In the latest episode of the NAREIT Podcast, Sean Ruhmann, director of real assets research for Boston-based investment consulting firm NEPC, analyzed the benefits of REIT investment for institutional investors.
NEPC published a paper earlier this year on the investment attributes of REIT stocks. NEPC’s researchers concluded that REITs behave like core real estate investment. Ruhmann noted that, as is the case with direct real estate investment, REIT investors need to have long-term time horizons.
In terms of the implications for institutional investors, Ruhman said NEPC’s research indicates that when they are constructing their real estate portfolios, REITs should play a role in fulfilling their core allocations.
Ruhmann cited a number of benefits that REITs offer to institutional investment portfolios. First, he noted “the size and quality of the REIT universe.” REITs have access to real estate investments that would be difficult for many investors to do on their own, he said. REITs also offer exposure to a broad variety of property types, according to Ruhmann.
Is there an ideal allocation to REITs in an investment portfolio? Ruhmann says it’s not that simple.
“Part of it comes down to looking at the overall allocation to real estate, how much of your portfolio you want in core real estate and also thinking about the risk budget of your broader portfolio—everything outside of real estate,” he said. “It’s a much more customized question to answer, per client objectives.”