U.S. millionaires see real estate as the top alternative-asset class to own this year, according to Morgan Stanley. (MS)
About 77 percent of investors with at least $1 million in assets own
real estate, according to a survey released today by the New York-based
investment bank’s wealth-management unit. Direct ownership of
residential and commercial properties was the No. 1
alternative-investment pick for 2014, with a third of millionaires
surveyed saying they plan to buy this year. Twenty-three percent said
they expect to invest in real estate investment trusts, the second-most
popular choice.
Wealthy investors are turning to a rebounding real estate market as
fixed-income yields remain historically low and equities surge. U.S.
commercial-property values rose 8 percent in the 12 months ended Jan.
31, and have jumped 71 percent since hitting their post-recession bottom
in 2009, research firm Green Street Advisors Inc. reported today. The
S&P/Case-Shiller index of home prices in 20 cities is up 24 percent
from its 2012 low.
“After a year where the Standard & Poor’s Index rose 30 percent,
some millionaires are moving money out of traditional, long-only
strategies to find outperformance, and turning toward alternatives such
as real estate and private equity,” said Gary Kaminsky, a vice chairman
at Morgan Stanley Wealth Management in New York. “Sophisticated,
high-net-worth investors are much more concerned about losses.”
Interest Rates
Wealthy investors see stocks getting expensive and interest rates
staying stable or even declining over the next couple of years, Kaminsky
said in an interview at a conference for Tiger 21 investors last week
in Scottsdale, Arizona. That’s why they are looking more closely at
alternatives including real estate for returns and income, he said.
Tiger 21 members, who have at least $10 million in investable assets,
increased their average allocation to real estate last year to 21
percent as of the fourth quarter from 19 percent in the first three
months of 2013, according to a separate study released by the New
York-based group last month.
Will Ade, a Tiger 21 member, said real estate is a particularly
attractive investment as stocks show vulnerability in 2014. The S&P
500 has fallen more than 4 percent this year, while developing-country
stocks have tumbled on concern that the outlook for economies is
worsening.
‘Lame’ Bull
“We had a great bull run last year,” Ade, a 60-year-old geologist,
said in an interview today. “I don’t know if the bull is dead, but it
certainly is lame right now.”
This year may be the tail-end of attractive investments in property
before interest rates rise, said Ade, who has made his money finding oil
companies and private investors to fund the drilling of wells. He said
he is trying to purchase residential real estate in Miami right now.
“The really good real estate deals are getting harder and harder to
find,” Ade said. “Once interest rates start to go up, whether it’s
farmland or single-family dwellings there’s going to be huge downward
pressure on real estate.”
Foreign Buyers
The Manhattan high-rise condominium buildings One57 and 432 Park
Ave., where units have gone under contract for more than $90 million,
are evidence of the faith that the very wealthy have in real estate,
said Mitchell Roschelle, real estate advisory leader at
PricewaterhouseCoopers LLP. Such properties have also attracted
international buyers.
Wealthy foreigners have bought high-end U.S. properties for their
safety and because they’re denominated in dollars, the world’s reserve
currency, he said. This helps domestic millionaires maintain the value
of their property investments.
“It creates competition, which drives the price up for everybody,” he
said. “The sellers have multiple channels to sell into. That gives you
more liquidity.”
Self-storage properties are among commercial real estate investments
wealthy individuals are buying, Kaminsky of Morgan Stanley said. Retail
shopping centers are seen as less attractive as more consumers shop
online through companies such as Amazon.com Inc., he said.
Chilean Fund
Morgan Stanley Wealth Management surveyed 1,004 U.S. investors ages
25 to 75, with least $100,000 in assets, during the fourth quarter of
last year. A third of them had more than $1 million.
BigSur Partners, a Miami-based wealth-management firm, has been
helping some of its wealthy clients, who usually have at least $50
million, work with institutional investors such as a Chilean pension
fund to invest in commercial real estate, said Chief Executive Officer
Ignacio Pakciarz. Deals include an office building in Princeton, New
Jersey, he said.
“We don’t feel there’s a lot of value in emerging-market bonds, high-yield bonds and highly rated fixed income,” Pakciarz said.
Owning the real estate is attractive because of the expected
appreciation of property value and stream of rental income, as well as
better control and supervision over the investments, he said. The firm
has also bought office properties in Pittsburgh and Boston, multifamily
residences in Texas and some industrial buildings for clients, and is
looking for more opportunities this year in real estate purchases or
lending, he said.
This article was written by Margaret Collins and David M. Levit.
In 2014 Real Estate in Michigan should be called the comeback kid. Values in Metro Detroit are up double digits in each region.
What do you think 2015 will bring? (please comment below)
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