Commingled Real Estate Fund Trading: The Emergence of a Formalized Secondary Trading Market

By Petkunas, Frank J.; Mueller, Glenn R. | Journal of Real Estate Portfolio Management, January 1, 1998 | Go to article overview

Commingled Real Estate Fund Trading: The Emergence of a Formalized Secondary Trading Market


Petkunas, Frank J., Mueller, Glenn R., Journal of Real Estate Portfolio Management


Executive Summary. Since the early 1970s, private commingled real estate funds (CREFs)1 have served as a popular investment vehicle through which institutional investors have allocated capital to the real estate market. Because the institutional investment arena is dominated by pension funds that are either subject to ERISA mandates or merely choose to follow ERISA "prudence,"2 CREF securities have attracted institutional capital because of their ability to maintain diversity, value and stable returns throughout the years. Although still prevalent as a viable asset class, CREFs however have not survived peacefully without demand for alternative market structures and various criticisms initiated by market participants.

This article summarizes and identifies three of the most commonly reoccurring issues, suggested by many industry professionals, to be potential structural flaws with both the CREF market and the CREF vehicle itself. The article further explores an industry reaction to alternative market structure demand; a formalized secondary market for the trading of unregistered real estate securities,3 and analyzes the opinions of industry participants as to the possibility of such a market improving the status quo. During the course of research for this article, thirty industry participants (thirteen fund managers, twelve plan sponsors and various representatives associated with formalized secondary market efforts) were interviewed. The interview results, along with review of industry literature, serve as the basis for identifying additional thoughts that could prove relevant to the successful operation of a formalized secondary market for CREF share trading.

CREF MARKET CONDITIONS; PERCEIVED MARKET INADEQUACIES

Relative to the public equities and bonds market, the private commingled real estate fund market is young and still experiencing developmental criticism from numerous investors. Various past events have led investment professionals to believe that select issues associated with the performance of private commingled real estate funds (CREFs) require attention before the CREF market can continue to develop. Although a consensus has yet to be formed as to the hierarchy of importance of these issues, review of recent industry literature as well as interviews with industry participants reveals that the most commonly reoccurring issues associated with the existing private CREF market and vehicle relate to:

Information Flow

CREF Valuation Methodology

CREF Liquidity

The following paragraphs explain these issues in more detail as they relate to the private real estate securities market and illustrate a demand for direction from industry participants in addressing these issues.

Information Flow

A documented concern with the operation of the private real estate market questions the relative lack of available and accurate information required to make sound investment decisions (as compared to the public investment arena), and the high costs associated with obtaining such. Consequently, many industry professionals have classified the private real estate market as being "inefficient"4 in consideration of the following existing market traits:

high transaction and information gathering costs associated with the acquisition of underlying assets;

lack of available, publicly traded, audited information;

complexity of possible transaction structures-which undermines the ultimate liquidity of underlying assets;

varying state laws for acquisition, finance and operations and the non-homogeneous nature of local markets and assets, which tends to slow down the acquisition process. (Dohrman, 1994)

Why then would the apparent inefficiency of the private real estate market present a concern among industry professionals with regard to CREF investments? In an inefficient market such as real estate, information is valuable. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Commingled Real Estate Fund Trading: The Emergence of a Formalized Secondary Trading Market
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Author Advanced search

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.