US institutional investors are becoming somewhat more cautious about European real estate as distressed opportunities dry up and currency effects kick in, according to Rob Kochis, senior partner at Townsend.

US institutional investors are becoming somewhat more cautious about European real estate as distressed opportunities dry up and currency effects kick in, according to Rob Kochis, senior partner at Townsend.

‘US investors are still looking for recovery and distress in Europe, but they are struggling to find it,’ he told a panel discussion on European capital markets at the annual conference of ULI Europe in Paris on Wednesday.

Kochis pointed out that US investors were already well-exposed to Europe and that the euro has weakened significantly in the past 24 months, by roughly 15-20%. ‘It has been a good time to invest for dollar investors and we’ve had a good run of capital raised for Europe…US investors have pretty active for two to three years now, but they are becoming keen on currency issues and there is a heightened caution.’

In the past three years, fund managers have raised massive amounts of capital for European real estate, although the figure did drop significantly in 2015, Kochis said. ‘Many investors have been giving their money to the large allocators like Apollo and Blackstone,’ he noted.

US investors generally do not allocate more than 20-30% of their real estate investments overseas, he added. Europe accounts for the bulk of that figure with Asia and emerging markets taking up only 5-10%. 'We've had a nice run with real estate,' Kochis said. 'We've come through the recovery completely, and are now in the growth and expansion phase of the cycle in the US.'

In terms of investment locations, many of the US investors Townsend represents 'cycled out' of Paris and London about 12 months ago and are now looking at Germany. 'We like the growth prospects there.'

He conceded that the controversy created by mass immigration from Syria and other non-European countries was a 'real issue' and that caution was necessary. In terms of assets, the focus in those being sold by institutions, he added, for example assets that have not been managed well in the past. 'We're interested in under-managed, poorly capitalized assets where we have an opportunity to improve management and performance.'

Commenting on the potential fallout of geopolitical events on the real estate industry, Kochis said it was hard to say what the outcome could be. 'There are so many facets to that question...we can’t predict the trends and the future. We use real estate and other hard assets as diversifiers. Many investors use real estate is to store wealth and prop up portfolios against a backdrop of plummeting commodity prices and volatility on stock markets.'

The Townsend Group represents many of the major pension funds and institutional funds in the US with real estate investment programmes totaling more than $25 bn.