Nareit’s mission is to actively advocate for REIT-based real estate investment with policymakers and the global investment community. Consistent with that mission, institutional investors, such as defined benefit pensions and endowments, are one of Nareit’s primary audiences. These investors benefit from investing in REITs alongside the private real estate they have traditionally used in their real estate portfolios.
Nareit’s Research & Investor Outreach program develops and provides critical information and high-quality rigorous analysis targeted to these key investment cohorts to undergird the principal benefits of the REIT investment proposition.
A new comprehensive study sponsored by Nareit offers insight into if, historically, investors have been optimizing their real estate allocations by examining private equity real estate (PERE) fund returns relative to REITs.
The study, Private Equity Real Estate Fund Performance: A Comparison to Listed REITs and Open-end Core Funds, was recently published in the Journal of Portfolio Management and was authored by Tom Arnold, the former global head of real estate of the Abu Dhabi Investment Authority, David Ling, and Andrew Naranjo, well-known academics at the University of Florida who specialize in real estate finance. The authors spoke with REIT magazine about their findings and what it means going forward in this issue’s “Out Ahead” feature.
The authors compared the performance of private equity funds to listed REITs using a “horse race” methodology to match the actual internal rates of return of individual private funds with U.S.-focused investments with the return of the FTSE EPRA/Nareit U.S. Net Total Return Index over each private fund’s investment horizon.
Compiling the data from 375 “horse races” between specific closed-end PERE funds and the REIT index over various periods between 2000 and 2014, the authors found that with no risk adjustments, REITs outpaced PERE funds in 53% of the races and outperformed the average private equity fund performance by 165 basis points. On a risk-adjusted basis, REITs outperformed by 68%, or 590 basis points.
The implications for institutional investors are clear. As co-author Naranjo says, the findings indicate that “institutional investors might benefit from reevaluating the way they structure their real estate allocations.” This analysis is also important for retail investors who can use REITs for real estate’s portfolio diversification benefits and continuing income and capital returns.
Sponsoring and promoting key research along these lines is one more way Nareit shows how REITs are all about real estate working for you. To stay up-to-date on all of Nareit’s latest research activities, I encourage you to sign up for Nareit’s Research Newsletter.
Editor in Chief