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Doug Weill, managing partner at Hodes Weill and Associates, was a guest on the latest episode of the Nareit REIT Report.
Hodes Weill recently released its 2024 Real Estate Allocations Monitor which showed that about 39% of institutions actively allocated capital to REITs in 2023, compared with 36% the prior year. Sovereign wealth funds were “meaningfully more active,” Weill said. “I think this is an ongoing trend where institutions are increasingly active out of their real estate allocations in REITs. And REITs are increasingly a complement to private market investments.”
About 67% of institutions indicated that liquidity is one of the key reasons why they invest in REITs, which was up from about 46% the prior year.
“We would attribute this in part to the illiquidity we've seen in private market portfolios, in particular the open-end funds where there have been exit queues and redemptions have not really been completely satisfied,” Weill said.
Weill also pointed out that for those institutions that invest in REITs, 90% of them do so out of their real estate allocation. “Again, I think this comes back to the growing view that public and private market exposure within real estate portfolios can be very complimentary.”
Overall, the survey showed that institutions held their target allocations for real estate flat at 10.8% for the second consecutive year and expect to lower target allocations over the next 12 months.
“What we're seeing today in portfolios is that they've shifted from over-allocated on average to under-allocated,” Weill said. Today institutional investors are about 60 basis points under-allocated, meaning that they have capital available to invest. “It really comes down to market sentiment,” he added.