Why CRE Needs a Global Perspective

Today, more real estate investment vehicles are diversifying, both in terms of strategy and where they invest.

Real estate has not traditionally been the nimblest of the asset classes. Investors took months and sometimes years to evaluate opportunities, and then could spend an equal amount of time deciding on investments. These investments were designed to be held for years if not decades, while the overall value of portfolios increased.

This limited, targeted approach led to the development of a very specialized infrastructure. The tools for evaluating and keeping track of investments were designed for a narrow part of the market. There wass almost one system for each asset class, and in some cases one for each sub-asset class. They were traditionally underfunded, off-the-rack instruments such as Microsoft Excel or even pen and paper. That era is over. More real estate investment vehicles are diversifying, both in terms of strategy and where they invest.

Barron’s picked up on the beginnings of this trend three years ago when it noted that “investors are putting money in real-estate companies outside the U.S. at a record pace.” As the real estate market gathers pace, so does investor appetite for international assets. Chinese money is pouring out of the country and into the United States.

The trend towards internationalization is clear, but not everyone takes the plunge at the same time. Here are three reasons why even firms that are currently not investing across more than one jurisdiction should have an operational infrastructure that can handle investing in multiple jurisdictions.

Things change. Fast. Opportunities appear more quickly than in the past. The most important reason to upgrade is that even if a firm does not invest in Japanese commercial real estate now, for example, a favorable government policy could completely upend that situation in three months. The decision whether or not to invest should not be made because of technology or the ability to purchase and monitor assets in a certain part of the world.

Institutional-level infrastructure. Investors are also increasingly global, especially at large pension funds and endowments. Being able to invest in multiple jurisdictions may open up new opportunities, as these investors typically have specific overall portfolio requirements. Having the capability to invest can also prevent elimination from certain screening rounds in RFPs or searches, allowing managers to show their expertise directly to allocators.

A global picture. Gaining information on potential investments is easier than ever, thanks to the Internet and advancements in technology. Investors should be able to see and incorporate information about other jurisdictions into their broader investment picture. Without the ability to monitor investments abroad, firms might not even see the scale of the opportunity they are missing.

A global-ready infrastructure can come with the access to additional information–the ability to run models on a new market, or to access investment research in a different language.

The opportunity in the real estate market is immense, but so is the competition. When looking at the nature of the field, do not look solely at the firm down the block with a similar strategy. Think better. A recent survey from EY argues that “as firms become larger and more institutional in nature, and as competition for assets and investors intensifies, those most able to deploy and embrace new and future tools to improve operational performance … will be the ones that generate the strongest returns for investors. Meanwhile, those that fail to keep pace will face disruption and may find they become obsolete.”

Firms will succeed by being ready to seize opportunity, no matter where it arises.

Bruno Fiastre is an executive vice president at Taliance, the Paris-based modelling and decision-making platform. Fiastre is based in New York and can be reached at bruno.fiastre@taliance.com or +1 917 509 3300.