• September 2023: Drivers of Listed and Unlisted Real Estate Returns
    The paper analyzes the drivers of U.S. public and private real estate returns and evaluates real estate exposures in the context of a diversified investment portfolio. The differences between listed and unlisted real estate appear to reduce over the longer term, where the return correlations between the two segments increases with horizon.
  • April 2023: The Role of REITs in Real Estate Allocations
    This 2023 paper co-authored by Singapore sovereign wealth fund GIC and investment manager DWS explores two important roles that REITs can play in an institutional investors’ portfolio:
    Strategic allocation: REITs can complement private real estate in building diversified portfolios in terms of geography and sector in a cost- and resource-efficient manner. They can be used to temporarily complete real estate allocations while capital is still in the process of being deployed into private properties.
    Dynamic allocation: REITs’ pricing contains information about real estate markets (leading indicator). Relative value opportunities between REITs and private real estate exist. REITs add flexibility to quickly adjust an overall real estate allocation or the sectorial or risk profile of a real estate portfolio.
  • January 2021: Strategic Innovation, Tech Priorities, and Human Capital in the REIT Sector
    Leading REITs in the U.S. are using technology as an "agent of change," contradicting the notion that the industry is not innovative, according to a new study from Ferguson Partners' Global Innovation + Technology Practice. REITs surveyed for the study "have invested millions in new paradigms to innovate for and connect with customers." These REITs are embracing disruption, growing markets, and hyper-specializing in strategies and sectors, according to the study.
  • August 2020: A Roadmap for Real Estate Allocations
    A Roadmap for Real Estate Allocations examines the relationship between public and private real estate, how investors can take advantage of both opportunities at various stages of the recovery cycle, and the lead/lag effect of how public real estate is valued relative to private.  At the start of this recession, and in past recessions, public real estate declines quicker than private, but also recovers quicker as well, therefore, having an understanding of this dynamic creates opportunities for investors to make the most out of their real estate allocations based on the status of the recovery.
  • May 2020: Buying the REIT Recovery in a Dislocated Market
    Year to date, global REITs have declined 23% through April, underperforming global equities by a surprising 11%. As a result, publicly listed real estate is trading at meaningful discounts to our view of private-market values. It appears the next few months will be challenging for many landlords. However, most public real estate companies have ample liquidity to withstand impaired cash flows through the crisis, in our view.
  • Listed real estate in a multi-asset portfolio: A European perspective
    The European listed real estate market has expanded rapidly in terms of size and diversity in recent years. Yet the benefits of investing in listed real estate are not uniformly accepted and strategic allocations to property companies remain low for most institutional investors across Europe. A recent study by Oxford Economics demonstrates that a larger dedicated allocation to listed real estate would enhance the performance of investor portfolios, helping them to better meet their strategic objectives. Even more, this enhancement is expected to keep boosting portfolios performance during the next decade under different economic scenarios. Read more: Limited exposure to real estate leads to lower returns for European investors – Oxford Economics, PropertyEU.
  • Private Equity Real Estate Funds: Returns, Risk Exposures, and Persistence
    A new academic paper by two distinguished academic and the global head of real estate for a large sovereign wealth fund explores the performance of closed-end, Private Equity Real Estate (PERE) returns and contributes to the already large body of literature demonstrating that REITs outperform private real estate. This paper computes the public market equivalent (PME) for each PERE fund and notes that the “calculated PMEs suggest that most funds in our sample substantially underperformed relative to the chosen public market benchmark.”
  • A REIT Defense for the Late Cycle
    Cohen & Steers discusses why the defensive characteristics of REITs—together with healthy fundamentals and significant private-market demand—have the potential to drive attractive returns relative to equities as the economic cycle matures.
  • Real Estate in Participant-Directed Contribution Plans: Fiduciary Considerations
    “Fiduciary Fred” Reish and Bruce Ashton of Drinker Biddle & Reath LLP summarize the fiduciary requirements imposed by ERISA on sponsors of participant-directed defined contribution plans for the selection of investments. The discussion includes considerations for selecting real estate as one of the asset classes in a plan and an analysis of factors that may contribute to the selection of a specific type of real estate investment.

  • REITs: Answering the Call for DC Plan Diversification
    For fiduciaries looking to enhance diversification in defined contribution plans, Cohen & Steers shows how REITs can be a simple and effective addition to investment lineups, offering a long track record of benefiting investors and characteristics that may be well suited to the needs of DC plans.
  • REITs: Think Local, Invest Global
    This report from Cohen & Steers analyzes the benefits of a global approach to real estate allocations, including access to different property cycles and economic trends around the world. Cohen & Steers notes that "the flexibility to position portfolios globally is more important than ever amid a growing divergence in country and sector fundamentals."
  • Three REIT Sectors Vital to the E-Commerce Ecosystem
    This Cohen & Steers report profiles three REIT market segments—cell towers, data centers and industrial properties—that lie at the heart of the digital ecosystem, providing critical infrastructure for the e-commerce value chain. With increased spending on e-commerce, the report projects continued growth for these segments.
  • Resetting the REIT Cycle
    This report focuses on the potential buying opportunity shaping up in U.S. REITs, as valuations have improved and Donald Trump’s election has primed the pump on growth and inflation expectations. While much is still unknown, Cohen & Steers sees potential for the kind of policy upheaval that could change the shape of real estate fundamentals and values for the better through stronger demand and slower new supply.
  • High Priced ≠ Overpriced
    REITs have been trading at a premium to the broader stock market, and some investors have questioned whether higher multiples on REITs are justified.  Green Street Advisors makes the case that the REIT premium is justified by REITs’ superior operating results and higher profit growth over the past twenty years.  Green Street reports that, going forward, REIT profits may look even better compared to the broad equity market and “As a result, anyone holding out for a sharp reduction in the earnings multiple premium the market now ascribes to REITs may be in for a long and painful wait.”

