Talk about a land rush: seven mutual funds focusing on real
estate have sprung up so far in 1994, doubling the group's size.
Among them is CGM Realty, the first fund started by G. Kenneth
Heebner, one of the industry's top-performing managers. Franklin
Investments, Columbia, Crabbe Huson, American Capital, Evergreen
and Pioneer also have new funds.
All invest in an assortment of real estate investment trusts,
or REITs, which are publicly traded companies that manage
portfolios of real estate investments and other real
estate-related stocks, like home builders.
"You've got a number of bright people saying that real estate
is an asset class that makes sense in light of a view of
long-term inflation, and it's a particularly bombed-out area
right now," said A. Michael Lipper, president of Lipper
But, he added, "one could be cynical and say that just as
we're cleaning up the last remnants of the last real estate
speculation, we're starting it again."
Not so, insist the managers. They say there has been a
fundamental shift in the 1990s toward securitization of real
estate that makes analysis based on previous real estate cycles
The chief sources of real estate financing had been banks,
savings and loans and insurance companies plus wealthy overseas
lenders and private partnerships.
But the institutions were badly hurt in the last real estate
bear market, in the late 1980s. And limited partnerships were
unsound because investors had no liquidity, no control and no
awareness of the underlying value of the properties; their main
motive was a tax break.
REITs fared better than many of the alternatives, in part
because they did not buy property at the top of the market in the
Heebner said that because of regulatory limits and policy
shifts that have severely crimped the ability of traditional
lenders to make real estate loans, "investors can be true
partners of real estate developers," either directly or through
Moreover, the 1990s look very different from the 1980s.
Interest rates are low and property prices are depressed, so for
REITs, the costs of doing business are low, too.
The new financing and the slow turnaround in real estate
created terrific returns for the six real estate funds that
existed three years ago. They rose 13.7 percent a year, on
average through July, compared with an 8.8 percent average annual
gain for the S P 500.
With real estate performing so well the last three years, is
now the right time to buy? …