Reprinted from Green Street's Real Estate Alert:
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U.S. public pension pledges to commercial real estate vehicles are down 48% through the first nine months of the year, dropping to a six-year low.
Commitments totaled just $26.63 billion, down from $51.18 billion in the same period a year ago and $38.74 billion in 2021, according to Ferguson Partners, which is expected to release a report of its findings next week. It’s the lowest nine-month total since 2017, when only $25.19 billion was pledged.
From July to October, pensions committed just $8.18 billion to funds and separate accounts. While that was up slightly from the second-quarter tally, it was down significantly from the $18.61 billion pledged in the third quarter of 2022. That three-month haul for investment managers was the largest since Chicago-based Ferguson began tracking the market in 2011. The third-quarter drop marked the fourth quarter of year-over-year decreases — and the rate of descent has increased each quarter.
“If nothing else, it’s consistent,” said Scott McIntosh, a Ferguson director. “I would expect Q4 to be similarly slow. The same capital-markets challenges are persisting, in terms of elevated interest rates and a continued bid-ask spread that’s resulting in a lack of liquidity in the market.”
Placement agents have continued to see reticence from institutional investors who invest in real estate. There is optimism — and an expectation — that a wave of distress will
provide high-yielding opportunities over the coming years, but until that materializes, pensions mostly are taking a wait-andsee
“It’s going to take time for that to unwind and liquidity to enter the market,” McIntosh said. “It’s not terribly surprising to
see investors take a slower approach to allocations.”