REITs favor “pure-play” investments over diversifying

October 17, 2013 01:34PM

After years of touting the appeal of diversification, REITs are shifting gears towards more specialized holdings.

Buzzwords like “simplify” and “focus” have replaced “diversification,” with REITs increasingly limiting holdings to one type of property or limiting their assets to a certain number of markets, CoStar Group reported.

Their purge of non-core assets is, in turn, encouraged by tumbling share prices and the high price tags sellers can command. One REIT’s non-essential is another’s specialty focus.

Many investors, namely pension funds and insurance companies, also want to know exactly what the mix of properties is in their investment portfolios — a desire for clear understanding fueled by an unsteady stock market only beginning to even out.

“If [institutional investors] are going to create a basket of properties and they think we’re in the 7th inning of a multi-family recovery, but in the first inning of the office recovery, they may want to pursue pure-play office,” Michael Straneva, partner and Americas Real Estate Sector Leader for Ernst & Young told CoStar. “How can they do that if they’re [invested] in a diversified REIT?” [CoStar Group]Julie Strickland