Actively managing real estate assets can bring value.

Independent fund manager Resource Real Estate Global Property Securities (Australia) (RRE GPS) says Australian institutional investors need to take a ‘next-generation’ approach to real estate investing, and recognise property as dynamic businesses that actively drive value-creation, rather than passive building assets.

In Australia this week speaking with a range of institutional investors, New York-based RRE GPS Portfolio Manager Scott Crowe said property investing had changed enormously in recent years.

“Times have changed and as real estate companies have become more mature and dynamic. As such, the optimal approach to investment also needs to evolve. Rather than simply a static portfolio, real estate securities are actively managed and the focus of investors needs to be on the ability of a company to generate long term intrinsic value growth,” said Mr Crowe.

With the first phase of declining interest rates and stabilising fundamentals behind us, RRE GPS believes there has been a clear shift into the growth phase of the real estate cycle – as evident by improving global demand and limited new supply – delivering an opportunity  for Australian investors to generate returns and earnings growth from global property securities.

A ‘next generation’ approach – taking in a combination of factors including the business model, quality of management and the asset itself – offers a unique opportunity for investors in this growth phase.

“We believe intrinsic quality will generate returns in this new world of real-estate investing. It’s increasingly important to look at factors like quality of the balance sheet and quality of  management who can turn a B-grade property into an A-grade property, or enter a new asset class such as retirement homes,” added Mr Crowe.

Growth in global real estate multiplies while Australian sector still maturing

RRE GPS says understanding of global property opportunities among local investors has come a long way since the financial crisis; however Australian institutions were surprised to learn the global rate of growth of the sector in recent years.

In 2003, it is estimated the global securities universe held an approximate market capitalisation of US$600 billion, while today it holds around US$1 trillion (including emerging markets). RRE GPS predicts the size of the sector could grow by a further 50 per cent in the next five years.

RRE GPS Head of Asia Pacific and Portfolio Manager John Snowden believes Australian investors should ensure a more diversified portfolio through global property securities, and away from the Australian REIT sector due to its high concentration levels in a few large companies.

“Five companies account for over 80 per cent of the A-REIT market capitalisation, and Australia is a very small player globally, less than five per cent of the global real estate share market. We still have some way to go and the Australian sector is still maturing,” Mr Snowden said.

“RRE GPS uses a proven investment process and strong track record to search the broader universe of 300 stocks and filter through to an investment portfolio of 50 to 70 securities,” Mr Snowden concluded.

Resource Real Estate, a US based investment management company recently launched RRE GPS in early October via a joint venture with Channel Capital. Led by industry veterans Scott Crowe (New York) and John Snowden (Sydney), the joint venture offers local institutional investors access to quality global property security investments.

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