New bill in California may be the end of coal investment

coal and shovelCalifornia pension funds such as the California Public Employees’ Retirement System and the California State Teachers’ Retirement System may be required to sell their investments in companies that generate at least half of their revenue from coal mining after a bill passed a California State Assembly committee by a vote of five to one on June 24. The bill will go to the California Assembly Appropriations committee, and if it passes, it will head to the Assembly floor.

With a bigger push toward environmentally friendly forms of energy, the pension funds have been under pressure to move away from such investments.

According to Reuters, CalPERS’ coal mining investments are valued at $100 million to $200 million, and CalSTRS has around $40 million in coal investments as defined by the bill.

While the boards of the pension funds should be able to have a final say regarding where they can and cannot invest, moving away from coal investments may be in the retirement systems’ favor. The United States is beginning to turn away from coal toward more efficient and less expensive energy sources.

According to NPR, coal has dropped to about 40 percent of the nation’s power, while natural gas now accounts for nearly one-third. And when solar or wind power can’t do the trick, natural gas can fill the gaps.

As President Obama pushes his climate change action plan, the country will be required to cut carbon emissions by 30 percent from 2005 levels by 2030. Natural gas produces about half the carbon emissions that coal does when it is burned.

“The writing is on the wall. Our policies, our technologies, and global markets are moving in concert away from coal as an energy source,” said the author of the bill, Kevin de Leon, to the committee prior to the vote.

According to Reuters, neither pension fund has a position on the bill.

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ZoeWolff119x91Zoë Wolff is a reporter with Institutional Real Estate, Inc.

Real estate professionals raise money for Nepal

Members of the real estate investment community continue to support efforts in Nepal following the devastating earthquake.

On June 5, a group of about 30 real estate industry professionals gathered in Sonoma, Calif., for a Real Estate Luncheon/Fundraiser to benefit the American Himalayan Foundation. Organized by Laura Gaylord of Deutsche Asset & Wealth Management and Terri Boutwell and Stephanie Pearson of Terra Search Partners, this event was able to raise over $20,000 (including corporate matching) for the Foundation’s Earthquake Recovery Fund.

Partnered with Mountain Hardwear, this event was focused on providing shelter to families who have lost their homes from the earthquake.

Partnered with Mountain Hardwear, this event was focused on providing shelter to families who have lost their homes from the earthquake.

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LorettawebfinalLoretta Clodfelter is editor of The Institutional Real Estate Letter – Americas.

Hong Kong’s upswing

Hong Kong CBD

The office and residential sectors in Hong Kong have experienced increased vim and vigor of late, according to various reports.

In first quarter 2015, Hong Kong (Central) ranked second only to London’s West End in terms of office occupancy costs, with Hong Kong coming in at $254.23 per square foot per year to London’s $267.14, according to CBRE Research’s latest Global Prime Office Occupancy Costs survey.

Class A office sales and leasing in Hong Kong remain strong, with prices reaching a new record high in May and rents making gains in the CBD (but decreasing in the CBD2), notes Knight Frank’s June Hong Kong Monthly.

According to Knight Frank, the Mutual Fund Recognition Scheme, which will allow “funds domiciled in Hong Kong and China to be sold in each other’s markets,” should lift leasing demand for office space in Hong Kong from related firms, including funds, banks and asset management. The new scheme goes into effect July 1.

In the residential sector, a new study from Bank of America Merrill Lynch expects housing prices in Hong Kong to rise by 10 percent this year after gaining 13 percent in 2014 given limited supply.

Knight Frank also indicates an investment bank anticipates prices for luxury residential assets in Hong Kong to surpass the mass market during the next 12 to 18 months in part because of Hong Kong’s improving stock market as well as a sustainable recovery in luxury residential rents.

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Jennifer-Molloy91x119Jennifer Molloy is editor of The Institutional Real Estate Letter – Asia Pacific.

U.S. investors look to CEE opportunities

EuropeMapU.S.-based investors are becoming increasingly interested in Central and Eastern Europe. According to Damian Harrington, a director of research with Colliers International, the region’s strong fundamentals are attracting attention.

Harrington notes that it is a very diverse region comprising 13 countries and around 40 percent of Europe’s population. Harrington notes that opportunities exist in logistics/industrial, retail, office, and even hotels in the region.

