NEW YORK CITY—A low interest rate environmentis a decided plus for commercial real estate when it comes toinstitutional investors' allocation decisions. Nearly half, or 47%,of 201 executives surveyed by BlackRock said thatlow interest rates influence their investments in real assets,including real estate, infrastructure and commodities. However, aneven higher percentage—63%—rank “increasing returns” among thethree most important factors in their decisions.

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The survey was conducted by the Economist Intelligence Unit inSeptember on a commission from BlackRock. It found that 46% ofrespondents had increased allocations to real estate,infrastructure, commodities, timber and farmland in the past threeyears, while 60% said they expect to do so over the next 18months.

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Of the three basic asset classes that comprise real assets, realestate is far and away the biggest draw for institutions, judgingfrom the BlackRock survey. Ninety-six percent of respondents haveinvested in real estate, with 59% taking a conservative approachvia core equity. That being the case, the potential of higherreturns has led 47% of investors to increase their allocations tovalue-added equity and 34% to opportunistic equity strategies.

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However, while investors may be somewhat more apt to wade intoriskier waters, the threat of a rip current in the form of higherinterest rates would send most of them closer to shore. Sixty-twopercent of the respondents to BlackRock's survey said they wouldrethink some of their allocations to real assets in the event of a“significant” rise in interest rates. Real estate investmentsappear to be the most vulnerable to these concerns: 59% ofrespondents believed their real estate to be most sensitive torising rates, compared with 41% and 33% concerned aboutinfrastructure and commodities exposure, respectively.

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“According to the survey results, the main draw of real assetsgenerally, and property in particular, has been the ability toprovide a stable income in this ultra-low yield environment,” saysMarcus Sperber, global head of BlackRockReal Estate. “Investors are becoming increasinglyconcerned about the impact of central bank policies and thesubsequent impact on interest rates on property markets. This isleading the majority of respondents to say that a significant risein interest rates would cause them to rethink some of theirallocations to real assets.”

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Sperber, adds, though, that “one of BlackRock's key 2015 themesis that nominal risk-free rates should stay low for longer. Even ifcentral banks tighten monetary policy, we would anticipate propertyto continue to provide a good protection against inflation, asthese actions should be accompanied by strong economic growth andimproving employment rates all of which are supportive of realasset fundamentals.”

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Although infrastructure is less mature than some other realassets covered in the survey, it's also faster-growing, with 66% ofrespondents owning assets in this class. Seventy-two percent ofsurvey respondents said they're considering additional equityinvestments, while 38% have their eye on the newly emergingopportunity of institutional infrastructure debt. Of those thatexpect to increase allocations, 51% have at least some interest inbrownfield projects, compared to 23% that are interested in“greenfield” opportunities.

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Geographically speaking, 80 respondents were located in NorthAmerica with an equal number in Europe, the Middle East and Africa,while the remaining 41 were based in the Asia-Pacific region.Approximately one-third of the organizations represented in thesurvey have assets under management of more than $75 billion, witha similar proportion reporting between $1 billion and $5billion.

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Paul Bubny

Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.