Mon, Jan 20, 2014 page15

• Asian appetite for real estate reviving, BlackRock says

  ‘POPPING BACK UP’: The asset manager said that low interest rates and huge capital drove the change, after a few years of focus on a few cities in the EU and North America

  • Bloomberg
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  Asian institutions’ appetite for regional real estate investments has returned as they hunt for yield for their growing assets amid low interest rates, according to BlackRock Inc, the world’s largest asset manager.

  These investors are expected to deploy more money and a bigger percentage of their property allocations to Asia, especially in commercial real estate, said Joseph Pacini, Asia-Pacific head of BlackRock’s alternative investors strategy group speaking last week in Hong Kong. He cited recent discussions with clients he declined to identify.

  “What has been surprising is that Asian real estate has not been part of the equation for a number of years,” said Pacini, whose group oversees US$119 billion of assets globally, including investments in properties, hedge funds, infrastructure, private equity, commodities and currencies. “Now it’s popping back up again.”

  

  A farmer yesterday shovels soil in a vegetable field near a new residential compound on the outskirts of Wuhan, Hubei Province, China.

  Photo: Reuters

  The US Federal Reserve has kept interest rates near zero since December 2008, trying to bolster growth after a global financial crisis triggered the longest recession since the 1930s.

  Low interest rates have driven institutions such as government funds and insurance companies to seek higher yields from alternative assets, including properties and infrastructure.

  The Fed said last month it would keep its benchmark rate near zero “well past the time” that the US unemployment rate falls below 6.5 percent.

  “We’re living in a low interest-rate environment so there’s more of a need for yield today,” Pacini said. “You compound that in Asia with the fact that they have a lot of capital that they have to invest, that’s a huge stress.”

  The renewed interest represents a departure from the last few years when Asian institutions were focused on a few cities in developed markets in North America and Europe, Pacini said. These markets will probably continue to account for the bulk of new real estate investments because of their size, he said.

  Time Warner Inc sold its headquarters space at Time Warner Center in New York City’s Columbus Circle for US$1.3 billion to a group led by Related Cos, which also included the Abu Dhabi Investment Authority and Singapore’s sovereign wealth fund GIC Pte.

  China Investment Corp (CIC, 中國投資公司), China’s sovereign wealth fund, is in talks to buy Chiswick Park, a west London office development whose tenants include PepsiCo Inc and Walt Disney Co, from Blackstone Group LP, a person with knowledge of the matter said in November last year.

  Regional institutions are taking a more sophisticated approach to assessing opportunities in Asia, indicating interest in properties that can be improved to generate higher returns, Pacini said.

  “There’s a desire for more active participation,” Pacini said.

  Pacini added that investors will buy “the ugliest building in the best block, improving that and creating value.”

  BlackRock’s alternative investors strategy group manages about US$23 billion of real-estate assets, according to a presentation.

  BlackRock, which oversees US$4.3 trillion of assets globally, last year bought private-equity property advisory firm MGPA in a push to expand its real estate business in Asia and Europe.
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