Investors, companies that own property and get at least 70% of income from rent, represent about 84% of listed real estate firms. About three-quarters of investor companies are REITs or similar structures, with others being listed property companies, Crowe says. A large, well-known example of an investor firm is Australian-based Westfield Group, a limited property trust (Australia's version of a REIT) and one of the largest retail property companies in the world with investment interests in 127 shopping centers in four countries. Others include Rotterdam-based Rodamco Europe, the largest listed property investment and management company in the retail sector in Europe; London-based Land Securities Group PLC, the United Kingdom's largest listed property company; and U.S.-based Equity Office Properties, the country's largest publicly traded office building owner and manager.
Buying into U.S. REITs like Equity Office Properties is relatively easy for U.S. investors, but what if your client wants global real estate exposure in publicly traded securities? Investors may be able to buy individual shares of overseas companies on a foreign exchange through their broker, but trading costs can be relatively high and making good choices can be challenging if you aren't familiar with various real estate markets. Another option for high-net-worth individuals might be to include some of these stocks in a managed account. For example, ING Clarion, a subsidiary of ING Group, offers real estate separate account strategies that include a global real estate portfolio that invests in the United States, Europe and Asia.
Yet another choice would be to invest in U.S. REITs that have overseas investments. Grupe says he's seeing more U.S. REITs expand internationally, particularly in the industrial and retail sectors. AMB Property Corp., based in San Francisco, and Prologis, headquartered in Aurora, Colo., are examples of U.S. REITS that have taken significant steps in this direction, he notes. Both own primarily industrial space in this country and abroad. AMB owns 1,106 buildings, including distribution facilities in North America, Europe and Asia that are designed to speed its customers' goods to market in locations near airports, seaports and major transportation centers. Prologis has more than 1,970 facilities in 70 markets throughout North America, Europe and Asia.
But if foreign real estate exposure is strictly what your clients are after, probably the least complicated and more effective way to invest would be to buy shares of a global real estate mutual fund. Morningstar does not break out the category and only a handful of these specialized funds exist now, but more money managers have been getting involved over the last few years or are looking to do so. In addition to its separate account strategies, for example, in November 2001 ING introduced the ING Global Real Estate Fund. Its three-year annualized return as of February 3 was 24.31% and its one-year return was 23.47%.
A newer entrant to the field is Fidelity Investments. In September the Boston-based firm announced the launch of the Fidelity International Real Estate Fund to invest primarily in non-U.S. securities of companies in the real estate industry. "We have been looking at this type of fund for many years. We finally felt there were enough companies and market cap from an investment standpoint to have a large enough universe," says Steven Buller, the fund's manager.
Although this is the first Fidelity fund to focus specifically on international real estate investing, the firm for decades has included companies with foreign real estate investments in its diversified equity funds. Buller says the new fund includes publicly listed REITs and other types of property companies. He is focusing more on picking solid companies, with a secondary look at whether to overweight or underweight particular countries.
"It's a niche product. It's not for everyone," Buller adds. "It's combining two areas: Most investors are underweight in real estate and may be slightly underweight in international investments." He says Fidelity is marketing the fund toward higher-net-worth individuals who may have REITS and international holdings, but who also are looking for alternative or specialized investments.
From its inception on September 8 through December 31, the Fidelity International Real Estate Fund (FIREX) posted a cumulative total return of 18.61%, and as of January 4, the fund had net assets of $122.88 million. As of November 30, the countries in which the fund had the most assets invested included United Kingdom, 23.6%; Hong Kong, 17.3%; Australia, 12.9%; Japan, 11.5%; and the United States, 8.2%.
New York-based Cohen & Steers, an income-oriented portfolio management firm that says it is the nation's largest U.S. REIT manager, is becoming more involved in international real estate as well. The company filed last year with the Securities and Exchange Commission to launch closed-end and open-end global real estate funds for U.S. investors, says John McCombe, executive vice president and head of the firm's sales and marketing. Although the company doesn't have a launch date for the funds, McCombe says he expects it will be this year.
According to the firm's November 23 SEC filing for the open-ended Cohen & Steers Global Realty Fund, Cohen & Steers Capital Management Inc. will be the fund's investment advisor and Houlihan Rovers S.A. will be the subadvisor. On December 14, Cohen & Steers announced it closed on the acquisition of 50% of the capital stock of Houlihan Rovers, a Belgium-based global real estate securities asset manager with approximately $500 million under management. At the time, Robert Steers, co-chairman and co-chief executive officer, commented the investment would allow the firm to offer its clients more choices as REIT-like vehicles are adopted around the world.