Bringing REITs to the Retail Investor

REITs increasingly are focusing on retail investors, and in particular on those who are looking to bolster their retirement assets.

It’s a reflection of the broader shift toward putting more money in the hands of individuals and their financial advisors, versus the traditional pension fund manager or defined benefit (DB) plan sponsor. It also reflects the REIT sector’s growing prominence in retail investment portfolios, according to a REIT Magazine article appearing on the website of real estate consultant Adam Gower.

“Plan sponsors, particularly on the corporate side, are shifting away from DB plans and into DC [defined contribution] plans” including 401(k)s, notes Nareit’s Kurt Walten.

Both IRAs and DC plans have increased their share of the $27 trillion in total U.S. retirement assets, while DB plans’ share has slipped from 35.8% in 2011 to 30.5% as of the second quarter of 2018.

Real estate is a good complement to a portfolio of stocks and bonds because it provides added diversification and has a low correlation to other asset classes, says Medical Properties Trust’s Tim Berryman.

“In addition to other capital sources, REITs like retail investors because they represent growing demand for their shares and tend to be long-term holders, which can help to dampen share price volatility,” he adds.

At the same time, Berryman points out, retail investors in MPT’s stock are drawn to “to the steady and predictable income that our dividends provide.”

Retail investors accounted for about 15% of direct REIT ownership in 2017, REIT Magazine reported, citing data from Citi’s Michael Bilerman. The data doesn’t include more passive investment via ETFs or mutual funds. Dedicated U.S. REIT funds account for 23% of REIT ownership, which can include capital from both individuals and institutions.

In a way, this focus on the individual takes the REIT sector back to its roots. “REITs were first introduced by an act of Congress in 1960, and the purpose was to give the average investor access to real estate investment,” Berryman points out.

Newport Beach, CA-based KBS was one of the first sponsors to offer an institutional quality fund without any upfront fees or commissions, which is available through its direct investment vehicle called KBS Direct. The transparent process offered by KBS Direct is a clear pathway for investors to participate in commercial real estate on an equal basis as large institutional investors.

Investors may also consider investing into alternative investments using their Individual Retirement Account (IRA) investment dollars. KBS is working with Millennium Trust to provide direct access to institutional-quality office buildings via KBS Growth & Income REIT. Even if these investments are not available or offered on their financial advisors’ platforms, investors are able to open a Self-Directed IRA Account, outside of their traditional brokerage advisory account.

Compared to 20 years ago, the learning curve for retail investors is considerably less steep when it comes to REIT 101 education. However, there’s still a need to impart knowledge on the REIT value proposition, and for Nareit, one of the key educational efforts has focused on raising REIT allocations.

“We are making the assertion that all retail accounts should have somewhere between 5% and 15% invested in REITs, and that is what our research supports,” Walten says.

For comments, questions or concerns, please contact Paul Bubny