Pension funds show no signs of moving away from CRE
11/3/2016 | Real Estate Blog
Commercial properties in Pennsylvania and around the country have been snapped up by institutional investors like hedge funds and insurance companies in recent years, and most financial experts expect pension funds at least to continue to buy heavily despite indications that an improving economy could impact returns in the years ahead. Commercial real estate has gone from accounting for 6 percent of the assets managed by U.S. pension funds to 7.3 percent since 2011 according to the British research firm Preqin, and foreign pension funds have been buying even more aggressively.
The Pension Real Estate Association believes that commercial real estate is featured even more prominently in pension fund portfolios, and the organization’s director of research says that these institutional buyers have not been put off by concerns over a looming glut of supply or warnings about risky lending practices in the commercial propriety sector. Offices, warehouses and production facilities are attractive to these financial giants because they provide consistent and robust returns and offer a hedge against the consequences of a rise in interest rates.
Experts predict that pension funds will continue to add commercial real estate to their portfolios during 2017, but they say that the type of properties that interest them will likely reflect evolving economic conditions. They are expected to move away from properties with long-term leases that offer secure but modest returns in favor of real estate better positioned to benefit quickly from an improving economy.
Even the most cautious of investors can be caught off guard by unexpected events, and not all of the challenges faced by commercial property developers, owners and managers can be fully grasped by reading financial disclosure documents. Experienced real estate attorneys may be able to identify potential land use, permit or zoning disputes ahead of time and put strategies in place designed to prevent or avoid them.