Real Estate Blog

Real Estate is Going Global

January 31st, 2007

The bull market in hotels, offices and malls knows few boundaries. Through early December, European real estate securities jumped an average of 53 percent in dollar terms during 2006, and Asian property shares rose 28 percent.

Fueling the surge are raging development in Europe and Asia, the spread of real estate investment trusts, and abundant liquidity — that is, a lot of money available for investment. A sagging dollar has also helped.

Putting half of your real estate investments in U.S. stocks and half in foreign shares is a wise strategy. Some of the best real estate agents can help you out to make your investments more profitable. The foreign holdings should benefit from the continuing decline of the dollar against many overseas currencies. Moreover, it’s likely that property values somewhere will keep escalating even when U.S. retail and office markets cool, a possibility in 2007. But don’t expect to find greater yields overseas: Foreign real estate stocks yield 4 percent or so, about the same as U.S. REITs.

About a dozen mutual funds focus on foreign property stocks. The one with the longest record, dating to 1989, is Alpine International Real Estate (symbol EGLRX; 888-785-5578), managed by Sam Lieber.

International Real Estate’s results can be erratic. From 1995 through 2002, the fund recorded eight straight years of either single-digit or negative returns. But over the past four years, it returned a torrid 35 percent annualized. With 144 stocks (biggest position: Bermuda-based Orient-Express Hotels), the fund is all over the map. Annual expenses of 1.18 percent are reasonable.

Fidelity International Real Estate is just a bit more than two years old. Like Alpine, it has no load and charges modest fees (1.12 percent annually). The fund (FIREX; 800-544-8544), run by Matthew Lentz over the past year, gained 15 percent in 2005 and 33 percent in the first 11 months of ‘06.

Die-hard indexers should consider Northern Global Real Estate Index. The new fund (NGREX; 800-595-9111) tracks the FTSE EPRA/ NAREIT global index of more than 300 stocks, weighted 50 percent U.S. and Canadian, 30 percent Asian and 20 percent European. Its biggest holding, mall owner Westfield Group, is an Australian company, but 60 percent of its retail space is in the U.S.

The best pure play on Asian property stocks is six-month-old Cohen & Steers Asia Pacific Realty. The fund (800-330-73 is currently focusing on companies in Hong Kong, Japan and Australia. It’s a load fund, but it’s the only fund dedicated to Asian real estate, and Cohen & Steers managers have a long record investing in real estate. The Class C shares (APFCX) charge stiff annual fees of 2.45 percent, but you can bail out without an exit charge after one year.

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