Bogdan Maximov
Institutionalisation of Real Estate Industry Bogdan Maximov

Photo by Sean Pollock on Unsplash

Although real estate was always regarded as a solid and relatively safe investment, it was not always popular within institutional investors. Over the past 15 years, they finally woke up and realised that there is value in the buildings where we work in the phenomenon known as “Institutionalisation of Real Estate”.⁠

Institutional investors are the entities that pool capital for the investment such as pension funds, insurance companies, investment funds, and so on. Their primary goal is to deploy the large pool of capital as safely as possible, so the high yield is not the main criteria but still significant.⁠

Before the commercial market was dominated by Ultra Hight Net Worth investors and was generally viewed as a more risky affair. But now it finally changes as operators, developers and institutions are partnering up. This is especially seen in developed economies of Europe and the USA, where institutions are seeking ways to avoid low interest rates.⁠ Even venture capital funds acquire real assets to balance the risky investments into startups. It said that as much as 22% of their investment portfolios is deployed in real estate such as offices, malls and warehouses.

Why is it happening now? It has a lot to do with the increased liquidity of the asset class through REITS and transparency. Before, most of the transactions were over the counbter with little information or transparency. Today, with the massive push from governments and local authorities to register ownership and technological progress, there is a vast amount of data on buyers, sellers and transactions. This means that institutional investors can be confident in the legitimacy of the asset they are acquiring AND have comparable data to be sure they are not overpaying.⁠

Because of it, multiple real estate focused funds like Blackstone and Bbrookfield are growing rapidly, and other more established finds like Blackrock are taking more interest in the asset class. Hence, the future for commercial assets is positive, and it will keep consolidating in the following years.⁠

Hope you enjoyed it and found it useful!

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