California-based investors are providers of significant capital to the private real estate fund market, with institutional investors of vastly different sizes based in this state allocating to the asset class. Forty-four percent of these investors have less than $500mn in assets under management, 11% have a portfolio of between $500mn and $999mn, and the remaining 45% have over $1bn in total assets. Of these investors, 21% have a real estate allocation of less than $10mn, 30% allocate $10mn to $49mn to the asset class, and 28% have allocations of $50mn to $249mn. Five percent of the state’s investors allocate between $250mn and $499mn to real estate, while 8% have allocations of $500-999mn. Seven percent of California-based investors have a real estate portfolio worth over $1bn.
Investors in the state are more likely to have a higher allocation to real estate when compared to other US-based institutions, with 39% having a real estate allocation of over 7.5% of total assets, compared with 28% of other US-based investors. In terms of strategies targeted in the next 12 months, California-based investors are more likely to invest in opportunistic and core vehicles than the rest of the US. Seventy-five percent of the state’s investors are targeting opportunistic strategies and 55% are targeting core strategies, compared with 58% and 37% respectively for the rest of the US. There is little different between the two groups of investors when comparing the proportions targeting value added strategies but a smaller proportion of California-based institutions are seeking debt, distressed and core-plus strategies compared to other US investors.
US-based investors have a strong preference for investing in domestic real estate funds, and California-based investors are no exception, with 72% and 70% respectively targeting North American funds in the next 12 months. Interestingly, 52% the investors based in the state of California are looking to invest globally, compared with only 39% of other US investors. California-based investors are more likely to invest in real estate funds in Europe, Asia-Pacific and emerging markets than other US-based institutions. Twenty-six percent of the state’s investors are targeting European funds, as opposed to only 16% of other US investors. Twenty-two percent of California-based institutions are targeting the Asia-Pacific region, compared with only 12% of other US investors. Finally, 13% of the state’s investors are targeting emerging markets in the next 12 months, with only 6% of other US institutions targeting this market.