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November 12, 2010 at 07:14 AM
According to Moody’s Investors Services, the Moody’s/REAL Commercial Property Price Index (CPPI) fell 3.3% from the prior month and was below its post-crash low of October 2009. In fact, the index was 45% below its October 2007 high point and at its lowest level since June 2002.
That performance isn’t reflected in the FTSE NAREIT US Real Estate Index Series' returns, however.
In 2009, Industrial/Office REITS had a 29% return and are up 8.58% year to date through September 2010. Retail REITs also performed well: up 27.2% in 2009 and 21.1% in 2010.
The contrast between property performance and REIT performance raises two questions: Why is there such a large divergence? And can industrial and office REITS continue to generate solid returns for investors?
Naturally, some advisors are cautious.
Michael A. Dubis, CFP, of Michael A. Dubis Financial Planning LLC in Madison, Wis., has extensive experience analyzing and investing in REITS. He believes that, “Anybody that’s going into a REIT today using short-term history as a guide, the only thing I think they can rely on is the volatility. I don’t think they can rely on the return assumptions.”
Consequently, Dubis limits his clients’ portfolio exposure to REITS and generally limits the allocation to 2.5%-5%.
