Current Thinking About TIAA Real Estate?

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cinghiale
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Current Thinking About TIAA Real Estate?

Post by cinghiale » Sat Apr 07, 2018 5:44 am

Do those who hold TIAA Real Estate (Ticker: QREARX) or who watch it have any thoughts about its performance vis-a-vis most other REIT funds over the past few years?

I just reviewed a lengthy discussion from 2013 (See at viewtopic.php?p=1897019#p1897019) and was struck by the way in which TIAA is able to smooth out the performance of the fund. Since that discussion, well over four years have passed. I reviewed eight different REITs and found that most of them reached a price top in mid- to late-2016 and have fallen 20% in price since then, with half that loss coming in 2018. Meanwhile, TIAA Real Estate’s price has steadily risen, with no discernible downward movements.

Past discussion have also covered the “lag time” this fund appears to exhibit in relation to the prices of more traditional REITs. Also, note that fund is not immune to market swoons. It took a significant hit in 2008. If I’m reading the below chart correctly, it lost over 30% in value.

Anyone taking any action on this fund, given the continued disjuncture between its price and performance and that of most all other REITs?

Thanks in advance for your thoughts and insights.

http://quote.morningstar.com/fund/chart ... %2C0%22%7D
"We don't see things as they are; we see them as we are." Anais Nin | | "Sometimes the first duty of intelligent men is the restatement of the obvious." George Orwell

grok87
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Re: Current Thinking About TIAA Real Estate?

Post by grok87 » Sat Apr 07, 2018 6:03 am

cinghiale wrote:
Sat Apr 07, 2018 5:44 am
Do those who hold TIAA Real Estate (Ticker: QREARX) or who watch it have any thoughts about its performance vis-a-vis most other REIT funds over the past few years?

I just reviewed a lengthy discussion from 2013 (See at viewtopic.php?p=1897019#p1897019) and was struck by the way in which TIAA is able to smooth out the performance of the fund. Since that discussion, well over four years have passed. I reviewed eight different REITs and found that most of them reached a price top in mid- to late-2016 and have fallen 20% in price since then, with half that loss coming in 2018. Meanwhile, TIAA Real Estate’s price has steadily risen, with no discernible downward movements.

Past discussion have also covered the “lag time” this fund appears to exhibit in relation to the prices of more traditional REITs. Also, note that fund is not immune to market swoons. It took a significant hit in 2008. If I’m reading the below chart correctly, it lost over 30% in value.

Anyone taking any action on this fund, given the continued disjuncture between its price and performance and that of most all other REITs?

Thanks in advance for your thoughts and insights.

http://quote.morningstar.com/fund/chart ... %2C0%22%7D
nope.
my take, for what its worth, is that "this time its different!"
:)
the last time reits and real estate crashed (real estate lagged as you point out) due to bad economy, great recession etc.\

this time i think reits have sold off because they are leveraged and get hit when interest rates rise. not sure if there is a direct impact to be expected on real estate.
greenstreet still shows reits at a 10% discount to NAV.
https://www.greenstreetadvisors.com/


anyway that's my two cents, i could be wrong of course
Keep calm and Boglehead on. KCBO.

The Wizard
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Re: Current Thinking About TIAA Real Estate?

Post by The Wizard » Sat Apr 07, 2018 6:29 am

Still wait and see mode for TREA right now. I don't compare it to REIT funds, so forget that.
I did sell a modest portion of TREA a few months back and moved the $$ to Trad paying 4.0%.

TREA has been picking up slightly the past few weeks, which matters to me since part of my annuity income is based on it and when it's up over 4% annualized month to month, I get an increase in my check...
Attempted new signature...

livesoft
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Re: Current Thinking About TIAA Real Estate?

Post by livesoft » Sat Apr 07, 2018 6:33 am

Frankly, I have stopped thinking about it. TREA becomes a smaller percentage of my portfolio as time goes on simply from its low return. Of course, it is probably the best performing non-market-timed asset we have for 2018. :twisted:
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student
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Re: Current Thinking About TIAA Real Estate?

