Asset owners in Asia Pacific are looking to increase their allocations in US property, particularly in niche sectors such as multi-family, retirement and affordable housing, which remain nascent in Asia.
The availability of multi-family and retirement investments in the US, two sectors that the fund has been focused on, made the country an important target to Aware Super, senior portfolio manager Alek Misev told AsianInvestor.
He noted the sectors were not as well established in Asia, although he expected this would change.
Mary Power, principal consultant and head of property at Jana Investment Advisors in Melbourne, told AsianInvestor that the US appealed to the many Australian super funds seeking to increase their allocations to niche sectors in the past year.
“Sectors such as multi-family or data centres are well developed in the US,” she said, adding that these two sectors’ low correlation with GDP had made them particularly attractive recently.
Aware Super’s increased allocations to the US are part of a plan to shift the balance in its property portfolio away from Australia as the fund grows. Super funds like the A$150 billion ($110 billion) Aware Super have been aggressively investing in the Australian real estate sector, accounting for 40% of capital in the industry.
Aware’s current mix is 70% Australia and 30% rest of the world; by 2023 the target is likely to shift this to 60-40. In the next three years, the fund plans to allocate a further 5% of total AUM – a total of $374 million at current levels – to multi-family, retirement and hotels and serviced apartments.
“We are getting bigger and can’t put all our money here,” Misev said, noting that the balance between risk and reward in the US property market was attractive.
For Aware Super, one advantage to investing in the US was the ease with which the fund could target platform investments, where a purchase is made directly into an existing property company owning a range of property assets, rather than relying on a manager.
Misev said the fund preferred this route to investing because of the higher level of engagement it allowed the fund. “This means engagement with not only the property assets but also the staff and technology element. There are bigger returns available via platforms; we have more control over our investment [and] it is a more efficient way for us to grow either organically or via M&A deals.”
Korean investors have also been increasing their demand for US assets, as high domestic prices have placed growing pressure on investors to allocate abroad.
South Korean investors were the largest direct investors from Asia in US property last year, accounting for 5.2% of total allocations into the US, compared with 2.7% from Singapore investors and 1.1% from Japanese investors, according to Real Capital Analytics (RCA).
During the same period, Asian allocations to the US held firm, dropping just 3%, compared with a global fall of 31%.
Korea’s $15.2 billion Public Officials Benefit Association (Poba), for instance, is planning on a joint venture with global asset owners to invest in affordable housing projects in the US. It is likely to seal the deal in the second half of the year, according to chief investment officer Jang Dong-hun.
“Affordable housing projects provide quite competitive facilities and quality. It is a very durable asset class among real estate investments. There are usually no vacancies with people lining up long queues to apply for, which makes it a very stable asset class. And it also contributes to ESG factors,” Jang told AsianInvestor.
Poba is an alternatives-heavy asset owner with 58% of assets in the private markets. A large portion goes to Europe and the US. In the first half of this year, it gained W80 billion ($68 million) in overseas Real Estate Investment Trusts (Reits), with most of them in the US.
“We will continue to focus on real estate, infrastructure, private debt with very strong downside protection and resilience,” Jang said. “For real estate and infrastructure, we’ve seen rapid changes in some sectors transforming from niche to mainstream (such as data centres and life sciences buildings). We may focus more on some of these niche sectors to complement our portfolio.”
Spencer Park, a Hong Kong-based counsel at law firm Dechert, told AsianInvestor that the ease of travel to and from the US and the relative scarcity of lockdowns in the US compared with Europe were two reasons his clients preferred the country.
His clients include Korean asset managers or securities banks who underwrite deals before assembling end investors including insurance and pension funds to invest via syndicated structures in Korea.
Price increases in the US meant the sector was now less dominated by domestic buyers, Park said. “The cautious, risk-averse US investors are backing off, so the market is less dominated by the local players,” he said.
Additional reporting by He Shusi