The National Association of Real Estate Investment Trusts ( NAREIT) has undertaken a new strategy to promote ownership of real estate equities.

For decades, the organization has tracked its NAREIT Index, which was intended to serve as a selling point for the REIT industry by hyping good investment returns. This index of 200 REIT equities hasn’t been doing its job recently, as the industry has suffered from lagging stock prices.

So NAREIT now is introducing a supplemental index, one that has a much better chance of demonstrating positive return on investment. The NAREIT Public Equity 100 includes larger capitalization, publicly traded equity REITs and real estate operating companies (REOCs).

“It provides institutional portfolio managers with an index that more precisely tracks the performance of the companies in which they invest more regularly, that is, the so-called ‘investable universe,’” said Michael Grupe, NAREI vice president and director of research. “It recognizes that portfolio managers often are limited to investing in larger-sized companies. And it also acknowledges that these managers sometimes invest in publicly traded real estate companies that own and operate income-producing properties, but that have not elected REIT status.”

These are important factors in the current NAREIT index, which does not include non-REIT firms. Unfortunately, operating companies currently are much more likely than REITs to turn in good financial results, and several REITs are electing to terminate their preferred status.

The new index will include only those REOCs with business operations that, like REITs, are substantially concentrated in the ownership and operation of commercial real estate.

“Candidates for the Public Equity 100 must have qualifying real estate assets that equal or exceed 70 percent of their total assets,” said Chuck DiRocco, NAREIT’s director of industry analysis. “Using this screen, we have identified 10 companies as eligible REOCs.”

NAREIT's current family of real-time REIT indexes will remain unchanged.

To go directly to the new index, click on http://www.nareit.com/indices/web1.htm.

In other news, Banc of America Securities LLC said in a recently released white paper that business-to-business electronic commerce could add 15 percent to 20 percent to the value of domestic commercial real estate.

“The transformation of the U.S. and global economies combined with the implementation of e-commerce are driving structural change in the real estate industry,” said Christopher Hartung, managing director with Banc of America Securities. “As such, real estate values are being dramatically affected, both positively and negatively.

“This value will accrue disproportionately to the multifamily and office sectors,” Hartung added. “With such incredible opportunity, the value of real estate-related e-commerce companies could exceed $250 billion within the next five years.”

Published: April 6, 2000

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