Securitization continues to reshape real estate.

Although securitized real estate still accounts for less than 10 percent of all investment-grade real estate, the impact of real estate investment trusts (REITs), commercial mortgage-backed securities (CMBS) and publicly-traded operating companies on investment and performance evaluation was a dominant theme in many of the presentations given by industry experts at the Institute of Real Estate Management's (IREM) recently completed 14th annual Asset Management Symposium, held in San Diego.

"Institutional investors have realized that higher yields are more important than diversification," said speaker Richard Kateley, executive vice president of Heitman Financial, Ltd. Kateley noted that REIT analysts' emphasis on cash-on-cash yields has refocused thinking among Heitman's clients and has helped established new benchmarks for evaluating investment performance.

Another speaker, Jerome Clark, real estate portfolio manager for the Pennsylvania Public School Employees' Retirement System, also cited increased interest in securities as a major pension investing trend, both because of the costs of managing real estate portfolios and the higher liquidity and returns of REITs. "Some smaller pension funds are considering exiting from real estate entirely," he noted.

Likewise, many insurance companies are pulling back from direct real estate ownership in favor of securities, said M. Leanne Lachman, managing director of Schroder Real Estate Associates. She explained that life companies are being "pressured by rating agencies and regulators" to realign their investments toward mortgages and securities.

While REITs continued to be the security investment most widely cited at the symposium, other publicly and privately traded options are also growing in favor.

"CMBS's should reach $90 billion by the year 2000," predicted Lachman, who cited high yields and the treatment of CMBS's as a fixed asset as factors making this investment attractive to mutual fund managers and life companies.

Both Kateley and Mark Couchman, executive vice president of acquisitions at GE Capital Investment Advisors, focused on another securitization trend - investment in public and private real estate operating companies. Couchman saw bright prospects for "entity-level investing," providing exit strategies "perhaps through the public markets."

Kateley also felt that investments in real estate companies offered opportunities, but cautioned that finding real estate firms with strong business management and then overseeing future company operations will be the challenges. "In real estate, running the company has not been put at a premium," he said.

The emphasis on higher yields and benchmarking that grew out of the REIT revolution was another area of emphasis at the annual IREM symposium, which is an executive-level educational forum for real estate asset management decision-makers.

"Real estate lags behind the stock market in benchmarks for investment comparison," said speaker Kevin Maxwell, senior vice president of The O'Connor Group. He noted that while the S&P 500 accounts for approximately 70 percent of the total market capitalization of the stock market, the NC-REIF index - which is the most widely used real estate benchmark - encompasses only about 25 percent of investment-grade real estate.

While Maxwell stated that the NCREIF benchmarks are a valid comparison if properly weighted against an individual portfolio, he emphasized the need for using a variety of data sources to evaluate real estate performance.

Philip Rogers, CPM, senior vice president of Axiom Real Estate Management, Inc., AMO, emphasized the importance and the difficulty of establishing property-level benchmarks that will produced higher yields. He urged asset managers not to benchmark "against what happened in the past," but instead to look for best practices data from professional associations and industry leaders to improve performance.

Most speakers at the Asset Management Symposium were cautiously optimistic when asked the question on every investor's mind: "How long will the real estate recovery continue?"

"We will see rolling cycles, but no major downturn," said Lachman, who expects functional and locational obsolescence to help support demand for most property types.

"There will he property price adjustments, but we are not looking into the abyss," agreed keynote speaker Andrew Farkas, president, chairman and CEO of Insignia Financial Group, Inc., AMO.