kkent - get your head out of your actuarial books and into some real estate annals, and try pulling out the old Bloomberg terminal (and maybe an Excel spreadsheet to crunch some total return numbers, while you’re at it).
The NAREIT Equity Index has tracked property REITs (who own the underlying assets, vs. mortgage REITs who profit mainly on their spreads on their mortgages made) since 1972, and has included the vast majority of the publicly traded property REITs in its index, closely tracking the industry.
Property REITs have offered higher returns and lower volatility than the S&P 500 over virtually any period you look at, historically (though obviously not over 2007 and YTD), and have also become less and less correlated to the index over time. As the industry and overall liquidity grows (it went from about $5B market cap in 1990 to about $275B today) and becomes more widely followed and understood as an asset class, that volatility should decline. REITs have historically traded near their underlying NAV, which is simply understood because they own their underlying assets that generally appreciate in value. Generally, a REIT shouldn’t trade too far below NAV because the company could always liquidate all of its assets and distribute the proceeds at any time, which would amount to approximately their NAV. There are other factors involved, but many REITs should arguably trade above their NAV due to strong management teams and business platforms, long-term stable predictable cash flows and revenues that are tied to leases that generally increase annually at a rate that is oftentimes a small multiple of the CPI.
Some data for you to ponder:
Using a rolling 5-year monthly historical return correlation to the S&P, the correlation has ranged from 0.63 in 1976 to 0.73 in 1990; dropped to 0.40 in 2000, and, going into 2007, was down to 0.37, however has risen to 0.49 today due to the poor performance in 2007.
Historical total return data, as of year-end 2007:
………………………….NAREIT…S&P 500
1-Y RETURN………….-11.2%……5.6%
3-Y RETURN…………..12.0%……8.7%
5-Y RETURN…………..21.0%….13.2%
10-Y RETURN…………12.7%……7.2%
15-Y RETURN…………14.7%….11.8%
20-Y RETURN…………13.9%….13.0%
25-Y RETURN…………14.6%….13.8%
30-Y RETURN…………15.4%….14.0%
35-Y RETURN…………14.7%….12.3%
As for REITs being the biggest fraud on the planet: On what basis are you coming from with this claim? Especially as you are now working in the commercial real estate industry yourself: this claim appears ludicrous.
And, to the Argus/Excel debate: Argus is for direct property asset management; Excel is for financial statement analysis and modeling cash flows.