Post by student » Sat Apr 07, 2018 7:36 am

Unless someone is trying to take advantage of the lag time in prices, I don't view TREA to be better than a REIT index fund. In my limited understanding, I see no difference between TREA and a single REIT. So it is better to diversify and invest in a REIT index fund.

grok87
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Re: Current Thinking About TIAA Real Estate?

Post by grok87 » Sat Apr 07, 2018 7:47 am

student wrote:
Sat Apr 07, 2018 7:36 am
Unless someone is trying to take advantage of the lag time in prices, I don't view TREA to be better than a REIT index fund. In my limited understanding, I see no difference between TREA and a single REIT. So it is better to diversify and invest in a REIT index fund.
publicly traded reits use more leverage
Keep calm and Boglehead on. KCBO.

beardsworth
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Re: Current Thinking About TIAA Real Estate?

Post by beardsworth » Sat Apr 07, 2018 7:47 am

cinghiale, suggest you look at Morningstar's TIAA discussion forum, where not a week passes (and, it seems, sometimes not a day) without a discussion of this vehicle. Just look down the current previous thread title pages for TREA (TIAA Real Estate Account) and other discussions of the current general prospects for commercial real estate and REITs.

http://socialize.morningstar.com/NewSoc ... 00044.aspx

student
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Re: Current Thinking About TIAA Real Estate?

Post by student » Sat Apr 07, 2018 8:03 am

grok87 wrote:
Sat Apr 07, 2018 7:47 am
student wrote:
Sat Apr 07, 2018 7:36 am
Unless someone is trying to take advantage of the lag time in prices, I don't view TREA to be better than a REIT index fund. In my limited understanding, I see no difference between TREA and a single REIT. So it is better to diversify and invest in a REIT index fund.
publicly traded reits use more leverage
Thanks for the info.

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cinghiale
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Re: Current Thinking About TIAA Real Estate?

Post by cinghiale » Sat Apr 07, 2018 8:11 am

beardsworth wrote,
cinghiale, suggest you look at Morningstar's TIAA discussion forum, where not a week passes (and, it seems, sometimes not a day) without a discussion of this vehicle. Just look down the current previous thread title pages for TREA (TIAA Real Estate Account) and other discussions of the current general prospects for commercial real estate and REITs.
So, Morningstar. Wow. And I thought I was posing an original and seldom-covered issue...
"We don't see things as they are; we see them as we are." Anais Nin | | "Sometimes the first duty of intelligent men is the restatement of the obvious." George Orwell

grok87
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Re: Current Thinking About TIAA Real Estate?

Post by grok87 » Sat Apr 07, 2018 8:23 am

student wrote:
Sat Apr 07, 2018 8:03 am
grok87 wrote:
Sat Apr 07, 2018 7:47 am
student wrote:
Sat Apr 07, 2018 7:36 am
Unless someone is trying to take advantage of the lag time in prices, I don't view TREA to be better than a REIT index fund. In my limited understanding, I see no difference between TREA and a single REIT. So it is better to diversify and invest in a REIT index fund.
publicly traded reits use more leverage
Thanks for the info.
to go into this a bit further (mostly for my benefit!)
here is tiaa's fact sheet
https://www.tiaa.org/public/pdf/ffs/878094200.pdf
if you look at page 2 they mention debt a couple of times, for example
Real Estate Properties (Net Of Debt) 54.1%
and in the footnotes.
but they also have a 15% cash position.
when i looked at this a while ago i reached the conclusion that, after accounting for the cash, tiaa real estate was very slightly levered. like maybe 1.1:1. i.e. if you give them $1 they buy $1.10 worth of real estate.

reits on the other hand are very heavily levered
the top 5 holdings of the vanguard reit fund vnq have debt to equity ratios of
simon property group 5.56x
prologis 0.5x
equinix 1.47x
public storage 15.97x
avalon bay 0.71x

to translate if needed a debt/equity of 1.47x means $2.47 worth of assets for every $1 of equity.

cheers,
grok
Keep calm and Boglehead on. KCBO.

student
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Re: Current Thinking About TIAA Real Estate?

