The Real Estate Investment Market

By: John T. Schmick

Investment real estate encompasses a broad range of real property types. Transactions often involve large properties bought and sold by institutional investors at the national level or in a national investment market. Participants include pension funds, investment advisers, insurance companies, and investment banks. In general, these are buyers and sellers that take direct ownership of an investment property and manage it for their own benefit. Defining or measuring the health of the investment market based on transaction activities of this type is somewhat unreliable. One is limited to data such as descriptions of capitalization rates, prices per square foot, and vacancy rates. Little information is publicly available on the periodic returns earned from these types of transactions until an individual property is resold. How, then, does one gain an understanding of the investment market on a broader scale?

The answer is found in a specialized form of real estate ownership known as a Real Estate Investment Trust, or REIT. A basic REIT is an entity that “pools investor money to purchase and manage real estate” for the benefit of its owners. REITs offer liquidity in investment real estate through ownership of shares in an entity that directly owns and manages investment real estate. Consequently, a review of the REIT industry is an effective surrogate to profiling the national investment real estate market. The ability of REIT data to reflect the overall market is related to the overall composition of REITs. In general, equity REITs include all property types, all age brackets, all geographic locations and all level of demographics