Heard on the Beach: Alternative Facts
Published February 27, 2017 from the Heard on the Beach series
Even as listed REITs have been widely embraced as a means to gain exposure to the real estate asset class in virtually every corner of the investment world, one group continues to hold out: defined benefit pension plans. This group of investors, bound as it is by strict fiduciary rules, typically assesses risk by using gauges of short-term volatility, which just happens to be a metric where REITs appear to be riskier than private real estate. Never mind that we, as well as academics and other practitioners, have long demonstrated that REITs behave like real estate over longer holding periods, it is the short-term volatility of REIT share prices that scares them away. A recent study by CEM Benchmarking adjusts for variances in reporting lag across plan sponsors and shows that short-term correlations between real estate and REITs are sky high. Investors who embrace listed real estate are able to enjoy not just the higher returns it has historically offered, they can also optimize returns by arbitraging between public and private markets. Those who continue to hold out are doomed to underperform. Continue reading Green Street's perspective by downloading the full Heard on the Beach report.