Does everything get dinged if sentiment turns against real estate writ large, particularly what we’re seeing on the CRE side?Jon Cheigh Look, I think there’s always short-term things that happen. So, CNBC says CRE debt, and then everyone talks about office, and people say, “Okay, I think REITs are bad.” That’s why we always try to reiterate to people office is 3% of the REIT index. And our exposure to office might be something like 1% or 1.2%, something like that. And we can say that a hundred times, and certainly it’ll still educate someone because of their understanding of what REITs are. So, I think when those overreactions happen, look, that’s the opportunity. That really is the opportunity, but I don’t think these misconceptions are so strong that they’re going to persist for quarters and years.Those reflexes usually create an opportunity on, like I said, something happened with SVB and REITs underperformed by 8% versus the broader equity market.
These tend to be more shorter-term reactions than durable trends that longer-term investors should worry about.Joe Harvey I’d just add that, today the range in property sectors and underlying businesses is probably as diverse as it’s ever been 20 years ago, there’s just much more representation by the core property sectors that we all know office, industrial apartments, et cetera. But today, with cell towers and data centers, you have some sectors that are a little bit less connected to the economics that drive the property sector and the financing markets in the case of cell towers. So we’ve actually with our re-completion strategy or next generation REIT strategy, it’s performing extremely well this year, a little bit more consistent with what Jon talked about on concentration of performance in the equity market from some tech names.John Dunn Right, makes sense.
Okay. We haven’t talked a lot about non-U.S. real estate, what are the kind of dynamics going on overseas and what’s the differences for sourcing flows for that part of the menu?Joe Harvey Yes, that’s a good question. So I guess obviously the two big drivers, when you think about whether it’s Europe or Asia, it’s the economic trajectory, which was somewhat driven by, at some point, so called COVID reopening. We are further behind in that in places like Japan, Hong Kong, China and Singapore. So there are places that are seeing more accelerating economic growth as opposed to Europe and Asia. So I would say, Asia is a place generally that we have favored at the margin over the U.S. and Europe because it is further behind. And frankly, valuations are generally more attractive.The other thing with Asia is generally balance sheets for the most part are healthier than the U.S. and Europe.
Again, I think that the U.S. balance sheets are very, very healthy from the REIT side. But Asia, we feel both from a reopening perspective and from a balance sheet perspective, very good. I would say in Europe you certainly have that reopening dynamic, which is a positive, and we’re seeing it in places like retail. But I would say at the margin, European REIT balance sheets are a little bit worse than here in the U.S. And so while we feel very good about European bank balance sheets, we feel more cautious on the European REIT balance sheets.Again, this is all at the margin. So when we talk to investors, I would say, or large institutions, particularly global institutions, pension fund sovereigns, the conversations are almost always about global real estate.
They’re occasionally about U.S., but it’s primarily about having a global allocation. So whether it’s sovereigns in Asia, the Middle East or Europe, I’d say that’s the dominant conversation. So I think we’re definitely seeing all those opportunities for all the things we’ve talked about.Valuations have improved. A lot of those entities have capital that they still want to deploy, albeit maybe deployments are less than what they were making three years ago. They’re still making new capital commitments and REITs are a place where number one, we’re educating them on, in some cases they’ve never invested in REITs or they’ve only done it passively. And secondly, we’re educating them on how can it be that private real estate is going down and public REITs are going to do well.
And when we tell them, it always happens this way, they’re learning something new and it gives them confidence to become a more active investor in REITs at this point in the cycle.John Dunn Got you. And then, it’s early days for private real estate, but it sounds like stuff is happening, maybe just talk a little more about the timing of things that could happen over the rest of this year and the demand you’re seeing and then you talked about potentially a good return environment?Joe Harvey Yes, so we are in the capital raising mode for both the institutional vehicle as well as the CNS REIT vehicle. In terms we’re not deploying capital at this point. We’re waiting for the prices to correct and we’re waiting for our shots to get the type of returns that we want.
So we’re going to be, as I said, very patient, very diligent. So, I can’t tell you when that’s going to be, but it’s probably sometime in the second half of this year. And the two topics, capital raising and deployment, at some point are connected, right? And investors want to know that what you’re going to be doing. And so to the extent there’s no activity in the transaction market, investors sometimes want to sit on their hands. But we’re in contact with some investors who really understand what we are doing.I think sometime toward the end of this year, the acquisition markets will start to open-up as the whole debt situation starts to get resolved for the types of situations that Jon and I talked about.John Dunn Well, stay tuned. So advisors have been sliding for bit, and you talked about some slowdown in searches.
But can you talk a little more, give us a little more flavor of the advisory conversations going on and do you think we get a normal stuff that’s already in the pipeline, normal fundings over the year, or do some get delayed? And maybe regionally, overall how can you get that channel back to positive?Joe Harvey I think a lot of the slowdown and you can see that in our one unfunded pipeline, if you bridge, if you followed my comments, you saw there’s not a lot of funding activity in the quarter. And so it’s not a matter of interesting demand changing. It’s just a matter of within the environment that things have just slowed down.So, in terms of the search activity, I think it’s been as active as I’ve seen it. It’s just taking it longer for them to get through the process.
And the asset owners are dealing with a lot of things, dealing with volatility in the markets, shifting opportunity sets. And I tried to convey that in my comments, and it just results in the process taking a longer period of time. But as it relates to the number of prospects that we’re and conversations with, it’s still very active. And it’s across real estate, both U.S. and global. It’s across infrastructure as well as multi-strategy real assets, notwithstanding the fact that inflation is coming down.John Dunn Right. And then maybe just to check in on Japan, we’re now a year into deposit part of the distribution cycle, it normally lasts multiple years. Any concerns for people that you can see?Joe Harvey Japan is very difficult to predict.