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Owners Climb out on Risk Scale

DES MOINES, IA-The search for higher returns has found institutional investors increasingly allocating more capital to alternative strategies.

By Danielle Anderson | Updated on December 10, 2006

DES MOINES, IA-Increasingly, institutional investors on a quest for higher returns are climbing the risk spectrum in search of greater rewards than can likely be generated by core real estate. To that end, many are allocating more capital to value-add, opportunistic and offshore real estate strategies, according to “Expectations & Market Realities in Real Estate: 2007 – No Stone Unturned, the Global Search for Real Estate Alpha.” The fourth annual forecast was recently released by Principal Real Estate Investors, Real Estate Research Corp. and Torto Wheaton Research.

Andy Warren, of Principal Real Estate Investors, tells GlobeSt.com that as the economy slows, certain asset types will provide the best opportunity for value-add plays. On the asset side, development, and especially industrial projects, are key. Additionally, the best value-adds in the retail and office segment will be properties with a repositioning story, such as the enclosed mall that could be transformed into a lifestyle center.

“Another thing that we have to look at with the economy slowing down is that certain markets will be more active than others,” Warren says. Houston, for example, is likely to continue to experience strong growth, while Detroit most likely will see no growth. Warren adds that the sunbelt and coastal states should remain vibrant markets.

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