PREA: Research - Frequently Asked Questions

Frequently Asked Questions

Why do institutional Investors invest in real estate?

To reduce the overall risk of the portfolio by combining asset classes that respond differently to expected and unexpected events.
To achieve absolute returns well above the risk-free rate.
To hedge against unexpected inflation or deflation.
To constitute a part of a portfolio that is a reasonable reflection of the overall investment universe (an indexed, or market-neutral portfolio.)
To deliver strong cash flows to the portfolio.

The above is taken from, "Why Real Estate?" by Susan Hudson-Wilson, Frank J. Fabozzi and Jacques N. Gordon published in the PREA sponsored special real estate issue of The Journal of Portfolio Management, September 2003. This paper and others from the special issue can be found on PREA's member's only site.

What do institutional investors hold in real estate?

While information on all U.S. plan sponsors is not available, data for the bulk of plans ($4.8 trillion in assets) indicates that real estate equity holdings are $160 billion or 3.4 percent of total assets. For those plans with real estate holdings ($3.1 trillion in total holdings), real estate accounts for 5.3 percent of total assets. See PREA's Plan Sponsor Research Report for more details and for additional information on the real estate holdings of plan sponsors.

Have institutional investors been increasing their holdings in real estate?

Data from 1996 through 2003 indicates that institutional investors have slightly increased their holdings in real estate from 2.9 percent in 1996 to 3.1 percent in 2003. (Data is based on a same sample group of 1,183 plan sponsors reporting asset allocations to Standard & Poor's Money Market Directories.) Percentage holdings in real estate can vary from year to year because of valuation changes in other assets (which results in a change in the total asset holdings) as well as a change in the actual allocation into real estate assets. See PREA's Plan Sponsor Research Report.

Does PREA have a list of plan sponsors with the largest allocation into real estate or a list of those that are currently looking to invest in real estate?

While PREA does collect information on the activities of its member plan sponsors, PREA's policy is keep all individual plan sponsor information confidential. Other organizations do offer some information on the asset allocations of individual plan sponsors. See Pensions & Investments (P&I). P&I also maintains lists of leading managers.

How much will institutional investors invest in real estate in the coming year?

At this time, PREA does not collect data on future flows into real estate but many of PREA's member investment managers publish outlooks. (Search PREA industry research database for recent research or visit the web sites of PREA's Sustaining Members.) In addition, several articles on capital flows have been published in the PREA Quarterly. PREA members can search the PREA Quarterly archives.

Does PREA collect information on manager's fees?

No.

Do plan sponsors' real estate strategies allow for the use of debt to leverage their portfolios?

Based on data collected for PREA's Plan Sponsor Research Report, 88.5 percent of the reporting PREA members allow leverage on their real estate investments.

Does PREA maintain a list of academic articles on real estate?

Yes. PREA members can search our database of academic articles from about 20 leading academic and trade journals by title, author, journal name and publication date. Currently the database lists the titles of more than 2,500 papers published from 2001 to the present. Indices of papers are also available in the PREA Research Reviews, available from 1996 to the present.

For more information on PREA Research, e-mail research@prea.org.