Investors demand more control: State Street

A broad range of institutional investors, including pension funds, insurance companies, and sovereign wealth funds, is set to increase their exposure to real estate as an asset class, according to a new research from State Street Corporation.

However, having learned from experiences during the financial crisis, investors are seeking much greater control and flexibility over their real estate exposure. According to State Street, regulatory changes are fundamentally changing the landscape for real estate investment on the part of both investors and real estate managers.

The appetite for real estate among institutional investors continues to be strong, with recent research indicating that real estate remains the largest block of alternative asset allocation for pension funds. Prime property remains the most attractive to large institutional investors, with interesting opportunities also noted in regions such as Eastern Europe.

With this renewed appetite, State Street's research found that investors have become more demanding of real estate managers and are insisting on more accountability. Investors want closer relationships with their fund managers and are requesting increased information both at the outset and during the lifecycle of the fund.

The research also reveals that investors are seeking increased transparency on underlying investments and fees. The typical length of time between invitation and closing has nearly doubled since 2007 as investors take longer to make a final decision and pay greater attention to due diligence.