ING Real Estate ups UK but sees U.S. sell-off

LONDON (Reuters) - ING Real Estate, the world's biggest real estate fund firm, has begun buying back into UK property because it looks cheap but has cut U.S. exposure as it sees prices falling further, a senior executive told Reuters.

Robert Houston, head of the firm's UK business and a member of the global investment board, told the Reuters Real Estate Summit on Wednesday that his firm had moved rapidly to neutral from underweight UK property within the last month and planned to move overweight.

"I think it is going to bounce back," he said. "Values in the UK have fallen to a point where the stand-off between seller and buyer is getting to be much narrower."

His comments come after data earlier this month from Investment Property Databank (IPD) showed Britain's commercial property downturn gathered pace in May, falling 1.2 percent and bucking a four-month trend of smaller capital losses.

It also showed that average initial yields on UK commercial property rose to 5.53 percent in May from last summer's low of 4.57 percent.

"The biggest hit has been taken in the UK. It is by some considerable measure the most efficient property market," he said, with reference to the swiftness with which UK bricks and mortar valuations had been marked down in the wake of a global credit crunch and weakening economic fundamentals.

"I would like to think the UK is doing the global (real estate) sector something of a favor by giving it an early warning of what might happen."

Houston said ING Real Estate had cut its U.S. exposure to underweight from neutral, although special opportunities and some distressed debt instruments looked attractive.

"It is where the eye of the storm is," he said. "The efficiency of their appraisal system and their natural optimism... allows them to look at different markets which are still flourishing and say overall it's still a great place."

But that was now beginning to change, he said.

"There are parts of the market that are not doing great over there and I think now they're starting to see valuation slippage in a way they hadn't necessarily even expected at the beginning of this year," he said.

Houston said the firm's multi-manager business had nevertheless been making opportunistic investments in the U.S. and had also been buying into the debt markets and into distressed opportunities.

Elsewhere he said the firm had cut exposure to continental Europe to neutral from overweight, but remained overweight in Asia.

(For summit blog: summitnotebook.reuters.com/)