Sovereign Wealth Funds Eyeing More Real Estate

LONDON-Sovereign Wealth Funds, the stealth factor in the investment world, are channeling more capital than ever before into commercial real estate in their search for opportunistic investments beyond Western financial markets. A new report shows SWFs worldwide have reached $3.5 trillion due to 24% average annual growth rates for five consecutive years–and it’s pointed at all investment arenas on most continents.

Jan Randolph, head of Sovereign Risk for London-based Global Insight Inc., says the secrecy factor has raised concerns, but the reality is SWFs have been the financial markets’ golden goose. But, he believes SWFs may have “taken a pause” from financial investments. “There is a growing interest in real estate and commodities, whether directly or indirectly,” he tells GlobeSt.com. He says Middle Eastern SWFs are spending billions to acquire real estate in Morocco, Egypt, Turkey and Spain, and that’s just the tip of the iceberg on the SWF bricks-and-mortar front.

“I think real estate as an asset class is probably one of the largest categories for investment by SWFs,” says Pierre N. Rolin, founder, chairman and CEO of London-based Strategic Real Estate Advisors. “I think the preference is larger economies-of-scale transactions with higher rates of return.” SWFs are running the gamut from direct investments in private equity real estate funds to real estate-backed securities.

Rolin

Rolin explains it’s easier for SWFs to invest in the US because they are dollar-based. Since October 2006, Rolin’s StratREAL deployed $200 million as property adviser for Ansbacher, the subsidiary of Qatar National Bank via the Prime 1 International Real Estate Fund, with the lion’s share of the pool pointed at the Southwest and Southeast US.

Rolin points out that SWFs quietly invested in US Treasuries and the debt markets for years, without raising any concerns. But, he says SWFs’ shift to equity investments has pushed them into the limelight. Their abundance of capital is thanks to skyrocketing prices of commodities like oil, gold and diamonds.