SURVEY SAYS: Real Estate Investments

Last week, I asked NewsDash readers, “Does your plan include real estate investments? Are you considering them? If not, why not?”

Forty-two percent of responding readers work with defined contribution (DC) plans, and 58% work with both defined benefit (DB) and DC plans.

Sixty percent of respondents said they use real estate investments in their DB plans, and 30% who are not, are considering using them.

Fifty-eight percent of respondents offer a stand-alone (not part of an asset allocation fund) real estate investment in their DC plans, and only 8% who don’t are considering offering one. Fifty-eight percent of respondents who offer a real estate investment in their DC plans characterize participant use of the investment as low, while 42% said it is neither low nor high.

Among those who do not offer and are not considering adding real estate investments in their plans, more than 28% cite the lack of participant interest as the reason, while 43% cite concerns about liquidity of the investment(s). “Other” responses (42.8%) include that real estate investments are too complex for DC plans, the recordkeeper does not allow it due to the difficulty in valuing real estate, and “We believe a diversified Real Asset offering is better for participants.”

Among the few verbatim comments made in the survey, those who are using real estate investments in their plans said it has been a good choice. However, there were also warnings. There’s no Editor’s Choice this week.

A big thank you to all who participate in our survey!

Verbatim

What started as a first real step into diversifying our pension trust has turned out to be a good overall investment. In spite of the real estate bubble and subsequent collapse, our real estate investments are providing a certain stability and hedge against the more volatile markets.

We have to work hard enough just to get people a) to save and b) to invest appropriately. Adding complexity of real estate wouldn't help. I'd rather open a brokerage window and allow the savvy investors to use that if they want to invest in real estate, but keep it out of the main options of a plan.

The investment has done quite well since we introduced it several years ago.

We used to offer that option in the DC plan and took it out when the economy made it a bad investment for retirement plans. It's been discussed to add back but seems weird since at any time in the future we could be taking it out again for the same reason. Not convinced adding in and taking out a certain type of fund all the time is a good thing for the long haul.

Have been bitten twice by the liquidity issue with these options in a DC plan (different employers). The industry's alternative? REITs, which don't behave like real estate at all, but more like just another equity fund. What's the point. Bottom line is, sooner or later if it's a standalone option in your DC plan, you are going to have to manage some kind of illiquidity event. It might not happen for 10 years, but it will happen. Trust me. No matter what the provider tells you.

We always mention - it's not your grandfather's concept of real estate investing.

With the crash of the real estate market in 2008 we saw an opportunity to add real estate investment to our plan and did so when we went to an all index fund lineup in 2013. So far it's been a great move and only regret not having an opportunity to install a real estate index fund sooner.