tj-longterm wrote:We have a 403(b) that has a number of good Vanguard and TIAA-CREF options. However, our IPS calls for a percentage of our allocation to TIPS (no inflation protected securities available in 403(b)) and REITs (but only Real Estate Account available). Both of these options we'd like to have in tax-advantaged space.
The TIAA-CREF prospectus describes the Real Estate Account as a variable annuity that is directly invested in real estate, so it is substantially different from an REIT fund.
We have some IRAs, but not enough to hold the TIPS and REITs together. Basically, we can put one in our IRAs and the other in our 403(b). Since TIPS are not an option in the 403(b), we're considering the Real Estate Account. Is this an acceptable substitute for an REIT fund in our allocation? Reading the forum the biggest difference is that the net asset value lags real estate prices because the properties have to be re-assessed/re-valued in order to update the NAV. But, I'm not sure the significance of that for our allocation.
The RE is actually better than a REIT fund, because it is a pure play on commercial RE.
One thing to watch is people market time it (they liquidated ahead of reductions in NAV which were apparent from published data on RE indices). I gather that TIAA has imposed liquidity restrictions because of this. There was a real trend of 'momentum following' on TIAA RE, and that's contrary to the goal, and efficient operation, of such a fund.
If you go back to Swensen he talks about this fund (is/ was on the Board). It's really the only low cost Limited Partner CRE investment available to US investors, and that is the same way that the professional institutional investors invest in the asset class ie as 10 year Limited Partners in privately managed funds (most of the ones, Swensen goes through it, available to US individual investors are con jobs charging huge fees, but TIAA RE appears to be the sole widely available exception-- if you added up all the money individual investors have lost in private RE partnerships, it would add up to 10s of billions).
If you can live with the liquidity characteristics, then I would hold your Commercial RE allocation in this, over a REIT fund. The latter will be more volatile and will not 'track' Commercial RE characteristics (income the major factor in returns, lower volatility than stocks, lower returns, higher correlation with inflation) as well.
Note Morningstar has a TIAA Forum where they disucss this fund to death. Some there have been adept at 'front running' the whole NAV increase/ decrease thing.