European core real estate offers better value than US – Mass PRIM

The Massachusetts Pension Reserves Investment Management Board (Mass PRIM) is expecting to generate higher returns from core real estate in Europe than in its domestic market.

The institutional investor believes the ‘distressed opportunity’ in Europe is over, but it could still allocate 5% of its real estate exposure to the region.

US pension funds have traditionally sought higher returns when investing outside their home property market, but Mass PRIM told IP Real Estate that it believes European core assets offer better value than their US equivalents.

Tim Schlitzer, senior investment officer for real estate and timber, said: “One of the reasons that we are looking at Europe is how pricey the markets in the US have become.

“Our view on Europe now is that the major distress play is now over. We think that we can achieve better returns in core assets in Europe than in the US.”

Mass PRIM is consdiering a specific target allocation to European real estate. According to board meeting documents, it could allocate up to 5% of its real estate to the region.

The pension fund had a $5.6bn (€4.97bn) real estate portfolio at the end of March this year. A 5% allocation would amount to $280m.

US pension funds have invariably invested in European real estate for double-digit returns during market cycles. Earlier this year, Pieter Roozenboom, global head of separate accounts at CBRE Global Investors, predicted an end to the phenomenon.

Speaking at the MIPIM trade fair in Cannes, France, Roozenboom said US investment had been primarily “opportunity-driven” in recent years, but he believed US investors would remain active in the region on a longer-term, “strategic” basis.

Board meeting documents show that Mass PRIM has met with 15 investment managers and is planning market tours.

Schlitzer said: “We are still researching our expansion into Europe. I personally will be going to Europe this summer to continue our search.

Mass PRIM has a history of investing through separate accounts, but Schlitzer said Mass PRIM will be open-minded in Europe.

“We would be considering a variety of investment structures. These would include both separate accounts and commingled funds.”