| IN THE
December
7, 2009 ISSUE |
Investors Get Their Wish As Fund Managers Begin to Trim
Fees
With the approach of the holidays, institutional investors
are hoping for a few gifts of their own from their private equity
investment partners. At the top of their wish list: lower fees.
Thanks to billions of dollars in losses on their real estate investments
over the past year, many pension funds and other institutional investors
are ratcheting up the pressure on their partners to reduce, and in many
cases, restructure the fees paid for their services.
In the go-go days of the mid-2000s that preceded today’s credit
crunch, capital was free flowing and returns were high. Investors
happily poured billions of dollars into private equity real estate
funds. Now those days are long gone, and the pendulum of negotiating
strength has swung decidedly from general partners to limited partner
investors.
Signs of Life Emerge in Commercial Real Estate Lending
Market
Several positive developments appear to be emerging in the
real estate capital markets, providing a glimpse of optimism as investor
sentiment begins to rebound.
Case in point: Simon Property Group, an A-rated blue chip real estate
investment trust (REIT) with a strong balance sheet, issued $650 million
of 10-year unsecured debt at 10.8% in March.
In May, Simon issued $600 million of 5-year notes at 7%. The nation’s
largest shopping center owner issued another $500 million of 5-year
notes at 5.5% in August. Several other public REITs also were able to
raise large amounts of both secured and unsecured debt
financing.
High-Net-Worth Investors Turn Bullish on Real Estate, But Study
Suggests They Are Too Exposed
A global survey of more than 2,000 high-net-worth
investors commissioned by Barclays Wealth reveals that approximately one
in four respondents (26%) believe that residential and commercial real
estate provide better long-term prospects than other asset classes.
Slightly more than half of respondents expect an increase in the value
of their real estate investments over the next two years, and 35% plan
to increase their real estate exposure in the near term. The survey
findings were contained in a Nov. 30 report titled “Prospects for
Property: On Solid Foundations?”
What’s the basis of such optimism in the face of global economic
headwinds and a lingering credit crunch? One explanation is that 40% of
respondents with at least $50 million in assets have more than half of
their investment portfolio tied up in real estate.
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