WSJ: Pension Funds Are Selling Their Office Buildings

rforno

I wonder how this trend might affect the TIAA Real Estate fund, which IIRC had a lot of prime office buildings? Remote work trends in many sectors definitely is having an impact on the need for costly "downtown" office properties, let alone large office properties generally. I don't think things will ever go back 100% to the way they were pre-Covid.

Pension Funds Are Selling Their Office Buildings
https://www.wsj.com/articles/pension-funds-are-selling-their-office-buildings-11661381460

Major U.S. and Canadian pension funds are cutting back investments in office buildings, betting that prices will likely fall as the five-day office workweek becomes a thing of the past.

Retirement funds are still buying property, partly in a bid to reduce the impact of inflation. But those investments are more focused on warehouses, lab space, housing and infrastructure such as airports.

The shift is part of a broader transition away from traditional real estate holdings in offices and shopping centers as the Covid-19 pandemic has accelerated the rise of e-commerce and remote work.

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North American public pension funds manage more than $6 trillion and allocated an average of 8.7% to real estate as of Aug. 19, according to researcher Preqin Ltd.

Private real-estate funds currently hold 23% of their investments in offices, down from 34% three years ago, according to an index maintained by the National Council of Real Estate Investment Fiduciaries. These funds’ holdings in retail space have fallen to 10% from 17% over the same period, the council said.

Meanwhile, industrial properties have grown to account for 31% of those private real-estate funds’ investments, according to the council, up from 18% in 2019. Pension officials are increasingly seeking out stakes in airports, highways and utilities. Those so-called infrastructure assets have grown to 4.1% of total pension portfolios from 3% in 2017 for retirement funds that report them separately from other real-estate assets, according to Preqin.

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yogibearbull

TIAA T-REA/QREARX has been slowly changing its property mix. So, the offices are down to 29.6% of properties on 6/30/22 (from 36.6% on 6/30/21) and retail down to 12.3% (vs 16.9%). New purchases have been in apartments, medical offices, storage, industrial facilities, land. Following are periodic reports elsewhere for those interested,

Advance Fact Sheets (sample) https://community.morningstar.com/s/question/0D53o00006AWMRuCAP/trea-fact-sheet-63022

Quarterly 10-Qs (history since mid-2021) https://ybbpersonalfinance.proboards.com/post/733/thread

rforno

Thanks .... they're doing the same thing as others, then.

BenWP

TIAA RE and Traditional funds have been great backstops in my portfolio for the last year.

Old_Joe

Speaking of pension funds, I just read the other day that the SF retirement fund is 112% funded. Unbelievable! We finally are doing something right.

Derf

@Old_Joe : Who does that pension fund cover ?

hank

@Old_Joe,

Please have them send that excess 12% to Michigan. Underfunded here.

(Need any water out there? Might be able to work a trade.)

Old_Joe

@Derf- Most importantly, Me, myself, and I. Also all other SF employees other than teachers and police.

@hank- I'll have to get back to you on that one. That may have been a misprint... maybe it was actually 12% funded. That would sound more like us.

rforno

Reading these comments remind me why I was smart to take the 403(b) option with my state university back in 2010. If I'm going to make/lose money or take on risk, *I* want to be the one responsible, not some politically-tied/appointed 'board' of 'experts.'

BaluBalu

If the trends mentioned here are the beginning of a long-term trend (i.e., symptoms of remote work, de-globalization, just in case inventory systems, etc.) could labor become more premium (i.e., wages as a source of inflation) than what we witnessed in the past decade(s)? Are we in a structural shift to higher inflation, leading to a change in Fed's target inflation rate from 2 to 3-4%? (Is realistic for the Fed to want to stick to the notion that a neutral fed funds rate is 2-2.5%?) I am trying not to become the blissful frog in the boiling water, especially when my income is entirely from capital and zero from labor.

Add to the above, recent lower productivity readings.

Which financial assets can do OK in the new world order, assuming the post-Covid world order is different from pre-Covid world order?

Excess office spaces can be converted into housing which can put downward pressure on housing prices. It was in the news today that Blackstone will halt buying homes in 38 cities / markets.

Old_Joe

"Excess office spaces can be converted into housing"

While theoretically possible, the conversion of many high-rise buildings would typically be economically prohibitive. In many cases it would involve gutting the entire building to put in place the utilities necessary for use as housing. This expense would then require that such conversions be sold or leased to high-income buyers.

The need in many cities is for housing that is affordable to those with less than "high income". The high-income buyers can already afford to buy or rent almost whatever they want, so putting converted office buildings on the market would not be especially attractive to that cohort, and essentially unaffordable to those with lower incomes.

This is, of course, a generalization- there might be exceptions to this in specific situations.

BaluBalu

Thanks, @old_joe. Re converting office space into residential property, here is one video from CNBC -
Other YouTube videos and articles on this topic turned up on google search.

I am still struggling to find out which financial assets can do OK in the new world order, assuming the post-Covid world order is different from pre-Covid world order (i.e., increase in structural inflation)?

For lack of better ideas, I bought some PRWCX and SPY today at market close. I disclose this only because in the past few weeks I mentioned in this forum on Aug 12 that I sold some equities (I also sold more equities the following Monday, Aug 15). So, today's buy is just trying to get back to previous equity allocation %age. I am under-weight equities relative to PRWCX, based on Giroux's note to shareholders.