The Real Deal Miami

Sovereign wealth fund manager bullish on commercial real estate in UK, yet bearish on US

By Michael Stoler | December 08, 2009 05:37PM

From the New York Web site: At a time when Dubai World, the main investment arm of the powerful Gulf region city-state, and investments from Dubai and the Middle East are undergoing serious difficulties, it might come as a surprise to my readers that sovereign wealth fund managers are investing more in property and commodities to hedge against the risk of inflation caused by massive stimulus packages in the west, according to China Daily.

David Smart, the London-based global head of sovereign and supra-national funds at Franklin Templeton Investments, said, “There is quite a lot of interest in real estate and other long-term hedges against inflation,” said Smart, whose team advises or manages around $40 billion from sovereign funds and international organizations, according to the Chinese newspaper.

Instead of focusing on investing in the US, Smart said, Franklin Templeton’s sovereign clients are particularly eager to invest in commercial properties in the United Kingdom, which have net returns of 7.5 to 8 percent.

Smart is bearish on commercial property in the U.S., meanwhile, noting, “The price adjustments [in the US] have not been nearly as savage as they have been in other markets. There are a lot of issues on debt financing which have not really been addressed.”

Michael Stoler is a columnist for The Real Deal and host of real estate programs “The Stoler Report” and “Building New York” on CUNY TV and on WEGTV in East Hampton. His radio show, “The Michael Stoler Real Estate Report,” airs on 1010 WINS on Saturdays and Sundays. Stoler is a director at Madison Realty Capital as well as an adjunct professor at NYU Real Estate Institute, and a former contributing editor and columnist for the New York Sun.