By Christopher M. Wright

Name: Todd Canter Born: 1968 Title: Managing director for global product and strategy, LaSalle Investment Management Company: LaSalle Investment Management serves both institutional and retail investors with $36.9 billion in assets under management in separate accounts and funds. LaSalle, a wholly owned division of Jones Lang LaSalle Inc., has 550 employees in 36 countries across North America, Europe and Asia. Experience: Canter has been with LaSalle for 11 years.

Todd Canter, managing director for global product and strategy at LaSalle Investment Management, oversees an army of real estate professionals in 36 countries, and is well-positioned to explain why a growing number of institutional investors are finding real estate attractive.

Portfolio: The international real estate investing story is no longer new but remains compelling. To use a baseball analogy, what inning would you say we are in regarding international investing and why?

Canter: We’re in the second or third inning of a game that will go into extra innings. When you look at the investable universe of institutional-quality real estate, which is currently valued at around $15 trillion, and you understand that only 5 percent—which is less than $700 billion—is securitized, then you quickly realize just how much play is left in the game.

Securitization will continue, driven by many factors, among them the tax-efficiency and high dividend yield of the REIT structure. REIT dividends average 4.2 percent globally and are expected to grow with cash flows over the next three years. The high yield addresses the needs of aging populations around the globe for safety, stability and income. The REIT structure provides for each one of these.

Returns were strong over various historical time horizons for 15 years but, more importantly, look to remain competitive going forward. We’re forecasting average total returns of 8 percent to 10 percent per year for the next three years for global real estate securities. When you compare that to the return expectations for general equity and bond markets, we believe that’s quite competitive.

Portfolio: Is international real estate a good diversifier? Where do international real estate correlations stand versus U.S. stocks, and do you expect them to rise as globalization proceeds?

Canter: Versus U.S. stocks, the correlation coefficient of international real estate is below 0.4. But you really need to compare apples to apples. The correlation between global real estate securities and global equity markets is about 0.5. It has been pretty stable and this suggests only a modest relationship to the broader equity markets. We don’t believe it will change much going forward. The drivers in real estate are different from those in the equity markets.

Portfolio: That’s not the answer I expected. Correlations generally change all the time.

Canter: Real estate is very local. Markets are vastly different from each other. Look at commercial real estate in Canada and the United States, for example. Most people, because of the geographic proximity of the two markets, believe that they’re synchronous.

You might be surprised that the correlation is only 0.4. Continental Europe to the United Kingdom, 0.52; Canada to Australia, 0.14; Canada to the U.K., 0.2; the examples go on. These markets are very distinct and the drivers are very local. That’s what causes the relationship between real estate securities and other equities to be so low and why it will stay low going forward. Real estate is one of the most powerful portfolio diversifiers that exists.

Portfolio: LaSalle and its parent company Jones Lang LaSalle have employees in 36 countries across North America, Europe and Asia. What are they telling you? What are the most exciting regions or investment themes in international real estate going forward?

Canter: We talk to these people constantly. They are telling us that we are in a broad-based commercial real estate recovery with supply trailing demand in most markets around the globe.

Let’s take a look at North America. In the U.S., the growth prospects are favorable with cash flows expected to grow 9 percent to 11 percent per year for the next three years. In Canada, real estate fundamentals are firm with above-average dividend yields currently at 5.5 percent. This is attracting not only institutions but also retail investors, so there’s a broad-based acceptance of the REIT vehicle in Canada.

Throughout Europe, with the exception of Germany, real estate fundamentals are improving. Cash flows are expected to increase by 8 percent a year for the next three years. The U.K.’s REIT legislation is expected to become effective in January 2007, and we believe this is likely to act as a catalyst for real estate securitization for the rest of the continent. Germany could be next. Spain and Finland are watching closely.

That brings us to Asia. In Japan, the real estate recovery continues and fundamentals are improving. Central Tokyo office vacancy rates continue to fall and rents are rising for the first time in many years. In Hong Kong, office rental growth has been significant. We expect it to continue, which should lead to substantial income growth. The retail sector continues to show the greatest improvement. We expect more Hong Kong REIT IPOs.

As I mentioned, the recovery is broad-based and we expect it to last for the next three years.

Portfolio: Yes, but the recovery is already priced-in in some markets. Where are you telling your clients to invest?

Canter: We don’t buy fundamentals, we buy value. We see value in Canada, Hong Kong, and the U.S. Those markets look the most attractive for the next three years on a risk-adjusted basis.

Portfolio: Which countries are the least attractive? Which markets concern you?

Canter: Australia and the United Kingdom are overvalued, as well as Japanese REITs. In Singapore, fundamentals are fine but we are concerned about government-sponsored supply as the nation tries to position itself as the office center of Southeast Asia.

In Eastern Europe, transparency is a big issue, making it difficult to assess risk. Eastern Europe is evolving and there are some exciting movements in securitization and adoption of the REIT structure, but the region has a long way to go.

Portfolio: What are you seeing in terms of acceptance of global real estate investing among institutional investors? What are your clients telling you about how comfortable they are with the asset class?

Canter: Investors are now tuned in to the story and realize just how attractive the asset class really is. Institutional and now even retail investors understand the high yield, the favorable fundamentals, the competitive returns and the diversification story in this sector. We are seeing broad-based acceptance of securitized real estate, in particular by institutions. For them, it’s no longer a question of ‘should we invest in global real estate securities?’ but ‘how much?’

Portfolio: What portfolio allocations are you seeing?

Canter: Partly because of underfunded pension liabilities and the high dividend yield associated with the REIT structure, the overall allocation to real estate among institutional investors is around 10 percent to 12 percent, with global real estate securities playing a meaningful role in that allocation. Our job now is to help them find the most attractively valued real estate stocks around the globe.