Sovereign Funds May Invest $725 Billion in Real Estate by 2015

Sovereign Funds May Invest $725 Billion in Real Estate by 2015


Sept. 22 (Bloomberg) -- Sovereign wealth funds may increase investment in commercial properties to a net $725 billion by 2015 as they diversify their holdings from stocks and bonds, according to CB Richard Ellis Group Inc.

The funds will probably raise the proportion of money they invest in real estate to 7 percent from 4 percent in the next seven years, the world's largest commercial-property broker said in a report published today. Abu Dhabi, Norway, Saudi Arabia, Singapore and China have the largest funds, CB Richard Ellis said.

``The attraction of property is that it provides the yield of bonds and the appreciation of stocks,'' Ray Torto, Boston- based chief economist for the broker, said in an interview. ``In a distressed environment, trophy assets become available.''

Commercial property prices are declining amid scarce financing and a slowing global economy. U.S. real-estate values fell for the fourth straight month in June and are 12 percent below their October 2007 peak, according to Moody's/REAL Commercial Property Price Indices. European real-estate stocks have dropped 37 percent since the end of 2006 and may fall another 10 percent before recovering next year, JPMorgan Chase & Co. analysts said Sept. 3.

As much as half of the property-related investments made by sovereign wealth funds will be on acquisitions of buildings and as much as 30 percent will be put into private-equity funds and private real-estate investment trusts, the CB Richard Ellis report said. As much as 25 percent will be invested in real-estate debt.

Target Markets

Until now, the funds have mainly purchased properties in the U.S. and Middle East, according to the report. In future, they will probably spend more in countries with currencies that aren't held in the funds' foreign reserves, the report said.

Japan is attractive because its old buildings need to be replaced, and U.K. prices have already dropped to levels where the funds are interested in buying, Torto said. The spread in the U.S. between selling prices and what buyers are willing to pay is still too wide to attract sovereign-fund investment, he said.

``They like big financial capitals,'' Torto said of the funds' interest in Tokyo and London. ``The question we've been kicking around is if New York City has tarnished itself badly over the last 6 months, but New York is resilient.''

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