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The Language & Culture of the Pension Real Estate Investment Market

Author: Institutional Real Estate, Inc.
Year: Copyright 2010
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With hundreds of billions of dollars of capital to invest, pension funds will be a driving force in the real estate markets during the next decade and beyond. For executives and firms that want to position themselves to tap into this fertile marketplace, it is essential to understand the unique language, culture and objectives of these investors, as well as the people who advise them. This report is a key library resource and a "must read" if you want to successfully navigate the $4.0 trillion institutional real estate marketplace. It includes information on the industry's history, culture, trends, key players, decision-making processes and tools, and a great glossary of industry terms.

Table of Contents:

Introduction   2

What's at Stake     2
What Institutionalization Means     2
The Formula for Success     3

The Basics   3

What is a Pension Fund     3
Pension Fund Managers     3
The Nature of the Process     3
Real Estate's Role in Pension Portfolios      4
A Little History     4
The Role Played by Advisers     5
The Role Played by Consultants     5
The Role Played by Placement Agents     5

The Market   6

Critical Segmentation Issues     7
Segmentation by Plan Sponsor Type     7
Segmentation by Plan Size     10

Culture   11

The Nature of the Beast     11
Quarterly Returns and Appraised Values     12
Why Most Pension Funds Don't Invest Directly     12
Industry Benchmarks     12
The Unique Language of Real Estate: Categorizing Funds By Return Expectation     12

Industry Trends   14

Real Estate Asset Class Down But Investors Keep the Faith     14
Overworked and Understaffed     15
Investment Management Firms     15
REITs     16
Consolidation and Fragmentation     17
New Investment Vehicles     18
The Growth of Opportunity Funds: Real Estate as a Noncorrelated Return Enhancer     19
Reinvention of the CMBS Market     19
Globalization and Cross-Border Investing     20
Finding the Right Partner     20

The Roles and Responsibilities of Key Decision Makers   21

Pension Funds     21
Pension Real Estate and Investment Consultants    22
Investment Managers and Advisers     23

The Decision-Making Process   25

Step One: Research     25
Step Two: Establishing Acquisition Objectives     26
Step Three: Finding the Deal     26
Step Four: The Initial Review     26
Step Five: Due Diligence     27
Step Six: Presentation to Investment Committee     27
Step Seven: Negotiating the Deal     28
Step Eight: Closing the Deal     28

A Few Guidelines and Suggestions   28

Developers, Owner/Operators and Property Managers     28
Commercial Real Estate Brokers     29
Existing Advisers or Those Thinking About Becoming Advisers     29

Glossary of Pension Real Estate Investment Terms   32

Glossary of Real Estate Capital Market Terms   44

Where to Find the Information You'll Need   56

Industry Service Groups and Trade Associations   60

About the Authors   64