Real estate investment trusts (REITs) have seen exploding growth in the last decade. Between 2001 and 2013, the total market capitalisation of Asia Pacific REITs increased from US$6bn to more than $200bn. Investors also agree that the sector will further expand in the upcoming decades, leading to a sustained growth in job numbers.
The development of REITs has created demand for professional real estate investors, who command a skill set beyond that of a traditional real estate operator. To participate in this industry, professionals will need knowledge from multiple fields, including architecture, engineering, finance and law. This article discusses why knowledge in these fields matter, and it offers some pointers for how interested professionals can gain the skills needed to join this new and exciting industry.
While the original American REIT law was passed in 1960, REITs only become a global industry in the last decade, when the number of countries with REIT laws increased from nine in 2000 to more than 30 today. We have seen phenomenon job growth in many countries as a result. According to the Association of Real Estate Securities, Japan REITs created 300,000 positions between 2001 and 2011. By 2020, Japan REITs are expected to create an additional 128,000 jobs.
PricewaterhouseCoopers has reported that French REITs, named SIICs, employed 66,300 people in 2011, representing an annual increase of about 25% since 2003. By 2016, PwC expects SIICs will further create 140 million working hours and another 33,700 permanent jobs.
The REIT universe is likely to grow in the decades ahead. REITs have a stable cash dividend, which appeals to pension funds, retirees, and other institutional investors. The investor-support and other structural features of REITs promote a competitive cost of capital, allowing REITs to expand against other forms of real estate ownership. In fact, in many countries from the US to Australia, REITs are among the dominant commercial real estate players.
Other countries are likely to see similar growth. In fact, in a recent investor survey by the Asia Pacific Real Estate Association, more than a third of the surveyed investors believe that their REIT investment will increase by at least 25% in the next two years. This suggests that the industry, and by implication, career opportunities will continue to grow.
The skills that REITs require
REITs are legal entities that own and operate commercial real estate assets, such as office buildings, malls, logistics facilities, and hotels. The best REIT manager maximises asset value through various strategies, ranging from leasing to renovation and development. The REIT manager is an expert in all fields related to operating real estate.
For example, to renovate a mall, the REIT manager first needs financial knowledge to calculate the return on investment. An understanding of consumer psychology helps evaluate whether consumers will use the new mall. Knowledge of architecture and building management helps to ascertain if the plan is realistic. If the renovation adds to existing space, land laws may impact the project. A joint venture deal will require knowledge of contract and corporate laws to create a thoughtful legal structure.
In other words, the professional must understand concepts from finance, real estate law, valuation, architecture and consumer behaviour science. Surely, no single person can become an expert in all these fields, and most REIT managers take advice from external advisors such as lawyers and engineers. However, a working knowledge in all these fields speeds up the execution process and allows the REIT professional to better ascertain the merits of the various advice he or she receives.
Many universities today offer Master of Real Estate degrees to address the knowledge needs. The Massachusetts Institute of Technology, for example, defines its Master of Real Estate Development degree as one that “investigates every field that impacts the real estate industry – from design and development to construction, management, finance, and the law”.
Industry organisations have also launched professional training, ranging from one-off lectures to full-day training classes. Financial professionals may also consider joining a real estate advisory firm to build their network and experience levels. The key is to keep an open mind to be as cross-disciplinary as possible.
Victor Yeung is the managing partner and chief investment officer of Admiral Investment Limited in Hong Kong.