One of the oldest real estate funds around (U.S. or international) is Alpine International Real Estate Equity Fund, started in 1989. According to Morningstar, the fund returned 36.1% last year. On an annualized basis, its three-year return was 30.94%, its five-year return was 19.52% (both as of February 3) and its ten-year return was 9.68% (as of December 31).
"It's relatively recently that international real estate investing has taken hold, in part because the performance of real estate over the last five years has been quite good, not just through funds or REITs but through direct investment as well," notes Samuel A. Lieber, president of Alpine Mutual Funds and portfolio manager of its U.S. and international real estate funds.
Lieber has found Europe attractive, partly because of currency issues and also because more REIT-like structures are available. France is particularly attractive, and he also thinks Spain and the Scandinavian countries offer opportunities. "Everything is being globalized in the world, and real estate is one of the next frontiers. Investors here are looking for greener pastures abroad," Lieber says.
In the next several years, choices should increase for individuals interested in investing in international real estate as more countries adopt REIT-like structures and more firms create mutual funds that invest in them. According to NAREIT, at least 20 countries have created or moved toward creating structures similar to U.S. REITs, first introduced in 1960.
Like the United States, Australia has long offered REIT-type investments. Other countries with them include the Netherlands, Canada, Belgium, Singapore, Japan, France and Hong Kong. The United Kingdom also is planning to introduce REITs.
Although similar to U.S. REITs, which must distribute at least 90% of taxable income to shareholders annually through dividends, the foreign versions often have somewhat different investment restrictions, tax requirements and payouts. Some are more attractive than others. For example, Andrew A. Davis and Chandler Spears, portfolio managers of the New York-based Davis Real Estate Fund, are among those who have spent a lot of time looking at the J-REIT, Japan's vehicle, and they don't like its externally advised and managed structure. Outside managers are paid to manage assets and they get paid to buy more properties, which creates conflicts of interest, they say. France, in contrast, has a very good REIT structure, they add. The U.K. is where they've focused most internationally, investing in listed property companies.
Carol Broad, director of real estate research for Tacoma, Wash.-based Russell Investment Group, also is carefully watching trends in property securities overseas. She expects more offerings in parts of Asia and Europe over the next several years. In areas that already have REIT legislation, a lot of initial public offerings are queuing up to come into those markets, she adds.
"Most of the market today is in the U.S., and there are limited advantages to going overseas, but as those markets become more developed, they will become more interesting opportunities," she says.