When institutional investors begin to sell, one has to wonder why. According to a recent article in Forbes, institutional investors – money managed by pension funds, universities, and life insurance firms – see dramatic changes in the market going forward.
A MarketWatch article entitled “Don’t Look Now, But The Market’s Big Money Is Eyeing The Exit” notes that institutional investors see the U.S. as the most overvalued global market. These are investors that as a group have about $500 billion under management.
It’s not just institutional investors that are leaving the market. Many REITs have already sold or are in talks to sell and go private.
Here are three recent examples:
1. The Wall Street Journal reports that Education Realty Trust (EDR), one of the largest developers and managers of student housing in the U.S., is exploring a potential sale to private equity firms. The company’s profile in Reuters shows that EDR owned 64 collegiate housing communities in 22 states, with nearly 33,000 beds and almost 12,300 apartment units.
2. Earlier this year, Harrison Street Real Estate Capital sold its $1 billion student housing portfolio to a joint venture between The Scion Group and Canada Pension Plan Investment Board. The sale consisted of about 12,000 beds in 20 leading national universities in 18 states. One year before that Harrison Street sold a portfolio of nine student housing properties to Scion for $465 million.
3. Kayne Anderson Real Estate Advisors sold its portfolio of student housing and multi-family assets last June to focus on senior housing. While the purchase price to Singapore-based Mapletree Investments wasn’t disclosed, the transaction consisted of over 3,700 beds in the U.S. and Canada and nearly 1,400 multi-family units in the U.S.
While taken individually, these sales aren’t a cause for concern. But the pattern of large investors selling or merging typically occurs at the top of the market.
Perhaps the best example of this is Sam Zell’s $39 billion sale of Equity Office Properties to Blackstone Group back in 2007, just before the Global Financial Crisis hit. In an interview last year with Crain’s Chicago Business, Zell notes that the Blackstone bid was nearly double the firm’s value from just one year before.
Shortly after the sale to Blackstone closed, credit markets froze and real estate values dramatically declined. The assets that Blackstone purchased ended up being written down by about 35% – or nearly $14 billion.
Sources:
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