Skip to main content
MENU
Subscribe
  • Subscribe
  • Account
  • LOGIN
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE Act 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2022 Retirement Income Conference
    • 2022 Managing Pension Risk & Liabilities
    • 2022 WorldPensionSummit
Breadcrumb
  1. Home
  2. ALTERNATIVES
November 15, 2011 12:00 AM

REIT returns beat real estate funds, other alts

Arleen Jacobius
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print

    Real estate investment trusts topped returns of real estate funds — at least until this year, and continue to outperform other publicly traded assets, three new reports show.

    A study by Chicago-based Morningstar Inc. found that REITs provided an annualized rate of return of 9.3%, compared with 4.4% for private equity core funds, 3.7% for value-added funds and 6.1% for opportunistic funds between 1989 and 2009.

    The Morningstar study compared returns of four indexes for the 20 years between 1989 and 2009: the FTSE NAREIT All-Equity REITs index, which excludes mortgage REITs; the National Council of Real Estate Investment Fiduciaries' Open-End Diversified Core Equity index; NCREIF-Townsend Value-Added index; and the NCREIF-Townsend Opportunistic index.

    The study also found that during the study period, REIT fees and expenses averaged one-half to one-fourth of private equity real estate fees.

    Cohen & Steers Inc. came to a similar conclusion in a white paper released last month. Cohen & Steers compared the returns of REITs and core real estate funds through Dec. 31, 2010.

    “Over 30 years, REITs outperformed by 487 basis points per year,” according to the paper, an update of one published by the REIT manager in June 2010.

    Over the past year, “the long-term track record for most private real estate has not been particularly good,” said Jon Cheigh, a New York-based Cohen & Steers' senior vice president and portfolio manager, who co-authored the paper with Joseph Harvey, president and chief investment officer.

    “Liquidity is not valued” by investors, Mr. Cheigh said.

    Traditional asset allocation models fail to account for the value of liquidity, resulting in a systematic overallocation to private real estate, the paper asserted.

    If an investment is riskier you should get a higher return, he said.

    “That's what throws people for a loop in comparing private real estate with listed real estate or REITs,” he said.

    During the first eight months of 2011, however, REIT returns lagged the NCREIF Property index, according to New York consulting firm Deloitte LLC's annual Commercial Real Estate Outlook. But, the Deloitte report noted, REITs continue to outperform other publicly traded asset classes.

    And the outlook for REITs could be a positive one. Deloitte notes that following two lousy years during the recession in 2007 and 2008, REITs rallied to double-digit returns, besting the NCREIF Property index. This trend slowed in the first eight months of 2011, with REITs providing a 3.3% return, down from 27.6% in 2010. By comparison, the NCREIF Property index return was 7.6% for the six months ended June 30 down from 12.6% in 2010.

    NCREIF's Open-End Diversified Core Equity index, which was used in the Morningstar comparison, consists of 18 funds with $96.2 billion of gross and $70.9 billion of net real estate assets. It is relatively new, introduced in 2005.

    Until NCREIF released the ODCE index, comparisons between REITs and real estate equity returns were restricted by the NCREIF Property index, which is “a very comprehensive index for core properties,” said Michael Grupe, executive vice president for research and investor outreach at the National Association of Real Estate Investment Trusts, a Washington-based trade association. “We had information but it didn't represent reality,” Mr. Grupe said.

    For NAREIT, the issue has been that institutional investors' real estate portfolios have been heavily dominated by private real estate equity, Mr. Grupe said. But the NCREIF Property Index measured unleveraged real estate, which did not reflect investors' private real estate portfolios. The newer NCREIF indexes provide a better measurement for comparison, he said.

    Indeed, defined benefit funds in the largest 200 U.S. retirement plans invested a combined $22.5 billion in REITs compared with $167.7 billion in real estate equity in 2010, according to the Pensions & Investments data (P&I, Feb. 7, 2011).

    But NAREIT doesn't suggest institutional investors ditch their direct real estate investments.

    “We felt that it really shouldn't be viewed as an either/or choice on the part of large plan sponsors,” Mr. Grupe said. “There's good evidence of important diversification benefits in real estate portfolios by having exposure to public and the private side. … To get diversity, you need a somewhat more balanced approach between the private side and the public side investments.”

    Related Articles
    Firms see REITs as right move
    Funds boost private equity investing by 38%
    REITs rise again -- assets up 69%
    All-Equity REIT index returns 11.29% for year ended March 31
    NCREIF names CEO
    REIT indexes make healthy gains in quarter, year
    Recommended for You
    H.I.G. Capital names head of U.S. private equity business development
    mark_carney_feb_2020_1550-main_i.jpg
    Brookfield names leaders of soon-to-be spun off asset management unit
    Barings to acquire Sydney-based Altis Property Partners
    Barings to acquire Sydney-based Altis Property Partners
    Private Markets
    Sponsored Content: Private Markets

    Reader Poll

    August 10, 2022
    SEE MORE POLLS >
    Sponsored
    White Papers
    Gaining Momentum: Where Next for Trend-Following?
    The market opportunity in U.S. residential mortgage-backed securities
    Credit Indices Evolve with Enhanced Data Inputs
    Hedge Funds 2.0: Back to the future
    How Has 2022's Carnage Reshaped Global Stock and Bond Markets?
    Crossroads: Politics, Inflation, & Bonds
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    August 1, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2022. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE Act 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2022 Retirement Income Conference
      • 2022 Managing Pension Risk & Liabilities
      • 2022 WorldPensionSummit