This page intentionally left blank Global Trends in Real Estate Finance This page intentionally left blank Global Trends in Real Estate Finance Edited by Graeme Newell Professor of Property Investment University of Western Sydney Australia Karen Sieracki KASPAR Associates Limited UK A John Wiley & Sons, Ltd., Publication This edition fi rst published 2010 © 2010 Blackwell Publishing Ltd Blackwell Publishing was acquired by John Wiley & Sons in February 2007. Blackwell’s publishing programme has been merged with Wiley’s global Scientifi c, Technical, and Medical business to form Wiley-Blackwell. 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Library of Congress Cataloging-in-Publication Data Global trends in real estate fi nance / edited by Graeme Newell and Karen Sieracki. p. cm. — (Real estate issues) Includes bibliographical references and index. ISBN 978-1-4051-5128-3 (hardback : alk. paper) 1. Real property. 2. Real property—Prices. I. Newell, Graeme. II. Sieracki, Karen. HD1375.G63 2010 332.63(cid:1)247—dc22 2009019839 A catalogue record for this book is available from the British Library. Set in 10/13pt Trump Mediaeval by Macmillan Publishing Solutions, Chennai, India Printed in Singapore 1 2010 The Royal Institution of Chartered Surveyors is the mark of property professionalism worldwide, promoting best practice, regulation and con- sumer protection for business and the commu- nity. It is the home of property related knowledge and is an impartial advisor to governments and global organisations. It is committed to the pro- motion of research in s upport of the effi cient and effective operation of land and property markets worldwide. Real Estate Issues Series Managing Editors Stephen Brown Head of Research, Royal Institution of Chartered Surveyors John Henneberry D epartment of Town & Regional Planning, University of Sheffi eld K.W. Chau Chair Professor, Department of Real Estate and Construction, The University of Hong Kong Elaine Worzala Professor, Director of the Accelerated MSRE, Edward St. John Department of Real Estate, Johns Hopkins University Real Estate Issues is an international book series presenting the latest thinking into how real estate markets operate. The books have a strong theoretical basis – providing the underpinning for the development of new ideas. The books are inclusive in nature, drawing both upon established tech- niques for real estate market analysis and on those from other academic disciplines as appropriate. The series embraces a comparative approach, allowing theory and practice to be put forward and tested for their appli- cability and relevance to the understanding of new situations. It does not seek to impose solutions, but rather provides a more effective means by which solutions can be found. It will not make any presumptions as to the importance of real estate markets but will uncover and present, through the clarity of the thinking, the real signifi cance of the operation of real estate markets. Books in the series Greenfi elds, Brownfi elds & Housing Economics & Land Use Planning Development Evans Adams & Watkins 9781405118613 978 0 632 0063871 Economics, Real Estate & the Supply of Land Planning, Public Policy & Property Markets Evans Edited by Adams, Watkins & White 9781405118620 9781405124300 Development & Developers Housing & Welfare in Southern Europe Guy & Henneberry Allen, Barlow, Léal, Maloutas & Padovani 9780632058426 9781405103077 The Right to Buy Markets and Institutions in Real Estate & Jones & Murie Construction 9781405131971 Ball Mass Appraisal Methods 978140510990 Kauko & d’Amato Neighbourhood Renewal and Housing 9781405180979 Markets Economics of the Mortgage Market Edited by Beider 9781405134101 Leece 9781405114615 Mortgage Markets Worldwide Ben-Shahar, Leung & Ong Global Trends in Real Estate Finance 9781405132107 Newell & Sieracki 9781405151283 The Cost of Land Use Decisions Housing Economics & Public Policy Buitelaar O’Sullivan & Gibb 9781405151238 9780632064618 Towers of Capital: offi ce markets & Mortgage Markets Worldwide International fi nancial services Ben-Shahar, Ong & Leung Lizieri 9781405132107 9781405156721 Urban Regeneration in Europe International Real Estate Couch, Fraser & Percy Seabrooke, Kent & How 9780632058412 9781405103084 Urban Sprawl British Housebuilders Couch, Leontidou & Petschel-Held Wellings 9781405151238 9781405149181 Real Estate & the New Economy Building Cycles: Growth & Instability Dixon, McAllister, Marston & Snow Barras 9781405117784 9781405130011 Forthcoming Transforming the Private Landlord Housing Stock Transfer Crook & Kemp Taylor 9781405184151 9781405170321 Housing Markets & Planning Policy Real Estate Finance in the New Economic Jones & Watkins World 9781405175203 Tiwari & White 9781405158718 Affordable Housing & the Property Market Monk & Whitehead 9781405147149 Contents Contributors xi Preface xix PART I PRODUCTS 1 Global Real Estate Investable Universe Continues to Expand and Develop 3 Lijian Chen and Thomas I. Mills Introduction 3 Global core real estate universe: $8 trillion and growing 4 Why have REITs succeeded? 7 REIT proliferation: thriving in 18 countries and counting 9 Early growth cycle: only the tip of the iceberg 14 Relative risk and return 16 2 The US Real Estate Investment Trust (REIT) Market 19 Will McIntosh Introduction 19 The evolution of US REITs 19 US REITs: creation to 1993 20 US REITs: the Modern Era 23 The investment performance of REITs 28 The future of REITs 30 3 Progress on REIT Regimes in Europe 34 Simon Clark, Tim Hackemann, Olivier Mesmin, Matthias Roche, and Tom Road Introduction 34 Developments in France: SIIC 2/3/4 and the OPCI 34 OPCI: ‘the n on-listed SIIC’ 36 The German REIT 37 The UK REIT 40 EU law and REITs: what are the issues? 44 4 Listed Property Trusts in Australia 46 Graeme Newell Background to LPTs 46 LPT regulatory framework 47 viii Contents LPT profi le 47 LPT performance analysis 51 Recent issues in the strategic development of LPTs 53 Changing LPT and property landscape in 2007–2008 61 Conclusion 62 5 Asian REITs: Playing the Yield Game 64 Joseph T.L. Ooi and Neo Poh Har REIT markets in Asia 64 Ways to enhance distribution yield 70 Yield-accretive acquisitions 75 Conclusion 78 6 European Real Estate Unlisted Vehicles: A Mature Market Now or Is There More to Come? 82 Karen Sieracki Introduction 82 Characteristics of European real estate unlisted vehicles 82 Performance of European real estate unlisted vehicles 92 Management fees 93 Discussion and conclusion 97 7 Constructing a Global Real Estate Investment Index 100 Ian Cullen Introduction 100 Top down or bottom up? 101 Rolling out national market indices 102 The fi rst IPD multi-market index – the pan-European 105 …and fi nally the world – IPD’s fi rst global index 108 8 Property Derivatives: The Story So Far 114 Gary McNamara Introduction 114 The history and innovation behind the property derivatives market 114 The drivers for change 117 Pricing and underlying index activity 121 Alternative indices and products being traded 127 Has the market achieved the results expected of it? 130 How have derivatives changed the market place? 135