US: the promised land for property managers

Australian property fund managers will increasingly look to the US for real estate opportunities, as investment in this asset class soars, according to Fiduciary Global Advisors managing director Jack Foster.

Speaking at the 7th annual Australian Direct Property Industry Association conference, Foster said that as a driver of the overall economy and individual wealth “American real estate is pretty hard to beat”.

He added: “Private and public institutional investors own assets worth US$6.1 trillion, and public equity has captured US$565 billion of assets in global real estate.

“In America, this is resulting in new construction with very little sign of overbuild unlike the 80s and 90s. Fundamentally, this is a stable market with strong absorption.”

The lure of US property is being driven by pension fund demands, with Foster saying that globally, pension schemes are attracted to the “low risk, steady returns associated with property investment”.

In addition, Foster said 24 countries had now adopted Real Estate Investment Trusts (REITs), as property investment has moved towards securitisation.

“I must emphasis that even those markets which have adopted this structure will continue to offer more opportunities as established companies continue to convert. In the US, we will see more and more real estate listed in the public market.”

However, Foster warned that Australian managers would need to obtain local knowledge in order to maintain good returns.

“Australian managers should focus on the core east and west coast markets. They offer strong dynamics in terms of total returns over the long-term,” he said.

According to Foster, capital flows to US real estate have increased from US$66 billion in 2001 to $US250 billion in 2005, with private equity funds playing a substantial part in this growth.