Investors long considered real estate to be the ultimate immovable, illiquid asset. Beginning in 1960 with the advent of REITs in the U.S., this age-old view has begun to change. REITs in the U.S. and many other parts of the world now make real estate investing easy and efficient, thanks to market liquidity. The equities of companies that own portfolios of properties or engage in real estate financing are bought and sold on major U.S. stock exchanges. As the investor base for listed real estate has grown over the past decade, average daily dollar trading volume in the U.S. has soared – from about $100 million in 1994 to more than $4 billion today.
As a result of their liquidity, REIT and listed real estate equities have become the most efficient way for investors and investment managers across the globe to gain exposure to commercial real estate; an effective way for professional investment managers to manage their investment exposure to real estate; and a meaningful way to reduce the risk of illiquidity.
REITs: Real Estate With a Return Premium
A NAREIT analysis of the performance of publicly traded equity REITs and private equity core, value-added and opportunistic funds over the last full real estate cycle shows REITs outperformed private equity real estate funds over the entire cycle, as well as over the bull market portion of the cycle when value-added and opportunistic funds’ higher leverage would have been expected to deliver superior returns.
The Truth About Real Estate Allocations
This analysis from investment management firm Cohen & Steers reviews the performance of publicly traded REITs and core, value-added and opportunistic private equity real estate funds over various periods on a net-of-expenses basis. The paper explores the possible reasons for REITs' outperformance, based on the comparative business models of REITs and private equity real estate funds.