According to Harrington, the choice of location depends on investors’ appetite for risk. While Warsaw and Prague have become core markets — albeit core markets with higher yields than those found in London or Paris — opportunities also exist in secondary cities, which have seen increasing levels of investment. As you move further east and south from Poland and the Czech Republic, you essentially move up the risk spectrum and where investment locations become more value-add and opportunistic.

In fact, Harrington argues the macro story is very strong — nearly half of Europe’s population lives in CEE, and the region is experiencing strong job growth via outsourcing and offshoring. He notes that outside of the core CEE markets, the region’s key perceived risk is liquidity, especially in the smaller markets, but CEE’s real advantage is the pricing in the market. Not only are prime office yields higher than in Western Europe, but yields are still 100 basis points above their prior peaks, leaving room to compress in the future.

The big change in the past 18 months is that much of the post–global financial crisis action happened in Russia — but this has become a no-go zone for most cross-border investors since the conflict in Ukraine began, leading to a 50 percent fall in transactions — driven by domestic investors.

Conversely, however, all other markets have witnessed a rebound in investment activity — Romania and Bulgaria registered volume growth of 270 percent and 160 percent, respectively, in 2014 — as they increasingly attract interest from cross-border investors and help drive regional volumes. Harrington notes that a number of key U.S.-based investment firms are engaged in this process.

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LorettawebfinalLoretta Clodfelter is editor of The Institutional Real Estate Letter – Americas.

Bentall Kennedy talks merger

Gary Whitelaw, CEO of Bentall Kennedy, and Amy Price, COO of the firm’s North American operations, yesterday discussed the acquisition of Bentall Kennedy by Sun Life Financial in an exclusive IREI Shop Talk podcast.

Whitelaw gave the reasoning behind the choice of Sun Life as a partner:

“Sun Life was in many ways a natural. They had been our fourth-largest client across the whole business since 2004 — over 11 years now — and we’d come to know each other very well. Over the last several years their own strategic plan had evolved, and with their new CEO Dean Connor they instituted what they called the Four Pillar strategy, with asset management being a very important one of those four pillars.”

Price had a message for the firm’s clients:

“Who we are today, our team, where we operate, how we operate, it’s not changing. This is a change of ownership, but we’ve been very thoughtful about how we’ve chosen to align with Sun Life. They really share our values, our commitment to client service, our focus on responsible investing and sustainability.”

To listen to the entire conversation, click here.

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MikeCfinalwebMike Consol is editor of Real Assets Adviser.

Hungry for real estate

150x189-2015-ire-trends-survey-cvrIn our annual Institutional Real Estate Trends survey, it seems investors continue to have strong appetite for real estate investment in 2015. Investors also expect real estate to be the most attractive asset class on a risk-adjusted basis, and their satisfaction with the asset class continues to increase.

From the survey’s findings: target allocations to real estate remain flat, but investors’ real estate holdings are nearly 100 basis points below their targets. This gap to target allocations should continue to fuel capital flows to real estate in 2015.

Also, last year, we projected investors would deploy $48 billion in new capital to close a similar gap to their target allocations. Our respondents indicate that they actually put out $55 billion in new capital. Looking at 2015, we project $46 billion in new capital commitments.

The 2015 Institutional Real Estate Trends survey, conducted jointly by Institutional Real Estate, Inc. and Kingsley Associates during the fourth quarter of 2014, surveyed 62 U.S. tax-exempt and 24 foreign respondents and assessed investors’ fund allocations, risk and return assumptions, expected capital flows, and real estate investment strategies for the coming year.

For the full report, click here.

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DenisewebfinalDenise DeChaine is special projects editor and video production specialist at Institutional Real Estate, Inc.

Real estate is going to pot

ThinkstockPhotos-177098452One thousand investors attended the Marijuana Investor Summit in Denver earlier this year. Considering Colorado is just one of more than 20 states that have legalized cannabis in some form, the Rocky Mountain High experience is sure to be replicated in many other places.

One entrepreneur alone who attended the Denver pot summit, former video game producer Dooma Wendschuh, who is now producing marijuana extracts that can be used in edibles and vaporizers, says he received millions of dollars of unsolicited offers from investors aiming to capitalize on the fast-growing weed business.

