Morgan Stanley Investment Manager Says Global Property Stocks Equate to Core Real Estate

Ted Bigman, managing director at Morgan Stanley, joined REIT.com for a video interview at REITWorld 2014: NAREIT’s Annual Convention for All Things REIT at the Atlanta Marriott Marquis.

Bigman discussed the approach investors should take when considering global property stocks as a portion of multi-asset portfolios.

“First and foremost, they should look at them as real estate… Their returns over the medium- and long-term should track real estate,” Bigman said. Within the real estate sector, investors should view global property stocks as core real estate, he added.

At the same time, investors need to realize that global property stocks are liquid, Bigman pointed out. That has implications for the behavior of the stocks.

“There is a cost to liquidity, which is volatility, so investors have to understand that there will be volatility to returns here,” he said.

Bigman also commented on how the larger investment institutions view real estate securities and whether those views differ between investors in different countries. He noted that since the early 1990s, pension funds have viewed real estate stocks as a proxy or complement to investing in core real estate.

“Some countries do prefer real estate,” said Bigman. For example, he noted that some of Morgan Stanley’s Dutch clients hold 15 percent of their portfolios in real estate. That compares with a level of about 7 to 9 percent for U.S. pension funds, according to Bigman.

“We’ve found the large (U.S) plans do use real estate securities as part of their core allocation, but they are so big that they tend to do a lot of private real estate,” Bigman added.

Meanwhile, Bigman said he sees no reason why the global REIT industry shouldn’t continue to expand: “We’re at $1.2 trillion [in equity capitalization], which is meaningful, but there’s no reason why we can’t continue to have growth from here.”

Bigman observed that the $1.2 trillion in equity capitalization represents about 15 percent of institutional-quality real estate in the developed markets that is now owned by public companies. In Australia, he pointed out, about 50 percent of institutional-quality assets are held by public companies.