  • REIT Stocks: An Underutilized Portfolio Diversifier
    In a new “Leadership Series” white paper Fidelity Investments Research explores the fact that many investors remain underexposed to REIT stocks despite the diversification benefits they can provide to investment portfolios. Co-authored by Andy Rubin, Steve Buller, and Sam Wald, the paper provides arguments for why investors should consider higher exposures to commercial real estate through listed REITs. The authors find that “making a sizable allocation to REITs in a multi-asset-class portfolio would have helped improve the portfolio’s risk-adjusted return over time.”

  • A Primer on US Equity REITs and Their Role in an Institutional Investment Portfolio
    This report highlights the similarities between stock exchange-listed Equity REITs and private real estate as investments. “REIT values are dictated by property values and, therefore, REITs are real estate over the long-term,” offering similar risk and return attributes, the report states. Boston-based NEPC serves more than 300 clients with total assets under advisement in excess of $850 billion. It is one of the largest full-service investment consulting firms in the country.
  • 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.
  • URDANG Recommends Investors Consider Holding Both REITs and Private Real Estate
    Institutional real estate investors should consider including both real estate investment trusts (REITS) and private real estate in their portfolios as both provide distinct advantages, according to a report from URDANG, the real estate investment manager and part of BNY Mellon Asset Management.

Research Presented at the 2015 NAREIT/AREUEA Real Estate Research Conference

  • REIT Financing Choices: Preparation Matters
    by Andrey Pavlov (Simon Fraser University), Eva Steiner (University of Cambridge), and Susan Wachter (University of Pennsylvania)
    Responding to previous research showing that REITs that were using relatively little debt just prior to the 2008 liquidity crisis outperformed others during and immediately after it, the authors note that REIT leadership can prepare for such events either by maintaining perpetually conservative balance sheets or by making greater use of leverage during ordinary times but then paying down debt and improving maturity schedules in anticipation of such crises. Their empirical results indicate that the best-performing REITs during and after the crisis tended to be those that took action to reduce their leverage risks, rather than those that maintained consistently low leverage, and that this was especially true for REITs with stronger, more investor-oriented governance. The authors interpret their findings as suggesting that governance and risk-reducing actions taken prior to the crisis provided signals to investors regarding market-awareness and initiative on the part of REIT executive leadership.

  • Diversification Benefits of REIT Preferred and Common Stock: New Evidence from a Utility based Framework
    by Walter I. Boudry, Jan A. deRoos, and Andrey D. Ukhov (Cornell University)
    The authors provide the first analysis of the diversification benefits of REIT preferred stock, as well as REIT common stock, in mixed-asset portfolios. Noting that market imperfections make it necessary to construct optimal portfolios separately for risk-averse investors and for those with low risk aversion, they find that REIT common stock has generally provided the greatest benefits to risk-tolerant investors by increasing their portfolio gains without increasing portfolio volatility. In contrast, REIT preferred stock has primarily benefited risk-averse investors by reducing portfolio volatility without reducing portfolio returns; moreover, the authors find that the diversification benefits of REIT preferred stock cannot be replicated by combinations of other assets.

  • The Misuse of Alpha in Private Equity Real Estate Investments
    by Kiat Ying Seah (National University of Singapore), James D. Shilling (DePaul University), and Charles Wurtzebach (DePaul University)
    The authors question whether performance compensation for managers of private equity real estate funds--especially those following value-added or opportunistic strategies targeting higher net total returns--should be based on fund-level performance, which may be affected by the use of leverage, or on asset-level performance independent of leverage risk. Using data collected by the National Council of Real Estate Investment Fiduciaries (NCREIF), the authors show that Jensen's alpha--a commonly used measure of performance that is leverage-sensitive and therefore at least potentially subject to manipulation through the choice of leverage risk--has generally exceeded asset-level alpha by a wide margin during real estate booms and, conversely, fallen fall short of deal-level alphas when poor market conditions are exacerbated by the return-destroying effects of leverage.

  • Cross-Sectional Dynamics of REIT Market Efficiency
    by Mike Aguilar (University of North Carolina), Walter I. Boudry (Cornell University), and Robert A. Connolly (University of North Carolina)
    The authors study "price discovery"--that is, the process by which information about future earnings growth, discount rates, and other conditions is aggregated through stock trades to reveal the market value of each exchange-traded REIT. Using data on REIT stock trades throughout the day, the authors show that the price discovery process is efficient for most REITs most of the time, but that there is a sizable number of instances of inefficient price discovery--such as instances of systematic mean-reversion or momentum (mean-aversion). Moreover, REIT pricing appears to become more efficient over time, with newer REITs more likely to be inefficiently priced. They also find that greater investment by institutions--especially those that engage in relatively infrequent trading activity--help to improve REIT pricing efficiency.

  • J-REIT Market Quality: Impact of High Frequency Trading and the Financial Crisis
    by Pawan Jain (Central Michigan University)
    The author investigates the effect of the 2008-09 liquidity crisis and the introduction of high-frequency trading (HFT) on several measures of market quality including liquidity, volatility, and market depth (number of bid or ask quotes) in the Japanese REIT market. As expected, the liquidity crisis put a significant strain on market quality; contrary to some expectations, however, the introduction of high-frequency trading generally improved market quality by improving liquidity, which in turn reduced volatility. The author also finds that both the deterioration of market quality during the liquidity crisis and the improvement of market quality as a result of HFT were less pronounced for Japanese REITs than for similar non-REIT stocks, a result that he attributes to more transparency and less asymmetric information for REITs relative to non-REITs.