FEATURE REITs Fifty years of REITs
W
hen it comes to
investment, people either love real estate or they
loathe it. (In this article, we will use the terms real estate and property interchangeably, though there are technical legal differences between the meaning of the two.) As you are a real estate professionals, you probably like it. If investors are coming to you, they, too, probably like it. But, if somebody wants to invest in real estate, there are, unfortunately for you, a number of questions they often need answering before they commit to buying a property.How much of their wealth should they be putting into real estate? Where and what should they be buying? How will they manage the property? Would they be better off buying an actual piece of real estate or investing in a real estate fund of some kind? It is this last question that we will be mainly looking at in this article, although – in order to do so – we will have to look quickly
50
at some of the others.
How much of their fortune should someone be investing in real estate? This will be the subject of a separate article but is does have a big impact on the question of how they should invest. Now, ignoring your natural inclination to say that
People either love real estate or they loathe it
everybody should invest everything in real estate (and do so through you!) most of us would agree that nobody would be wise to invest every penny they possess in land, bricks and mortar. But how much is too much?
According to Scott Woolley, writing in Forbes Magazine (www.
forbes.com) in August 2009; at the worst possible point in the real
estate investment cycle: “Shares of companies that own malls, office buildings, storage units and other properties fell a sickening 75% from their early 2007 peak to their low this March. Although they’ve rebounded since, real estate investment trusts are still down an average of 60%, which is far worse than the 40% decline in the broader stock market. With house prices still falling, demand for commercial property weak and credit tight, more nasty surprises could be just around the corner.
“There’s still a strong case to be made for putting a sizeable slice of your investable assets into real estate – namely, that it has historically offered a healthy hedge against the vagaries of stock-and- bond-heavy portfolios, as well as attractive returns.”
Others have tried to quantify the size of that slice.
Back in 2005/6 a number of reputable commentators suggested that, ignoring your own home,
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