DCREC Podcast Series Explores Real Estate in DC Plans

The Defined Contribution Real Estate Council says commercial real estate can help DC plan participants fight inflation and earn steadier returns.

By John Manganaro | May 07, 2015
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The Defined Contribution Real Estate Council (DCREC) launched a podcast series aimed at educating plan sponsors and advisers about the potential benefits and risks of using commercial real estate investments.

The first two podcasts in the series are available now and feature David Skinner, portfolio manager and head of the defined contribution practice at Prudential Real Estate Investors (also a former co-president of DCREC). According to Skinner, adding commercial real estate to a portfolio can bring improved diversification, stronger risk-adjusted returns and lower overall correlation to stocks and bonds. Skinner suggests commercial real estate also has the ability to generate income and act as a potential inflation hedge in the defined contribution (DC) plan context.

Like investing in individual stocks, bonds or mutual funds, investing directly in commercial real estate requires no small amount of financial savvy and sophistication, Skinner says. So it is likely commercial real estate investments will do the best for DC plan participants when integrated into some type of asset allocation solution.

Skinner says he often hears questions from plan sponsors and advisers to the effect of, “Why real estate and why now?” He notes that DCREC also fields questions about potential liquidity and fee issues that are important to DC plan fiduciaries.

“First off, there is an investment universe of $31 trillion dollars in commercial real estate currently,” Skinner observes, so it’s not a new or untested area of investment, despite the fact that many plan sponsors and even advisers have probably not really considered real estate in the DC context. “It’s the third largest asset class behind stocks and bonds,” he adds, “so just looking at the size and range of investment opportunities in the space both in the U.S. and globally, it’s a compelling area for investing.”

Beyond this, the last 50 years have seen major institutional market participants, including state and municipal pension plans, large corporate pension plans, union pension plans, endowments and foundations all integrate real estate investments into their portfolios—many to a significant degree of their overall holdings.

“All these institutional investors have already pushed into real estate in a big way,” Skinner says, so the DC space is actually having to catch up in this exciting area, not least because over time the risk-adjusted returns from commercial real estate investing have proven to be strong.

Next: What are the economic benefits of real estate in DC?