KINGSLEY INSIGHT
>> February 2005
INSIDE THIS ISSUE
What Lies Ahead? 2005 Capital Flows Report
Tax-exempt institutional investors will target an average portfolio allocation of 8.0% to real estate in 2005, up from 7.5% last year according to the results of the recently released Annual Plan Sponsor Survey conducted by KA for Institutional Real Estate, Inc. Consequently, a record $51.4 billion is projected to flow from these investors to real estate in 2005. With expected capital flows to real estate at a six-year high, there's little doubt that cap rates will remain very low.
However, in past years achieving targeted allocations to real estate has been an extremely difficult mandate. This trend will likely continue in 2005 due to highly competitive investment property markets combined with the improving performance of equities.
Under-allocated and very hungry for real estate, investors are increasingly seeking opportunistic product, REITs, and foreign real estate investments. They plan to commit 73% of their allocated capital to pooled real estate funds, with over half that placed through existing investment manager relationships.
Wanted: Asset Management Job Description
What makes a good Asset Manager? Kingsley Associates has observed a great deal of variability across institutional investment management firms in the backgrounds and responsibilities associated with this title. On one extreme is the “Micromanager,” deeply involved in day-to-day operational decisions at the property level. At the other end is the “Hands Off” manager who provides virtually no guidance and whose lack of accessibility can allow for inefficiencies and underperformance to persist.
Somewhere along this continuum lies the ideal Asset Manager, the “Asset COO.” This person can turn a good investment into a great one by providing strategic insight, as well as overseeing efficient and effective operations. This person proactively seeks input from service providers, giving constructive feedback and helping them understand the owner’s goals for the property so they can best apply their expertise to achieve the objectives. This person is also aware of important tenant issues and local market conditions, adjusting expectations accordingly.
How else can Asset Managers add value for investors? What impact do factors such as tenure, org. structure, and breadth of experience have on an Asset Manager’s effectiveness? Are investment advisors even paying enough attention to the function of asset management? Asset management: do it right, add to returns.
Are You Paying too much for Property Insurance?
Kingsley Associates was recently commissioned by an industry organization to conduct a risk-management benchmarking survey of its membership. The survey revealed that institutional owners pay about 9 cents per $100 of insured value, on average, for property insurance. The results also showed that there is a large degree of variability in premiums paid across firms, and that total insured value is a significant factor in determining the rate an owner can obtain.
What else might affect property insurance premiums? Geographic diversification? The relative proportions of different property types in an insured portfolio? Knowing the answers to these questions can help institutions manage their portfolios more efficiently.
KA research indicates that uncertainty about renewal is on the rise among office tenants. In 2004, 28% indicated they were "unsure" about renewing if they had to decide based on current conditions, an increase of nearly 40% since 2002. What could be driving this? Rent? Service levels? Space needs? External market conditions? Another reason to stay IN the flow...
The Real Estate Job Market is Changing
Recent studies show that the current state of employee supply/demand will change dramatically over the next 24-36 months. During this period, it is anticipated that job growth will return throughout the US and demand for highly educated employees will outpace supply.
What are your employees are thinking? How do the employment issues you face compare with your peers? Kingsley Associates is leading the industry in employee satisfaction and engagement initiatives.