Investors are looking to global REITs (real estate investment trusts) as an alternative asset class in the face of market volatility and uncertainty in 2017.
According to Justin O'Connor, chief executive officer of Savills Investment Management (UK) Ltd, investors who are seeking reasonably secure and stable returns in the face of the existing market have been turning to real estate, despite its lack of liquidity compared to traditional asset classes.
“That’s why a lot of people are now thinking about going to listed real estate funds, such as REITs. We’re just launching a new fund that will invest straight into REITs. It’s like a fund of funds which is investing into a portfolio of global REITs, but then it’s daily trading,” O’Connor says in an interview with The Asset.
Although investors can invest directly into individual REITs, by providing them with a fund that invests in a portfolio of global REITs, Savills gives them more liquidity, better distribution, and more diversification compared to if they invest directly into individual REITs.
“You can do it yourself. You can actually go in and just buy a REIT. But this fund gives you liquidity. It also gives you good distribution because, depending on the country, most of the REITs require between 80-100% of their income to be distributed to the investors. So if I’m an investor with a bucket like this you don’t have to deal with developers if you don’t want to,” O’Connor says.
Most REITs generally provide about 5% return annually and a steady income stream that is not subject volatility and market uncertainty.
Although other real estate managers provide similar funds, Savills is launching the fund investing in a portfolio of global REITs in response to current investor demand. The fund also provides greater access to global REITs to a wider array of investors.
“There are other managers who do this but what’s really attractive about it is you get a portfolio of global REITs which makes it easier to get into difficult markets globally. So you’re getting diversification. It’s not just institutional investors and high net worth which can invest in global REITs, but the mums and dads as well,” says O’Connor.
REIT funds are expected to attract Asian investors particularly in places like Japan where domestic investors in J-REITs can have access to global REITs.
Savills recently won two mandates to invest in Japanese real estate. These mandates, with a combined total of US$600 million, were awarded by an existing client and a new client.
Savills’ first Japanese fund was launched in 2015. The Savills Greater Tokyo Office Fund has raised US$82 million, with commitments of US$150 million targeting a total of US$200 million.