Why not? Sales of legal marijuana for medicinal and recreational use rocketed from $1.5 billion during 2013 to $2.7 billion in 2014. Next year, voters in at least six more states will head to the polls to render their verdicts as to whether pot should be legalized in their states, whether as medicine or just good fun. Surely some of those states will say “yea.” Surely more states will follow with more cannabis campaigns. Surely states that have legalized the herb as medicine will follow through and lift restrictions for recreational use as well.

Surely that is a contributing factor as to why Troy Dayton, CEO of the ArcView Group, an investment and research firm, was recently quoted in the business press crowing: “There is going to be a massive, massive market.”

Of course, it already is. The top cash crop in the United States, weighing in at $36 billion annually, is marijuana, easily outdistancing second place corn at $23 billion and third place soybeans at $17 billion. Those numbers are a bit dated, an average value from 2003–2005, as calculated by, an organization promoting the reform of cannabis laws. They could be smoking the drapes, for all I know, but no one disputes pot is a huge cash crop, the vast majority of which is conducting commerce afoul of the law.

With legalization spreading across the country, those fields of gooey buds are yet another option for investors in both farmland and industrial real estate (not to mention startup companies that package and merchandise the stuff, and tech companies finding new growing techniques and uses for the herb suspected of being a key component smoked in Native Americans’ famous peace pipe. Biotech companies are reportedly working to isolate certain active ingredients that can be turned into treatments to ameliorate ailments as devastating as diabetes.) That helps explain why there are about 300 publicly traded companies in the cannabis business.

All of this commerce naturally has a real estate component, from retail storefronts and laboratory space, to warehouses and farmland. Since marijuana was legalized in Colorado, there has been an “unprecedented demand” for warehouse space in Denver because Colorado law requires all pot growing be done indoors.

T.J. Smith, a principal at Colliers, was quoted in the Denver Business Journal stating: “Investment demand is as high as it’s ever been for industrial properties. Even the vanilla warehouse market is on fire.”

Denver’s present warehouse vacancy rate is less than 5 percent.

The Denver Chamber of Commerce estimates these legal marijuana operations will consume 1.5 million to 3 million square feet of commercially zoned warehouse space in industrial areas around Denver.

When it comes to real estate in states that have legalized marijuana, where there is smoke, there is likely to be property on fire.

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MikeCfinalwebMike Consol is editor of Real Assets Adviser.

To the cutting room

Film directors famously take more cans of film, and actors speak more lines, than are wanted or needed. The rushes are whisked off to the cutting room and the editors get to work to trim down the raw footage and the wordage to a manageable, workable, budgeted length. The result is what you see when you go to the cinema.

It’s the same with articles. Our story creators often will write too much, and it will have to be edited down to fit the allocated space. That is particularly the case with Institutional Real Estate, Inc.’s print publications. Not for them the luxury of an endless computer screen, page down after page down, space no object — as with this blog. Print publications have real pages, an allocation of space for each article, and a style that means you cannot squeeze a quart into a pint pot. Get the scissors out.

Just as with films, the outtakes can be illuminating. Take the story I have just finished, on the prospects for real estate investors in eastern Germany, the territory of the former German Democratic Republic. July 1, 2015 marks the 25th anniversary of currency union between the two Germanies.

Here’s some jewels of insight that sadly got left on the cutting room floor:

Investment-grade properties had to be built in the towns and cities of eastern Germany, and that formed part of the massive expenditure from public and private sources that was put into improving the infrastructure and superstructure throughout eastern Germany. This was paid for partly by the much-resented income tax “solidarity” surcharge, one of those “sticky” taxes that is quick to be introduced and not so quick to be taken away again. The regeneration surcharge raises some €15 billion per year.

Reason for cut: All very true, but said in a similar way elsewhere in the story. It’s right about “sticky” taxes, though. What’s yours?

Television, whether the clock face on the evening news programme was black on white or white on black (one was West German TV, the other East German; GDR schoolteachers would ask children what kind of clock face was on their parents’ television the night before, and the wrong answers went into the Stasi files), was still television and the clock still told the time.

Reason for cut: Interesting enough, just didn’t work. Not about real estate. Kids, eh? I blame the parents. So did the Stasi, one of those fearsome security police structures that Eastern Europe was so good at — and maybe still is.

