Liquidity Still Attracting Institutions to REITs
12/17/2012 | by Matthew Bechard

Hans Nordby, managing director with Property and Portfolio Research, spoke with REIT.com at NAREIT's headquarters about his current thoughts on the REIT market and what his expectations are heading into 2013. Property and Portfolio Research (PPR) provides unparalleled expertise and objective thinking in analyzing and forecasting commercial real estate markets. PPR offers independent research, a unique set of analytic tools, and actionable insights to investors on hundreds of global markets in North America and Europe. PPR is wholly owned by CoStar Group.

Nordby said the recovery in the housing market that begun in 2012 was one of the year's most significant developments. And while he said it is unlikely to approach 2003 to 2005 levels, it is going to be a source of some economic growth and will no longer be an "anchor" to broader economic recovery.

Also for commercial real estate, 2012 may likely be remembered as the peak year for apartment rent growth, Nordby said.

"We expect to be almost as strong in 2013, but if you were waiting for that 'big pop,' that was it," he said.

Nordby said as plan sponsors evaluate investing in REITs they are weighing a number of factors. One that is currently weighing against REIT securities is plan sponsors' desires to decrease volatility while increasing control over their investments.

"It is very difficult for a plan sponsor to steer the way a REIT behaves—as it should be since they are not that type of investment," Nordby said. "So what REITs are doing is opening more separate accounts, they are buying the properties individually and they are decreasing the leverage on it."

Two groups of institutional investors Nordby said he sees increasingly being attracted to REITs are foreign investors and endowments/foundations and small pension funds. Both of which are attracted to the liquidity and diversification exposure REITs provide, he said.

Lastly, Nordby was asked if he was a new commercial real estate investor with a sizeable allocation of capital to invest, where would he put that money to work. Nordby said he would invest 20 percent or so of the total real estate allocation to REITs.