Institutional Segmentation and Dynamic REIT Demand
By: Frank Gyamfi-Yeboah, Cayman Seagraves, and Philip Seagraves
Journal of Real Estate Portfolio Management, 2022, 28(1), pp. 13-32
Abstract
View on Journal SiteSince the REIT form of real estate securitization began, the variety of property types available for investment has grown while institutions have increasingly played a more prominent role in the REIT market. If different types of institutions have no property sector preferences, their investments would be the same across REIT property types and unchanging over time. Understanding investor clientele and investment behavior of institutions is of broad interest to REIT managers and the investment community. In this paper, we explore the institutional investment behavior among the REIT property sectors. We examine the relationship between institutional ownership and REIT property types from 1990 to 2019 using a rolling Tobit regression model with control variables for market risk, liquidity, and prudence factors. The results show that while institutions have consistently favored liquidity and low transaction cost, REIT property sector preferences exist and have been dynamic over time. The factors behind specific institutional sector preferences appear to be driven by a desire to exploit informational advantages.
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Executive Summary
Research Question – Do institutional investors tilt their Real Estate Investment Trust (REIT) portfolios toward specific property sectors, and how stable are those preferences over time?
Core Finding – We find that aggregate institutional ownership is significantly higher in Office/Industrial, Retail, Residential, and Lodging/Resort REITs (p < 0.01) and markedly lower in Self-Storage REITs (p < 0.01). These biases evolve over the 1990-2019 sample, revealing dynamic “clientele effects” that standard risk-return and liquidity variables cannot fully explain.
Top Implication – Therefore, industry players should anticipate and monitor shifts in institutional demand at the sector level and adjust portfolio weights before liquidity and pricing pressures materialize.
In three sentences: institutions flock to larger, more liquid REITs with lower transaction costs; within that universe they systematically favor sectors where informational advantages are greatest; and these sector tilts are neither uniform across institution types nor constant through time, creating exploitable signals for capital allocators.
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