Advanced real estate securities investment strateg
Over the past decade, public real estate companies have emerged as major players in the real estate industry. As a result of this growth, institutional investors around the globe have started to pay increasing attention to the public real estate markets.
The global public real estate universe now comprises a large number of high quality companies in each of the major property sectors. These companies have large, diversified, and in many cases, high quality portfolios. They have top quality management teams with successful track records. And with their stock exchange listings, they provide investors with liquidity.
As the real estate securities industry has matured over the last ten years, so has the role played by real estate securities in an investor’s portfolio. Early real estate securities investors typically invested in a portfolio of real estate securities diversified across property sectors and geographic regions. The investment served either as the investor’s entire allocation to the real estate asset class or was a supplement to their direct real estate allocation. While most investors still employ real estate securities in this manner, many now use real estate securities strategically and tactically to meet their specific needs and take advantage of market opportunities. Looking ahead, investment strategies will increasingly be customised to meet the individual objectives of investors.
Real estate securities have also become increasingly important as more and more investors begin to explore investing in real estate outside of their own borders. Once confined to capital-exporting countries with limited domestic markets, cross-border real estate investing is slowly increasing in all parts of the world. Although factors such as the aftermath of the Iraq War, terrorism threats and the SARS virus slowed the momentum of cross-border investing, we expect that real estate capital markets will soon accelerate their travels abroad.
LaSalle Investment Management (Securities), the public real estate division of LaSalle Investment Management, has developed a wide range of customised programmes to meet clients’ specific needs. These investment options provide some compelling examples of the flexibility offered by real estate securities:
Strategic investment programme
For many of investors, real estate securities are used as a core real estate investment strategy to provide attractive long-term returns and diversification to other asset classes. In LaSalle’s programme, the firm maintains broad diversification with an emphasis on above average quality companies. The programme is actively managed with respect to security selection and weightings and sector allocation to provide superior long-term returns and low levels of risk.
Income investment programme
This programme provides higher current return than strategic portfolios for clients with current outflow needs, and a higher percentage of return from income versus growth. LaSalle targets a yield 200 basis points higher than that of its strategic portfolios.
Small cap programme
This programme is designed for investors with a higher return objective and a slightly higher risk tolerance. The portfolio is targeted towards smaller cap real estate operating companies. The excess return potential from this strategy is due to: lack of investor and research attention, ability to target specific property markets, and upside event potential from privatisation and/or takeovers. This programme fits well as an addition to clients’ strategic securities investment programme.
Global investment programme
LaSalle’s global programme utilises the resources of their worldwide securities and research groups to invest in publicly listed property companies in North America, Europe and Asia Pacific. This programme offers investors exposure to the premier property companies in major industrialised countries through a broadly diversified portfolio of stocks. This actively managed programme is designed to capitalise on the opportunities that arise from the low correlations across regions and within regions. Inefficiencies in pricing and valuation of companies and countries in LaSalle’s coverage universe offer the possibility to generate higher risk-adjusted total returns.
Tactical investment programme
Designed to opportunistically increase or decrease exposure to real estate securities over time, this programme enables LaSalle’s clients to modify their investment in real estate securities to meet one or more of the following objectives:
n Balance investment between direct and indirect real estate based on relative valuation
n Maximise weighted returns in real estate securities by increasing allocations when real estate securities valuation is attractive and reduce investment when real estate securities are fully valued
n Manage their overall real estate investment allocation by using real estate securities to balance the overall portfolio real estate weightings.
Sector specific programme
This portfolio is targeted to specific property sectors: office, industrial, apartments, shopping centres, hotels, etc. LaSalle’s clients are able to allocate investments to target sectors that are difficult to access directly (eg, regional malls, self storage, hotels and large CBD office), fill gaps in their direct real estate portfolio, or retain the sector allocation decision.
Privately negotiated investments in public real estate companies
Excess returns are achieved by providing capital directly to companies with very attractive investment opportunities. This programme was designed to capitalise on the explosive growth in the real estate securities sector.
Joint ventures with REITs
High-quality REITs are partnered with institutional investor capital to generate incrementally higher returns for each party than those achievable on a stand-along basis. Through joint-venture programmes, institutions can access the operating expertise and superior deal flow of public companies, while the public companies gain access to capital, which is utilised to acquire, develop or reposition existing and new properties.
As the real estate securities market has grown and matured, so have the investment applications for investors worldwide. Real estate securities investment programmes have evolved from one size fits all asset allocations to customised programmes targeted to meet client specific portfolio needs and market opportunities. As investors become more experienced with real estate securities investments and aware of their multiple uses in a portfolio, the level of customisation will only increase.
About LaSalle Investment Management (Securities)
LaSalle Investment Management (Securities) is the dedicated real estate securities investment adviser of LaSalle Investment Management, a global real estate investment advisor entrusted by its clients with over $20.5bn in private and public real estate assets around the world. LaSalle Investment Management (Securities) began operating as a US real estate securities manager in February of 1985. In 1997, we opened an office in Amsterdam to expand our real estate securities operation into Europe. In 2001 we opened an office in Singapore to expand our direct real estate and real estate securities operations in Asia. LaSalle Investment Management is a subsidiary of Jones Lang LaSalle, a publicly traded global real estate services and management firm (NYSE Ticker: JLL).
Written by LaSalle Investment Management (Securities)