Information standards are designed to enhance real estate investor confidence.

Information standards designed to heighten confidence in real estate investments were announced recently by three leading real estate investment industry groups.

The two-year effort was led by a task force representing the National Council of Real Estate Investment Fiduciaries (NCREIF), the Pension Real Estate Association (PREA), and the National Association of Real Estate Investment Managers (NAREIM). Deloitte & Touche Real Estate Services was engaged by the task force to survey the real estate industry and develop the information standards for publication.

Standardization Critical

"If real estate is to become more acceptable as an institutional investment vehicle, both in the private and public markets, increased standardization of information is critical," said Richard G Carlson, managing director of Deloitte & Touche. "Prime among its many benefits, standardized information will create a 'common language' shared by pension plan sponsors, institutional real estate consultants, and real estate investment managers."

He said institutional investors have a wide range of investment opportunities including equities and fixed income which are primarily public and have undergone many years of scrutiny and guidance by regulatory bodies. The scrutiny has increased confidence among investors that information is conveyed accurately and consistently.

"Real estate has been primarily a private market activity, with regulation and information exchange perceived as lagging behind the public market," Carlson said. "The real estate investment business is taking a proactive stance. From an accounting consistency, performance calculation, and information standardization perspective, it will be on par with corporate equities or bonds. As such, it will be a more acceptable investment medium. The task force encourages the real estate industry to quickly adopt and implement the standards."

The standards incorporate four categories: investment and asset information; valuation information; performance measurement; and the NCREIF-developed market value accounting policies.

Benefits to Industry

"Compliance with the new information standards helps pension plan sponsors and real estate investment managers alike," said J. Marshall Peck, managing director of LaSalle Partners Limited and a PREA Board member. "The standards will assist pension plan sponsors when making decisions on properties to acquire and when comparing the performance of their investment advisors over time. Investment managers will enjoy greater access to capital because new investors will be attracted to make real estate part of their investment portfolio."

He said the information standards will significantly improve the reliability of financial analysis of real estate. In addition, information standards will enable real estate to be more favorably compared with other asset classes by pension plan sponsors, real estate investment managers, and real estate consultants and advisors.

"The new information standards will level the playing field when comparing investment managers," Peck said. "The standards permit comparisons of investment firms' historical performance and the products they offer. The materially improved reporting also will enhance the possibility of secondary market trading."

D. Wylie Greig, principal and director of research for RREEF Management Company and NCREIF president, said the standards will eliminate some of the barriers for real estate investing.

"The recommended standards will reduce the cost and complexity of information sharing and gathering," Greig said. "Traditionally plan sponsors have been forced to create their own data and reporting requirements on which to base investment decisions, while real estate advisors and investment managers submit information in an entirely different manner. We wanted to create a more efficient information-sharing process."

Annual Review and Update

The information standards, elements, and definitions were created through a review of previous and current industry information standards. Current accounting, performance measurement, valuation, asset management, and industry reporting practices also were examined.

The information standards incorporated predominant definitions, terms, and calculations and included lists of information elements that should reasonably be collected and maintained by information providers. In addition, interviews were conducted with retirement plan sponsors, investment managers and advisors, accounting firms, appraisal firms, consultants, academics, rating agencies, and Wall Street analysts.

Carlson said early drafts of the standards were reviewed by representatives of the Institutional Real Estate Clearinghouse and the National Association of Real Estate Investment Trusts. The standards also were a primary topic of discussion at technical meetings held at the 1994 NCREIF Fall Meeting.

"As with the development of the standards," Carlson said, "the task force will seek industry input annually to ensure that the standards reflect changes as investor requirements, industry practices, professional practice standards, and the markets continue to evolve."

He said NCREIF has been designated by the task force to annually review proposed changes and provide technical input.

The Real Estate Information Standards were distributed to all NCREIF, PREA and NAREIM members in June. Interested parties may write to PREA, 95 Glastonbury Blvd., Glastonbury, CT, 06033, or telephone [phone] for further information.