As of Sept. 30, real estate equity assets totaled $511.5 billion, up 0.2% from the year before, according to the survey.
While assets did rise slightly, the increase was significantly less than the survey recorded in the previous five years. Real estate equity assets are up 52.9% over the past five years.
John Nicolini, managing director and senior consultant at investment consultant Verus, who leads its real assets practice, said in an interview that performance was the reason for real estate assets stalling.
"Real estate has seen pretty material write-downs at the value of the assets, so that's going to explain why real estate barely moved or for some plans probably shrank," Nicolini said. "Performance was going to be a big headwind to any real estate allocation growing year over year. That was one of the few asset classes taking write-downs on the private side."
In a later email response to questions, Nicolini said that while most P&I readers are aware of the struggles in the office sector, he said repricing in multifamily assets in 2023 concerned his team more.
"There are likely to be further adjustments in pricing downward as buyers and sellers bridge the gap in bid/ask pricing. Potential interest rate cuts, loan maturities and liquidity needs is expected to bring more transaction activity in equity this year," he said.
The NCREIF Fund Index-Open End Diversified Core Equity, for example, posted a net loss of 12.9% for the year ended Sept. 30.
The largest U.S. pension fund, CalPERS, alone accounted for $6 billion less in real estate equity assets, reporting $54 billion as of Sept. 30, a drop of 10.3% from $60.2 billion a year earlier. For the year ended Sept. 30, the $450.3 billion California Public Employees' Retirement System's real estate portfolio had a net return of -10.5%, just below its benchmark return of -10.7%. Spokespeople at CalPERS did not respond to requests for further information.
Still, said Nicolini, pension fund clients in no way are looking to move away from real estate or lower their allocations.
"We're still allocating far more aggressively to real estate than really any other real asset class over the last two quarters," he said.
In a later email, Nicolini said they have been most aggressive within real estate credit and opportunistic real estate.
"Credit has been an easier place to get capital deployed at favorable returns so that's been an area of focus. We will likely shift towards more traditional equity funds in the second half of 2024," he said.
Paul Kolevsohn, partner, head of North American real estate at Mercer, said their clients are not decreasing their real estate allocations, but generally keeping the levels of their allocations and maintaining their commitment models.
"The thing to keep in mind about real estate is out of (all) the private markets, it's the most mature. We have an open-ended benchmark that starts in 1978 and that benchmark has something like 30 funds in there. Clients are at their desired commitment levels," he said.
"What we are seeing is the emergence of infrastructure vs. real estate," said Kolevsohn.