German real estate: Pension funds weigh in
Issuers hoping to capitalize from German property securitizations will face stiffer competition for their portfolios.
Real estate has been a prime beneficiary of the pension fund sector’s efforts to diversify away from equities. “Pension funds have traditionally had 3% to 5% of their total allocation in real estate but those already in the sector have now increased this to around 10%,” says Mike Marshall, executive managing director at CBRE Investors. He has also seen a large number of UK pension fund investors (including some large final-salary schemes) investing in real estate for the first time. “The greatest change is the property unit trusts,” he says. “They used to represent 5% to 10% of the IPD universe but now this is more like 30%.” These vehicles are ideal for smaller pension funds and many of them are now saturated with long waiting lists.
In addition to the growth in pension fund money overall, there is also far more interest in cross-border investment from pension funds that have traditionally stayed at home. This has resulted in a sharp increase in competition for assets across the board. “Over the last two to four years real estate investment has become materially more global,” observes James Brent, managing director and head of real estate and lodging investment banking at Citigroup.