Real estate investment trusts outperformed unlisted equity real estate over a 20-year period ended 2017, according to a report by CEM Benchmarking Inc. for Nareit.
REITs average annualized net return from 1998 through 2017 was 10.89%, compared to an average net return of 8.09% for private real estate. REITs also outperformed opportunistic private real estate, which had an average annualized net return of 8.64% during the period. The lowest performing real estate asset group considered in the report was opportunistic funds-of-funds style with an annualized net return of 6.54%.
One reason for the better REIT performance is the higher cost of private unlisted real estate, said Alexander Beath, senior research analyst at CEM Benchmarking. Investors would expect that opportunistic real estate, which is riskier than REITs, to outperform but opportunistic does not have a higher return than REITs on a net basis, Mr. Beath said.
Management fees for equity unlisted real estate were 1.07% compared to .05% for REITs during the period, according to the study.
The CEM Benchmarking analysis considered the allocation and performance of assets in 200 public and private pension funds, representing nearly $3.8 trillion in combined assets under management. The study looked at investment allocations and realized investment performance.
The report can be found on Nareit's website.