Private Wealth vs. Institutional Investors in Real Estate: High Risk or Safe Bets?

by Robert Digiovanni

  • 25 Oct 2017
  • RE

Significant geopolitical events have led to high levels of uncertainty in financial markets throughout 2017, with many investors uncertain of the impact on property valuations in both the short and long term. High property valuations are the single biggest issue concerning investors in real estate, with 72% of investors surveyed in June 2017 stating as such, and the effect of this wait-and-see approach may continue in the year ahead. Preqin’s Real Estate Online currently tracks 227 fund searches and mandates of institutional and private wealth (defined as family offices and wealth managers) investors; this blog will take a look at the opportunities these investors are currently seeking in the real estate asset class.

As illustrated in the chart above, both institutional and private wealth investors have a strong appetite for higher-risk strategies; value added and opportunistic strategies are favoured by approximately 50% of investors planning to make a private real estate fund commitment in the coming year. However, the widest margin in strategy preferences between these investors lies in their planned exposure to core vehicles: a much greater proportion (65%) of institutional investors are seeking these opportunities over the next 12 months than private wealth investors (41%). 

New Mexico State Investment Council is an example of an institutional investor planning to commit $300mn to up to six new funds over the next 12 months. The sovereign wealth fund will be targeting a wide variety of strategies including core, core-plus, value added, opportunistic, debt, distressed, secondaries and fund of funds. On the other hand, Indosuez Wealth Management will be targeting 3- 4 new funds in the coming year, but in only the higher-risk investments of value added and opportunistic vehicles. The wealth manager is planning to invest globally with exposure to North America, Europe, Asia and emerging markets.              

In terms of geographic preference, 58% of private wealth investors are looking to invest in North America over the next 12 months, compared with 45% and 20% seeking opportunities in Europe and Asia, respectively. However, only 47% of institutional investors are also planning commitments to North America-focused private real estate funds, while the majority (55%) of institutional investors are looking to gain exposure to Europe-focused private real estate strategies in the next 12 months.

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