08/11/2022 | by Sarah Borchersen-Keto

With listed REITs trading at sizeable discounts to their underlying gross asset value, institutional investors should prioritize public real estate at this time, says Dave Bragg, co-head of strategic research at Green Street.

“Now is a great time to prioritize the public market as it is on sale,” Bragg told the REIT Report.

Bragg stressed the advisability for investors to have a dual mandate across the public and private real estate markets as it “really does maximize one's opportunity to generate alpha.”

Listed REITs have had meaningful declines this year, Bragg noted, but it reflects a broader trend, which is that “just about every asset that one can imagine has delivered a negative total return.”

Bragg also noted that capital flows are a key driver of the disconnect in public and private market values. Private market flows have remained robust in 2022 and may even match last year’s record-setting tally, he said. Meanwhile, flows into listed REITs “remain quite tepid.”

One explanation is that U.S. pension funds appear to not fully acknowledge that REITs serve as effective proxies for real estate, Bragg said. He pointed to studies by Nareit and CEM Benchmarking showing that listed REITs are underutilized by typical plans.

“Our research has shown that over long periods of time, public and private market real estate have acted similarly. And the public market has actually generated superior returns, especially on a net basis after fees,” Bragg said.

Meanwhile, Bragg also stressed that sector selection remains critical, regardless of whether investors prioritize the public or private markets.