Don’t go thinking that Germany is a productive nirvana and that the workers are content with their lot. They’re not and increasingly they are making their views known. For a country governed supposedly by consensus politics, Germany is a surprisingly volatile place.

A recent visit to the country for the purposes of this article was blighted by industrial relations difficulties — Lufthansa pilots have been taking strike action against proposed pay and benefit changes for some time already, denting that airline’s reputation and persuading your writer to fly with other airlines, but on this occasion it was the decision of the German train drivers’ union to call a sudden five-day strike that halted rail services across the country and frustrated efforts at on-the-ground research. And the strike was stronger in the east, where union membership is higher and attitudes more entrenched, a throwback to socialist days and comradely solidarity.

Reason for cut: Topical, certainly, but ultimately not relevant to the story. Trade unions have been flexing their muscles throughout Europe — we nearly had a rail strike again last week in the United Kingdom, and this week sees threatened industrial action by air traffic controllers in Spain, a two-hour strike in the morning, another two hours in the afternoon and doubtless a siesta in between, every other day for a week.

How much longer will it be before eastern Germany can be said to be equal in all respects to western Germany, both from economic and real estate market points of view?

Reason for cut: Conjecture. Doesn’t help the story. How long is a piece of string? One person said, “another five to 10 years,” a second, “at least another 10 years,” a third, “never.” Well, he didn’t say, “never.” He said that eastern Germany “is destined to remain behind.” Same thing, really.

You want to know more about the real estate markets of eastern Germany? About the prospects there for global investors? Read the bits that weren’t cut? See the cover story in the forthcoming July/August 2015 issue of The Institutional Real Estate Letter – Europe, on the streets from around June 20.

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RichardFlemingRichard Fleming is editor of The Institutional Real Estate Letter – Europe.

Billion-dollar deals in May

IREN, IREI’s premium news service, published a number of billion-dollar headlines last month.

Two Abu Dhabi–based firms made billion-dollar transactions:

Other transactions include:

On the fundraising and commitment side:

Research on first quarter 2015:

Last week’s IREN included:

You can also view last week’s issue and more institutional real estate news coverage on the IREI NewsCloud. Remember to check out IREI’s newest publication, Real Assets Adviser, which also offers a daily newsfeed. To sign up, click here.

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AndreafinalwebAndrea Waitrovich is editor of IREN and web content editor of Institutional Real Estate, Inc.

Introducing IREI’s CEO video series

As recently as 1994, the top 10 largest real estate investment management firms collectively controlled approximately $84 billion. Today, several firms each control more than $84 billion in AUM. It’s truly amazing how the size and scope of the industry has expanded in just 20 short years. The size of the client bases of these firms also has grown. While a firm serving 50 to100 or more client relationships would have been relatively rare 20 years ago, it has become the norm for most if not all of the largest, truly global firms today.

As the size of these firms has grown, the demands on the CEOs of these firms has grown as well. It is becoming harder and harder for these CEOs to maintain as close a relationship with the constituencies they serve as they once enjoyed.

That is why face-to-face time with the leaders of these firms has become so valuable, and why so many investors are taking advantage of the opportunities to meet with these CEOs when they can stop by, or when the opportunity is created to visit with them at their respective firms’ annual client conferences.

We think it is always fascinating to hear what the leaders of these firms have to say about how they and their firms are viewing the markets from a strategic standpoint.

To make it easier to do so, we have initiated a new video series called “View from the Top,” where we will be posting to our website brief face-to-face video interviews with the CEOs who head up the firms that sponsor our publications. Some of these are running small, emerging enterprises; others are running global firms that employ more than 1,000 employees in varying locations around the globe. You will hear from the CEOs of debt platforms, equity platforms, real estate securities investment management platforms, and firms with a fully diversified and, again, global product line. Some of their names will be instantly recognizable; others, less well-known but nevertheless with an equally interesting and often unique perspective on the strategic directions of the markets.

The first of these, an interview with Stuart Boesky, CEO of Pembrook Capital Management, can be accessed by clicking on this link.

Stuart Boesky, Pembrook

We hope you enjoy these intimate interviews and gain a better understanding of how the leaders of some of the leading firms around the globe are viewing market risks and opportunities today.

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GeoffFinalv5forwebGeoffrey Dohrmann is president and CEO of Institutional Real Estate, Inc.