IPE - Emerging markets and niche strategies emerged yesterday as the two major investment opportunities in the current market environment as a CIO panel urged investors to identify the inflection point in uncertain markets.
A straw poll taken at the beginning of the IP Real Estate Investor Forum CIO panel found that 26% of the audience favour clubs and joint ventures, followed by direct investment, which pulled 23% of the vote.
Funds came off poorly. Eric Adler (pictured), head of Pramerica's European business, said smaller, more nimble operators could take the opportunity to pursue smaller strategies as sovereign wealth funds and large pension schemes demand ever more control of property funds they invest in, including at asset-level.
"GPs are needing to spend a lot more time being partners to these investors, while margins are compressing," he said.
"These funds are pushing further towards major cities in search of liquidity, which creates opportunities for smaller, more nimble operators."
One panellist, Urdang Capital CIO and president Todd Briddell, suggested assets in gateway cities - those trading without distress, at least - were in many cases not worth pursuing.
Instead, Urdang is targeting cities such as Houston, where efforts can attract and retain credit tenants, but which are not on the radar screen of most investors.
"Every core fund is oversubscribed to buy assets in the same 12 markets," Briddell said. "It doesn't make sense. There is a time for niche strategies - and today is one of those times."
Despite his broad appetite for emerging markets, FIRSTAvenue principal David Hunter, a former actuary who now advises pension schemes, warned against potential correlations.
While he did not doubt there were opportunities for a better upside in emerging markets, he said investors should invest specifically to exploit macro growth.
"There are still 10-20 years of legs in what is a fashionable story, but I'd caution that you need to go into the GDP story, not into coastal areas that are correlated with developed markets," he said.
Although one of the panellists pointed out that managers can command higher fees for private real estate, Rogier Quirijns, head of European research and investments at Cohen & Steers, identified opportunities to invest in REITs as likely depositories of especially Spanish banks' offloaded assets.
"M&A activity will kick-start the REIT machine," he said. "There is limited access to capital but more efficient ways of getting it than a rights issue. Currently, there is arbitrage between the US and European cost of capital."
In the meantime, the panel warned of potential pitfalls in debt deals - another focus of CIO attention.
Despite increased investor appetite, the market was seeing potential deals fall through because the senior and equity part of the capital stack was "shaky", according to Adler.
"Mezzanine lenders are looking at only 25% of the space," he said.