Real estate funds are expected to continue to perform well, despite some industry worries in other sectors, according to the Associated Press.
A large acquisition in the commercial real estate market has led some experts to believe that demand will continue for companies that invest in real estate.
At times during the past few years, REITs, which generally invest in commercial real estate or larger residential projects such as apartment buildings, have shown returns greater than 25%.
“Most investors seem to find value every quarter, and I would say it’s probably too early to announce a top to the real estate market,” said Jeff Tjornehoj, senior analyst at Lipper.
In addition, private equity firm Blackstone Group’s recent acquisition of Equity Office Properties (EOP) for $23 billion is causing some investors to continue to be bullish on the real estate market.
“You’re going to have some investors out there who believe the EOP buyout is not the last and they’re probably willing to stretch their necks out a bit in the current environment because it seems so wide open for merger and acquisition activity,” he said.
If the gains in the sector slow in the coming years, which many analysts expect, the foundation could be adequate to support solid, through perhaps slower, growth.
“I think people are concerned that real estate has done so well that it’s comparable to the tech bubble of the late 1990s,” he said, adding that he believes this is a completely different animal. “They make money and they have a real residual value,” he said.
REITs are unique because they skirt most income taxes by paying out nearly all of their income to shareholders through dividends. Investors can benefit from REITs that remain public and shouldn’t simply look to the sector based on a notion that more real estate companies will be taken private, said Dionisio Meneses, managing director at Charles Schwab.
A lot of REITs invest in commercial properties, but some stick to shopping malls or apartment complexes, so it’s important for investors to understand the types of REITs a fund might invest in.
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