Business

Saturday 19 August 2017

Blackstone sees end of property's 'great run' in sight

High prices in locations such as New York have lessened the attraction of property as an alternative investment for equity funds
High prices in locations such as New York have lessened the attraction of property as an alternative investment for equity funds

Matthew Brockett and Frances Schwartzkopff

Blackstone Group LP, the world's biggest private equity fund, told investors to dial back their expectations for property returns as the "great run" of the past five years becomes harder to replicate.

Investors should "calibrate" their expectations, Chris Heady, Asia Pacific chairman and head of Asian real estate, told a conference in Singapore last Tuesday. "They're probably going to be lower over the next five years."

At the same event (the Asia Pacific Real Estate Association's AsiaPac Property Leaders Summit), Singapore's sovereign fund GIC Pte, an investor in world real estate from student housing to logistics, said that elevated prices were constraining its investment as it sold assets that had gained in value.

Investors worldwide struggled to find high returns in the wake of the global financial crisis amid interest rates languishing near record lows and bouts of elevated volatility in the stock and bond markets.

While property offered an alternative, higher real-estate prices in places such as Hong Kong, London and New York dim the allure.

Blackstone had $102bn of real estate under management in the first quarter after taking advantage of high valuations by exiting assets including $6.7bn of property.

That included parting with a 25pc stake in Hilton Worldwide Holdings Inc., real estate in London, office properties in Sydney and Japanese residential real estate.

Notwithstanding its view of the global property market, Blackstone's Indian partner, Embassy Group, may list India's first real-estate investment trust by this November.

GIC, which invests Singapore's foreign reserves, is one of the biggest real-estate owners among sovereign wealth funds. It this year partnered with Canada Pension Plan Investment Board and US real-estate operator Scion Group LLC to invest in a $1.6bn portfolio of student housing in the US.

Lee Kok Sun, GIC's managing director and chief investment officer for real estate, told the Singapore forum that about 7pc of GIC's portfolio had been in real estate, less than the targeted allocation of 9pc to 13pc.

As a "disciplined investor", GIC sold some assets that increased in value. But selling properties while trying to raise the allocation was like running "faster and faster" on a treadmill, he said. GIC said in July that a key measure of returns across asset classes fell to 4pc in the 20-year period ended March 31, 2016.

(Bloomberg)

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