U.S. millionaires see real estate as the top alternative-asset class to own this year, according to Morgan Stanley. (MS)
About 77 percent of investors with at least $1 million in assets own real estate, according to a survey released today by the New York-based investment bank’s wealth-management unit. Direct ownership of residential and commercial properties was the No. 1 alternative-investment pick for 2014, with a third of millionaires surveyed saying they plan to buy this year. Twenty-three percent said they expect to invest in real estate investment trusts, the second-most popular choice.
Wealthy investors are turning to a rebounding real estate market as fixed-income yields remain historically low and equities surge. U.S. commercial-property values rose 8 percent in the 12 months ended Jan. 31, and have jumped 71 percent since hitting their post-recession bottom in 2009, research firm Green Street Advisors Inc. reported today. The S&P/Case-Shiller index of home prices in 20 cities is up 24 percent from its 2012 low.
“After a year where the Standard & Poor’s Index rose 30 percent, some millionaires are moving money out of traditional, long-only strategies to find outperformance, and turning toward alternatives such as real estate and private equity,” said Gary Kaminsky, a vice chairman at Morgan Stanley Wealth Management in New York. “Sophisticated, high-net-worth investors are much more concerned about losses.”
Wealthy investors see stocks getting expensive and interest rates staying stable or even declining over the next couple of years, Kaminsky said in an interview at a conference for Tiger 21 investors last week in Scottsdale, Arizona. That’s why they are looking more closely at alternatives including real estate for returns and income, he said.
Tiger 21 members, who have at least $10 million in investable assets, increased their average allocation to real estate last year to 21 percent as of the fourth quarter from 19 percent in the first three months of 2013, according to a separate study released by the New York-based group last month.
“We had a great bull run last year,” Ade, a 60-year-old geologist, said in an interview today. “I don’t know if the bull is dead, but it certainly is lame right now.”
This year may be the tail-end of attractive investments in property before interest rates rise, said Ade, who has made his money finding oil companies and private investors to fund the drilling of wells. He said he is trying to purchase residential real estate in Miami right now.
Wealthy foreigners have bought high-end U.S. properties for their safety and because they’re denominated in dollars, the world’s reserve currency, he said. This helps domestic millionaires maintain the value of their property investments.
“It creates competition, which drives the price up for everybody,” he said. “The sellers have multiple channels to sell into. That gives you more liquidity.”
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