BlackRock Sees Asian Institutions Return to Local Properties

Asian institutions’ appetite for regional real estate investments has returned as they hunt for yield for their growing assets amid low interest rates, according to BlackRock Inc., the world’s largest asset manager.

These investors are expected to deploy more money and a bigger percentage of their property allocations to Asia, especially in commercial real estate, Joseph Pacini, Asia-Pacific head of BlackRock’s alternative investors strategy group, told reporters in Hong Kong yesterday. He cited recent discussions with clients he declined to identify.

“What has been surprising is that Asian real estate has not been part of the equation for a number of years,” said Pacini, whose group oversees $119 billion of assets globally, including investments in properties, hedge funds, infrastructure, private equity, commodities and currencies. “Now it’s popping back up again.”

The U.S. Federal Reserve has kept interest rates near zero since December 2008, trying to bolster growth after a global financial crisis triggered the longest recession since the 1930s. Low interest rates have driven institutions such as government funds and insurance companies to seek higher yields from alternative assets including properties and infrastructure.

The Fed said last month it would keep its benchmark rate near zero “well past the time” that the unemployment rate falls below 6.5 percent. European Central Bank President Mario Draghi said in July rates would stay low for an “extended period.”

‘Huge Stress’

“We’re living in a low interest-rate environment so there’s more of a need for yield today,” Pacini said. “You compound that in Asia with the fact that they have a lot of capital that they have to invest, that’s a huge stress.”

The renewed interest represents a departure from the last few years when Asian institutions were focused on a few cities in developed markets in North America and Europe, Pacini said. These markets will probably continue to account for the bulk of new real estate investments because of their size, he said.

Time Warner Inc. sold its headquarters space at Time Warner Center in New York City’s Columbus Circle for $1.3 billion to a group led by Related Cos., which also included the Abu Dhabi Investment Authority and Singapore’s sovereign wealth fund GIC Pte.

China Investment Corp., the nation’s sovereign wealth fund, is in talks to buy Chiswick Park, a west London office development whose tenants include PepsiCo Inc. and Walt Disney Co., from Blackstone Group LP, a person with knowledge of the matter said in November.

Unlocking Value

Regional institutions are taking a more sophisticated approach to assessing opportunities in Asia, indicating interest in properties that can be improved to generate higher returns, Pacini said.

“There’s a desire for more active participation,” Pacini said, adding that investors will buy “the ugliest building in the best block, improving that and creating value.”

Assets of Asian institutions are growing, putting pressure on them to find investments, he said. The investors also tend to have slightly higher return expectations than western counterparts because of faster economic growth and inflation in the region, he added.

Regional investors have set up special accounts or are investing alongside international companies that have the ability to help them deploy capital quickly, he said.

BlackRock’s alternative investors strategy group manages about $23 billion of real estate assets, according to a presentation. BlackRock, which oversees $4.3 trillion of assets globally, last year bought private-equity property advisory firm MGPA in a push to expand its real estate business in Asia and Europe.

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