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Pension funds eye securitized vehicles.

Pension funds are investigating various forms of securitized real estate, and one vehicle of particular interest is the real estate investment trust (REIT), according to Jeff Van Horn, a Northern California manager specializing in REITs, and Allen Anderson, the worldwide director of institutional investment services for the Arthur Andersen Real Estate Services Group (RESG).

"The issues of liquidity and valuation are increasingly vital to pension funds, and REITs are one exit strategy that some are seeking for their holdings in illiquid commingled funds or separate account relationships," Anderson noted. "While a number of regulatory issues must be resolved before REITs become a meaningful alternative for large pension funds, small to medium-sized pension funds can use REITs to diversify their real estate holdings both geographically and by investment type.

While pension funds have experienced poor returns on real estate equity investments during the recent downturn, equity and mortgage REITs are now viewed as offering a number of positive attributes for pension funds and other institutional investors. Included among these is diversification, liquidity, and attractive yields in comparison to the stock and bond returns in the current marketplace.

"REITs that will appeal to pension funds will not be large, diversified pools of property," Anderson explained. "Instead, we expect that their interest will lie in smaller, specialty portfolios of a certain property type or located within the same geographic area."

The real estate credit crunch has also caused developers and owners to consider establishing REITs in order to obtain badly needed capital to continue their business operations. "A REIT cannot turn bad properties into good ones," Van Horn cautioned, "but they do allow developers and owners to obtain a capital infusion, and provide pension funds with an alternative that may more closely reflect current real estate values."
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Title Annotation:securitized real estate
Publication:Real Estate Weekly
Date:Oct 21, 1992
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