Fed Eases, UK Asset Managers Return to US Real Estate

UK investment management firms Legal & General and Schroders have indicated in an interview that they will invest hundreds of millions of dollars in US commercial real estate, but have largely avoided the heavily impacted office sector.

These fund managers, who oversee over £1.9 trillion ($2.5 trillion) in assets, have stated that they have each established US real estate teams to facilitate this process, anticipating a rebound in property prices aided by declining interest rates.

António Simões, CEO of Legal & General, stated that the US real estate market is an important expansion market for the company, and he described the market fundamentals as remaining strong.

The rise in borrowing costs post-pandemic and the widespread adoption of remote work have impacted global real estate prices, with the US office market being particularly hard hit, as investors remain nervous about oversupply.

However, after the Federal Reserve announced a significant rate cut of 50 basis points last week, expectations of further rate cuts have improved the investment outlook.

Real estate analysts also noted that the US market tends to adjust more quickly than the European mainland, with lending institutions and developers repricing assets more rapidly.

Legal & General stated that the company plans to expand its nascent US real estate equity portfolio by hundreds of millions of dollars over the next few years, while adding similar risk exposure in its more mature real estate debt business.

The fund management company has assembled a team of about 20 people in Chicago to help drive equity investments, with a focus on rental housing that outperforms offices across the nation.

Schroders stated that its goal is to expand its emerging US real estate equity portfolio from the current tens of millions of dollars to hundreds of millions of dollars in the medium term. The company made an investment in the Pan-American data center portfolio this month, which was one of its initial attempts.

Michelle Russell Dowe, Co-Head of Private Debt and Credit Alternatives at Schroders Capital, said: "We believe that the Federal Reserve beginning to return to normal interest rates is key to unlocking some of the pent-up demand."Schroders also identified opportunities in the real estate debt sector as banks retreat due to stricter capital regulations.

Jeffrey Williams, an investor based in New York for Schroders, stated: "There is a significant gap in financing, and other lending institutions will have to fill this gap."

The company said it is not opposed to office building investments, but they must be high-quality development projects.

The fund division of Phoenix, a British insurance company managing approximately £290 billion in assets, also indicated plans to "significantly invest" in U.S. real estate, but declined to disclose details of the potential investment scale.