The GameStop saga is winding down. After reaching an all-time high of $483 last week, the video game retailer’s stock price has fallen back to earth, trading at $95 as of press time. Companies like Nokia and Blackberry, which also witnessed buying frenzies after their Reddit-fueled rallies, are suffering similar fates.
On the other hand, the Macerich mall REIT – referred to as “GameStop’s landlord” on Reddit – is still riding the wave, impacting both retail and institutional investors. Earlier this week, the Canadian investor Ontario Teachers’ Pension Plan reportedly sold 24.5 million shares in the REIT, cashing out nearly $500 million.
The head-spinning market volatility dominating news headlines in recent weeks is a talking point within private real estate circles, too. If anything, these highs and lows are adding further fuel to the arguments by those who believe institutional investors should limit their listed real estate exposure given the inherent risk and volatility in the asset class.
In reality, it is the counterargument that is currently winning the listed versus unlisted debate. As PERE explored in its February cover story, a growing number of investors, such as the Canada Pension Plan Investment Board and Norges Bank Investment Management, are re-evaluating the role real estate equities can play in their portfolio composition. Others, like Korea’s Public Officials Benefit Association and the City of Austin Employees’ Retirement System, a US pension plan, are increasing their listed allocation, either by buying a REIT stock or by forming partnerships with public REITs.
This is happening because investor’s perception of volatility and risk is changing, especially after the pandemic. Unlisted open-end core funds have long been the preferred low-risk, less-volatile, yet relatively liquid route to investing in real estate. However, gating mechanisms and long queues, especially in times of crisis, make it harder for investors to easily move in and out of these funds, as industry experts highlighted in the cover story. In comparison, investors found they were able to be nimbler in the listed markets and take advantage of pricing dislocation.
Proponents of listed real estate also highlight the diversification benefits that come with investing in public markets. Indeed, around 60 percent of the FTSE-NAREIT All Equity Index is represented by so-called new economy sectors, including data centers, student housing and single-family rental. As such, a growing number of investors are deploying capital into REITS focused on niche property sectors as a portfolio completion strategy to round off their otherwise mainstream-heavy portfolio.
By focusing on alternative sector equities, investors will also be able to insulate themselves from the wild swings currently being seen in the more traditional sector-focused REITs. Alongside Macerich, Tanger Factory Outlet Centers and Seritage Growth are the other two most heavily shorted retail REITs on the market, with their trading values increasing by between 50 and 80 percent on the year, according to data compiled by Seeking Alpha.
To be sure, the bulk of institutional capital continues to be invested in private real estate. US defined benefit pension funds, for example, had a 3.8 percent unlisted real estate allocation on average between 1998 to 2018, while their listed allocation was only 0.6 percent, according to a study published by global benchmarking company CEM Benchmarking in late 2020.
But the coming years could well see a more optimal balance emerging between listed and unlisted real estate in an institutional portfolio and events like GameStop’s retail investor manipulation are unlikely to stop that.
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