Even before the terrorist attacks on New York and Washington that unsettled financial markets of all kinds, a large majority of plan sponsors had begun to reduce their exposure to real estate. Although more than 60 percent invest some percentage of their plans in the sector, 21.4 percent of respondents say their real estate allocation is lower than it was two years ago, and about one quarter of that group say it is substantially lower, according to a survey conducted before the attacks. By contrast, just 16.4 percent say they have somewhat increased their real estate allocation in the past two years, and only 0.7 percent have substantially increased their allocation.
More than 14 percent of plan sponsors intend to decrease their real estate holdings in the next year, while 10.6 percent aim to increase their exposure to the asset class. More than 75 percent will maintain their current allocations. Some 42.6 percent say they will not increase their real estate holdings because they are happy with their current allocation. An additional 21.3 percent believe that stocks and bonds will offer better returns than real estate.
The means by which plans invest in real estate haven’t changed much over the past two years. Fifty percent of respondents say they invest through partnerships or real estate investment trusts; 47.9 percent say that two years ago they used partnerships, and a further 45.7 percent say they used REITs.
The two most attractive real estate markets in the country appear to be the Northeast and the Southwest: 41.9 percent of respondents say the state of the northeastern real estate market is good or excellent, and 45.4 percent say the same of the Southwest. The Midwest earns the dubious distinction as the least attractive area for investment. Just 22.7 percent of respondents describe the region as good or excellent.
What percentage of your total assets is now in real estate?
None 39.9%
1 to 5 percent 31.5
6 to 10 percent 23.1
11 to 15 percent 5.6
16 to 20 percent 0.0
More than 20 percent 0.0
How does that percentage compare with that of two years ago?
Substantially more 0.7%
Somewhat more 16.4
About the same 61.4
Somewhat less 16.4
Substantially less 5.0
How do you expect your real estate allocation to change over the next year?
Increase 10.6%
Decrease 14.2
Remain the same 75.2
If you do not expect to increase your real estate holdings, why not?
Fund has adequate exposure to real estate 42.6%
Stocks and bonds will offer better returns than real estate 21.3
The real estate market will weaken 4.9
Other 31.1
What type(s) of real estate investment does your fund have?
Office/commercial 90.8%
Retail 75.9
Industrial 70.1
Multifamily 62.1
Hotel 41.4
Timberland 14.9
Farmland 5.7%
Other 11.5
How does your fund invest in real estate?
Partnership 50.0%
Real estate investment trusts 50.0
Independent money manager 31.1
Direct investment 34.4
Independent real estate adviser 23.3
Opportunistic funds 24.4
Private real estate investment trusts 17.8
Commercial mortgage-backed securities 16.7
How did your fund invest in real estate two years ago?
Partnership 47.9%
Real estate investment trusts 45.7
Independent money manager 24.5
Direct investment 35.1
Independent real estate adviser 21.3
Opportunistic funds 18.1
Private real estate investment trusts 14.9
Commercial mortgage-backed securities 13.8
If your fund has changed real estate advisers over the past year, which of the following have you chosen?
Partnership 52.9%
Independent money manager 11.8
Independent real estate adviser 23.5%
Direct investment 11.8
How do you assess the state of the following markets on a scale of 1 to 5 (1 being poor and 5 being excellent)?
Northeast
One 1.8%
Two 7.3
Three 49.1
Four 36.4
Five 5.5
Midwest
One 0.0%
Two 18.9
Three 58.5
Four 20.8
Five 1.9
Pacific Northwest
One 3.8%
Two 13.2
Three 56.6
Four 24.5
Five 1.9
Midatlantic
One 0.0%
Two 9.4
Three 58.5
Four 32.1
Five 0.0
Southwest
One 0.0%
Two 5.5
Three 49.1
Four 34.5
Five 10.9
Southeast
One 0.0%
Two 7.3
Three 56.4
Four 30.9
Five 5.5
