Wealthy Investors on Leading Edge of Real Estate Investment
A recent article from the CoStar Group summarized the results of a Barclays Wealth survey of High Net Worth (HNW) investors, in the form of individuals, family offices, and Registered Investment Advisors (RIAs). As a group, 68% of these investors would like to increase their real estate investments in the near term, with indications that family offices were forming alliances to go after larger investment opportunities. Over 25% of respondents expect real estate investment returns to outpace returns from other asset classes. More than half of these investors expect the value of their current holdings to increase over the next two years. HNW investors view real estate as offering income and capital appreciation-however the real estate market is viewed an neither liquid nor transparent, which in the very near term is hindering these investors.
Current additions to HNW real estate portfolios appear to be in barbell fashion-high quality, yield-oriented investments or junk being sold on a price-per-pound basis. Multi-family investment, typically a significant part of HNW individuals, has dropped in percentage terms from nearly 18% to 10% of all commercial real estate transactions, and in dollar volume from $1.29 billion to $228.8 million. Only the most sophisticated investors are acquiring office buildings, with others instead opting for “sure-thing” investments, such as properties with triple net leases to high-credit tenants.
While the vast majority of HNW investors are on the sidelines with respect to “high risk” real estate investments, many are preparing to jump in this market. What is stopping them? The lack of availability of debt is significant. 75% of HNW investors who are bullish on commercial real estate say the lack of reasonably priced debt is deterring their investment. 60% of residential investors echo that reason. The survey reflected that HNW investment in real estate will be impacted by both availability of suitable credit and a strengthening global economic recovery.
Finally, the survey revealed that 16% of these investors viewed the US as the most promising commercial and residential real estate investment market. Following, in order of popularity, were China and the UK, India, France, Spain, Canada, Brazil, Germany and Australia providing the balance of the top 10.
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