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Alternative Methods of Accessing the Real Estate Asset Class - October 2013

by Forena Akthar

  • 03 Oct 2013
  • RE

Recent years have seen institutions often seeking additional control provided by alternative routes to private real estate, such as co-investments, joint ventures, or separate accounts. Appetite for these methods has remained stable, with larger investors the most likely to target investment via alternative routes.

Interest in co-investments and joint ventures has remained stable over the last few years, with appetite for real estate separate accounts increasing. Thirty-seven percent of investors are now interested in separate accounts, increasing from 33% in January 2012 and 35% in January 2013. However, the resources and knowledge required to make these investments means that it is typically the larger investors that will look to gain exposure through these routes. Preqin research shows that 67% of institutions with $10bn or more in total assets invest or consider investing via joint ventures, and 62% utilize or would consider utilizing separate accounts. In contrast, only 21% of investors with less than $1bn in assets under management invest or consider investing in joint ventures and 20% invest or consider investing via separate accounts.

Appetite for separate account structures differs across investor types. Asset managers are the most likely to invest via separate accounts; 65% of such institutions utilize, or consider utilizing separate accounts to access the real estate market. This investor group often has sophisticated investment teams and so are more able to evaluate and monitor this type of investment. Over 40% of public pension funds will invest, or consider investing in separate accounts. Public pension funds often have large ticket sizes and therefore separate account investments are a particularly viable option for many in this category. Endowment plans and foundations are the least likely investor types to award separate accounts to real estate managers, with 78% and 80% of these investors unwilling to invest through this route respectively.

In terms of investor location, institutions based in North America are more likely to seek separate account relationships, with 33% of these investors utilizing or considering utilizing this investment method. In comparison, 26% of European investors form or consider forming real estate separate accounts.

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