Institutional Perspectives on Real Estate Investing

Abstract

A survey of institutional investors is used to assess the role of real estate in portfolios. Despite modest current holdings, there is a trend toward increasing allocations to real estate, driven apparently by a desire for diversification and inflation protection, whatever the recent returns. The major perceived risks of real estate investing include liquidity, risk of property selection, and scarcity of reliable data. Yet investors seem more comfortable extrapolating past results for real estate than for hedge funds or venture capital. There is not surprisingly a strong relationship between manager confidence in extrapolation and target allocations to real estate.