Difference between REIT and CREF

Hi guys,

I found that the REIT and CREF are very similar in that both invest in the real estate. What are the differences between them in tents of investment style, risk and return, target investor, etc? Thanks

REITS are traded publicly. CREFs are private funds.

Since CREFs are private funds they are restricted to high net worth and institutional investors due to the large outlay of capital required. Of all the real estate options, REITS typically have the highest correlation with stocks and bonds, meaning that CREFs/more direct investments in real estate provide better diversification benefits than REITS.

REIT - real estate invetment trust is a company which buys/sells/operates real estate. Indirect investment. You trade stock.

CREF - the funds created via contributions from individual owners of real estate. This pool is then managed under certain mandate. Direct investment. You trade shares in this fund.

If you remember in GIPS public REITs are not considered to be real estate investments. This makes sense as this is really a stock, which correlates with equities. Private REITs, in contrast, are considered to be real estate investments. These vehicles ressemble CREFs.

The fact that REITs are poorer diversifiers and CREFs are direct investments would make a good topic to test as a multiple choice question of some sort (or possible a morning statement).

I beleive CREFs can and do utilize a decent amount of leverage.

I am reviving an old post here but i have a question on the above: Why are REITs poorer diversifiers than CREFs? Or asked differently: why do they have higher correlations with stocks and bonds? Is it simply because they are traded so they are impacted by the moves (mood) on the stock market in general? Or is there a more specific reason? Thanks!

REITs are traded publicly and small retail investors can also access them just like another equity.

On the other hand, CREF are direct investments in the fund accessable to large high net worth or institutional investors usually.

Thanks Zulu but that I understand now.

But how come REITs have higher correlations with stocks and bonds than CREFs? Is it because valuation of CREFs is usually appraisal based? It is only due to a bias (smoothed data - “bat in a tunnel effect”) and does it have any proper fundamental reason?

Thanks in advance!

Not too sure, but here are my two cents :

REITs- They are shares for all practial purposes, traded publicly. However the major difference with shares are the cashflow types that is smooth and not volatile. As we all know that capital retention is not the aim for a REIT body so cashflow happens just like coupon payment that is almost pre decided.

However with bonds there is an inherent problem of real value loss as the coupons are not inflation indexed (we are not talking about TIPS here), Stocks on the other hand are a better hedge against inflation and REITs have similarities with stocks on this front. (Cashflows are naturally hedged against inflation).

So the correln. effect should be clear with both stocks and bonds. In fact there is a diagram somewhere where it is shown that the REITs lie exactly in between Stocks and Bonds thus confirming 0.5 correln. with both(don’t take this figuratively)

CREFs on the other hand have similarities with the Hedge Funds and as such may exhibit most of the characteristics of hedge funds.

Hope this clarifies.

After reading some other theoretically unrelated chapters, i got the following idea. My understanding is that REIT and CREF have the same kind of targetted assets. So there should not be any difference in how they are correlated to the bond and stock markets overall. However the course states “private equity returns have exhibited a low correlation with public equity traded securities. However, because of a lack of observable market prices for private equity, short term return and correlation data may be a result if stale prices”. Well i think it’s just the same for CREFs. They seem less correlated if we look at statistics but it is just a measurement issue due to stale price and they are just as correlated to the stock and bond market as REIFs (on average. Of course now it may differ if you look at it on a case by case basis depending on investment choices, leverage and so on).