recognition of our robust investment pipeline,” says EI’s CEO Gary Garrabrant. “We will continue our successful investment strategy and platform investing approach in markets where we have an established presence such as Brazil, as well as in new markets including Colombia and India.”
 
Fund V will co-invest with operating partners in both existing and newly formed companies, with a focus on scalable operating platforms.
 
Jonathan Lulu, EI’s senior vice president of capital markets, added, “We are appreciative of the vote of confidence in EI, particularly in this financial environment.”