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Institutional investors are rediscovering real estate investment trusts as returns and supply-demand dynamics heighten their allure for the first time since the financial crisis.
This year alone, domestic and international asset owners including the $233.9 billion California State Teachers' Retirement System; the [euro]70 billion ($1.13 billion) Bayerische Versorgungskammer, Germany's largest public-sector pension group; and the $897 million Chicago Firemen's Annuity & Benefit Fund added REIT mandates or allocations.
Institutional investors in the U.S. have awarded six REIT mandates so far this year, up from four mandates in all of 2018, said Meredith Despins, Washington-based senior vice president, investment affairs and investor education at Nareit, citing data from Fundmap and Nareit.
As REIT returns have started to recover, investors also are attracted to REITs as a more liquid form of real estate that can help them create more directed real estate portfolios, access newer property types such as cell towers and manage their real estate portfolios.
In May, West Sacramento-based CalSTRS made its first REIT investment, committing $100 million to Principal Real Estate Investors for a U.S. mandate. Over the long term, officials expect the fund's REIT portfolio will make up 5% to 10% of the pension fund's $29.9 billion real estate portfolio, said Mike DiRe, CalSTRS' director of real estate.
CalSTRS has had the ability to invest in REITs for some time, he noted.
"We had it in our policy that we could invest in REITs but we never acted on it," Mr. DiRe said. "More and more investors are adding REITs and making it part of their real estate portfolio. It's part of our toolkit, especially in areas we can't access otherwise."
REITs have a better liquidity profile and allow investors to have a more directed portfolio, he said. For example, real estate open-end funds are similar to REITs but the open-end fund pools tend to hold a...