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Public market for property goes global

European, emerging nations to see debut of real estate-focused investments

REAL ESTATE REPORTER

The number of publicly listed real estate companies is about to take off in foreign markets, just when a wave of consolidations and buyouts is thinning their ranks in North America.

Steven Buller, who runs the Fidelity Global Real Estate Fund, says retail investors will likely gain greater access in the coming year to some key regions, including established markets such as Britain and Germany and emerging markets such as India.

"The number of quoted property companies throughout the world has been increasing," Mr. Buller said, even as deep-pocketed pension funds and private equity players have been reducing their numbers in North America.

At last count, Mr. Buller said, there were about 450 listed real estate companies around the world. Of that group, he said his fund is watching about 330 that meet various criteria such as market capitalization. One year ago, that number was 254.

Fidelity introduced its real estate fund to the Canadian market last month, joining the handful of other global real estate funds that invest in public equity markets, include offerings from Dynamic, AGF and Mackenzie. These funds are different from the large funds run by Great-West Lifeco Inc., which invests directly in properties.

Mark Wong, an analyst with Morningstar Canada, said there is a small number of real estate-focused mutual funds in Canada compared with other sectors, even though they have delivered solid returns. "This type of asset class is an excellent diversifier," he said.

Dan Hallett, head of an investor research firm in Windsor, Ont., said many investors may believe they are getting enough diversification by investing directly in real estate investment trusts with properties in several markets and sectors.

In global markets, Mr. Buller said much of the growth in offerings is coming from countries that are moving to allow listings of investment vehicles similar to REITs. REIT-like investments are now available in France, Japan, Hong Kong and Singapore and will make a debut in Britain at the beginning of next year. He also is hopeful that Germany will adopt the REIT model some time next year, once Britain has led the way.

With less than 1 per cent of that country's real estate now trading on public markets, he said such a move would be a dramatic change for retail investors.

At the same time, DLF Universal, the real estate developer owned by Indian billionaire K.P. Singh, is widely expected to go to the public markets with an offering soon. Before the recent tumble in equity markets worldwide, investment bankers said the issue could raise as much as $3.5-billion (U.S.). Now there is speculation the offering could be delayed and may raise closer to $2-billion.

Oscar Belaiche, who runs the Dynamic Focus Plus Real Estate Fund, said the rest of the world is following a trend that began in the United States, Australia and Canada.

"It's a global phenomenon," said Mr. Belaiche, whose fund began in 1997 and has $111-million (Canadian) in assets under management. "We are seeing the securitization of real estate. It's a positive trend from our perspective because it allows investors to own institutional-quality real estate in bite-sized chunks."

In response, Mr. Belaiche said his fund has hired staff with expertise in foreign markets and is increasing investment outside North America.

Mr. Buller at Fidelity said his fund focuses on individual companies, rather than specific countries. That said, the London office market is one of his favourites. "It has some of the best fundamentals around," he said. He also believes that British property stocks are trading at a discount to net asset value and will enjoy a small lift if they convert to a REIT next year.

If a similar REIT structure emerges in Germany, Mr. Buller said he would also put that market on his favourites list. "We are actually more excited about Germany than the U.K.," he said.

Mr. Buller also likes the U.S. retail market where, unlike Canada, most large regional malls are still held by publicly traded companies.

He is not keen on Hong Kong, he said, where most of the large real estate conglomerates have large holdings in the condo market.

And even as markets open up, Mr. Buller said there are still areas of the world that are close to him because there is little if any real estate that is publicly listed. That area includes all of South America. Until issues of landownership are resolved, he said the Chinese market also remains a problem.

© 2007 The Globe and Mail. All rights reserved.

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