ABM Consolidation Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Role of Pension Fund Manager for REIT and Private Real Estate Investing

The role of the pension fund manager will be to appropriately manage a diversified portfolio of

investments in order to increase return and reduce risks. Further, the REIT also provides increased liquidity because its securities are tradable in the market, will increase the flexibility for the company that will help in managing working capital requirement or can also provide an opportunity for management for investing in new worthwhile opportunity. Moreover, the REIT investments are riskier investments because it largely invests in real estate properties, so a regular market analysis by manager is necessary in order to manage risk.

Short Analysis of the REIT Industry

By the end of 1960, REIT industry achieved its first growth as its assets increased from $1 billion to $14 billion by investing in short-term construction loans, and to a lesser extent in land development loans. These were called mortgage REITs, and this type of short term lending was geared to take advantage of high short-term interest rates.

In the late 1960s and early 1970s, many construction and land loans went into default due to poor underwriting, and the REITs ended up owning the properties. Further, the REIT problems were further extended in mid-seventies due to increased inflation, economic downturn and severely overbuilt markets

After the industry enjoyed incredible losses in 1970s, new REIT offerings began to appear in early 1980s and after passage of the 1986 Tax Reform Act, it provides many of the tax advantages of owning real estate as a limited partner, and therefore it improved the attractiveness of REITs versus private limited partnerships.

Additionally, the industry enjoyed incredible growth in the late 1980s and early 1990s, after the invention of mechanisms such as UPREITs and Down REITs, which provided an additional advantage for developer/owners, where they could transfer their holdings to the public markets in the REIT format without paying taxes. Further, the operators could also take the advantage of changes in law that now allowed REITs to manage their own properties and a new set of public companies also began to attract significant attention from pension funds and other institutional investors.

Analysis of Israeli Real Estate Industry

Israeli REIT industry is comparatively small as compared to REIT industry in other nations. In late 1990s, Israel suffered deep and prolonged crises in its capital market due to its political security reasons, a drop in demand and a shortage of workers in construction industry, which threatens the overall real estate industry .Further, the law of the country did not provide any tax advantages to the investors that could encourage them for investing in real estate industry. The law of the country failed to formulate effective regulation which would regulate the management and establishment of REIT. (Hudson-Wilson, 2005, 20)

The Israeli capital and real estate markets require an incredible growth in recent years and it can be achieved through significant involvement by increasing capital funds in real estate markets, which will improve their liquidity, provide opportunity to the owners to sell their assets to sophisticated investors, and it will enable private financiers to contribute in the real estate market while reducing the risks and costs.

Furthermore, the demand for residential properties is continuously rising that increases difficulty for individual in purchasing properties, so the country is required to pay more attention to REIT and amend their regulations, which will provide some tax advantage to investors for investing in real estate properties

NAV Premium Phenomena and Public vs. Private Pricing Differences

NAV premium phenomena are designed to assess the valuation of any RIETs. It helps the investor to analyze the overall valuation of the RIET and to identify the RIETs that are most or least attractively valued.

In public pricing the information is publicly available whereas in private pricing the information about the prices is held privately. A private RIET pricing is not listing on a stock exchange whereas; public RIET pricing is listed on the stock exchange. The public pricing tends to be much more volatile than the private pricing. The private REIT pricing redemptions are based upon the underlying real estate value and not have a traded market price, which may be different from the value of the underlying real estate. On the other side, in public pricing the investor can push up or down the values very quickly because of the liquidity that then becomes the new price.........................................

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