William Maher, director of strategy and research at RCLCO Fund Advisors (RFA), was a guest on Nareit’s REIT Report podcast.
RFA’s clients include some of the larger public pension funds, and increasingly non-U.S. investors.
Maher said that most U.S. institutional investors today allocate less than 10% of their real estate allocation to REITs. “I think that indicates a big underweight that they're probably not aware of,” Maher said. He added that RFA’s investor clients continue to want greater exposure to a broader range of property types and will continue to look to REITs to provide that access.
Mid-size and larger institutions should have a “permanent long-term position in REITs for diversification, market knowledge, [and] exposure to property types that are difficult to access in the private markets,” he said.
While the optimal allocation to REITs among larger funds will vary a lot depending on their return objectives, their need for liquidity, and the ability to access specialty property types directly, “I think it's fair to say that most institutional investors would benefit from a greater exposure to publicly traded REITs,” Maher said.
Elsewhere in the interview, Maher commented on:
- How investors should broaden their exposure to commercial real estate through a range of investment models or strategies
- Where REITs fit within this exposure and how they have performed relative to private real estate
- The importance of fees and/or execution costs when comparing investment returns
- How investors are using REITs as part of a completion portfolio strategy
- Whether investors are likely to be making any allocation shifts in their portfolios