Sovereign Wealth Funds Back in the Saddle?

The Western European commercial real estate bright spot is the activity by German investors, according to the latest Global Capital Trends report from Real Capital Analytics (RCA).  “In April, the Germans raised a half billion Euros — approximately $690 million – for their open-ended funds.  That is in addition to the billion Euros raised in the first quarter,” says Robert M. White, Jr., RCA’s founder and president.  Although that fund-raising mechanism is “kind of unique” to Germany, White adds that it doesn’t differ a lot from the non-traded REITs that have amassed capital from retail investors.  “We’re definitely seeing more capital raised, and it’s not institutional,” he says.  “It’s definitely the mom-and-pop, entrepreneurial type of investors capitalizing some of these deals.”

German investors have gravitated toward quality rather than distress.  And they aren’t the only ones who have been active lately in cross-border transactions.  White points out recent Saudi activity in London as a case in point of renewed sovereign wealth fund (SWF) investment.  “There are a lot of foreign investors eyeing the U.S., but they tend not to be the first movers,” he says.  White predicts that overseas buyers will be a major part of the recovery here, “but not the leading wave.”

SWFs are known to be extremely conservative in their investment philosophy and likely will stick with acquiring trophy and other Class A assets.