More Work To Be Done
[May/June 2003]
For the past year, one of NAREIT's core initiatives has been to ensure that every 401(k) plan includes a REIT or real estate option. As part of this effort, NAREIT is meeting with significant 401(k) plan providers and sponsors who do not yet offer the option to plan participants. As the year unfolds, NAREIT CEO Steve Wechsler and I will be on the road visiting with these decision makers to make the case about the increased returns and reduced risk that real estate investment through REITs can provide to retirement plans. On these visits, we will be joined by key local REIT CEOs.
We are starting to see positive results. Earlier this year, The Principal Financial Group and TIAA-CREF, two of the nation's foremost 401(k) plan managers, announced that they intend to add a real estate securities investment option to their primary investment platforms. Both companies noted how marketplace demand helped drive their decision.
The actions of The Principal and TIAA-CREF mean that an estimated 4.6 million plan participants will now have access to the dividends and diversification made possible by including a real estate investment in their retirement savings accounts.
While these announcements are significant, there is much more work to be done. Right now, surveys show that 8.6 percent of plan sponsors offer a real estate option, which is an improvement from 6.3 percent the previous year. Of that 8.6 percent, about 2.4 percent of the assets are going toward real estate funds.
This can amount to real money. Look at the math. There are more than $2.3 trillion in total assets in defined contribution plans, and real estate stocks currently claim less than 0.1 percent of that total. If we can increase the overall percentage invested in real estate to 2.4 percent of all plans–the same percentage as in the funds that do offer a real estate option today–that would translate to $55 billion of potential investing power, which is a third of the industry's total equity market cap today! Of course, we're not likely to see that number any time soon if ever, but even one half would be a monumental achievement.
To close, the numbers and performance speak for themselves. The 401(k) market represents a multi-billion dollar opportunity for our industry. And REITs represent a sound investment opportunity for retirement plans. We must work together to make sure REITs and real estate stocks have the opportunity to provide dividends and portfolio diversification to all 401(k) plan participants.
Steven Roth
NAREIT Chair
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