Are EREITs Real Estate?

Abstract

Executive Summary. This study examines the return properties of securitized real estate investment trusts (EREITs) and unsecuritized real estate for four property types: apartment, industrial, office and retail. Return properties studied include central tendency, normality, autocorrelation, the lead-lag relationship and risk-adjusted performance. The results indicate that private real estate returns display significant levels of autocorrelation, even after lower order effects have been removed. Moreover, both types of real estate exhibit levels of skewness and kurtosis inconsistent with a normal distribution. Concerning risk-adjusted performance, the choice of performance measure does matter, while choice of benchmark makes little difference. Finally, returns on private and public real estate behave differently from one another and should be treated as separate and distinct asset classes from a real estate portfolio manager's perspective.