Post by student » Sat Apr 07, 2018 8:26 am

grok87 wrote:
Sat Apr 07, 2018 8:23 am
student wrote:
Sat Apr 07, 2018 8:03 am
grok87 wrote:
Sat Apr 07, 2018 7:47 am
student wrote:
Sat Apr 07, 2018 7:36 am
Unless someone is trying to take advantage of the lag time in prices, I don't view TREA to be better than a REIT index fund. In my limited understanding, I see no difference between TREA and a single REIT. So it is better to diversify and invest in a REIT index fund.
publicly traded reits use more leverage
Thanks for the info.
to go into this a bit further (mostly for my benefit!)
here is tiaa's fact sheet
https://www.tiaa.org/public/pdf/ffs/878094200.pdf
if you look at page 2 they mention debt a couple of times, for example
Real Estate Properties (Net Of Debt) 54.1%
and in the footnotes.
but they also have a 15% cash position.
when i looked at this a while ago i reached the conclusion that, after accounting for the cash, tiaa real estate was very slightly levered. like maybe 1.1:1. i.e. if you give them $1 they buy $1.10 worth of real estate.

reits on the other hand are very heavily levered
the top 5 holdings of the vanguard reit fund vnq have debt to equity ratios of
simon property group 5.56x
prologis 0.5x
equinix 1.47x
public storage 15.97x
avalon bay 0.71x

to translate if needed a debt/equity of 1.47x means $2.47 worth of assets for every $1 of equity.

cheers,
grok
Thanks again.

squidfather
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Re: Current Thinking About TIAA Real Estate?

Post by squidfather » Sat Apr 07, 2018 8:41 am

I recently discovered I have access to TREA through my 403(b) at work (Fidelity primarily manages the account, but we have the option to divert some contributions to TIAA). I've been sending new contributions that way to get me to about 10% of my portfolio.

Having done a bunch of reading at Morningstar, here and in David Swenson's "Unconventional Success" I've decided that TREA really is a unique asset class that is less correlated with equities than a typical REIT. I sort of consider it as half-equity / half-fixed.

Plus I walked into 501 Bolyston St the other day and thought, "Hey, I own a bit of this". Which is kind of cool.

finite_difference
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Re: Current Thinking About TIAA Real Estate?

Post by finite_difference » Sat Apr 07, 2018 9:17 pm

grok87 wrote:
Sat Apr 07, 2018 8:23 am
student wrote:
Sat Apr 07, 2018 8:03 am
grok87 wrote:
Sat Apr 07, 2018 7:47 am
student wrote:
Sat Apr 07, 2018 7:36 am
Unless someone is trying to take advantage of the lag time in prices, I don't view TREA to be better than a REIT index fund. In my limited understanding, I see no difference between TREA and a single REIT. So it is better to diversify and invest in a REIT index fund.
publicly traded reits use more leverage
Thanks for the info.
to go into this a bit further (mostly for my benefit!)
here is tiaa's fact sheet
https://www.tiaa.org/public/pdf/ffs/878094200.pdf
if you look at page 2 they mention debt a couple of times, for example
Real Estate Properties (Net Of Debt) 54.1%
and in the footnotes.
but they also have a 15% cash position.
when i looked at this a while ago i reached the conclusion that, after accounting for the cash, tiaa real estate was very slightly levered. like maybe 1.1:1. i.e. if you give them $1 they buy $1.10 worth of real estate.

reits on the other hand are very heavily levered
the top 5 holdings of the vanguard reit fund vnq have debt to equity ratios of
simon property group 5.56x
prologis 0.5x
equinix 1.47x
public storage 15.97x
avalon bay 0.71x

to translate if needed a debt/equity of 1.47x means $2.47 worth of assets for every $1 of equity.

cheers,
grok
So TREA would be 0.1x?

What’s the total weighted leverage for Vanguard’s REIT fund?
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grok87
Posts: 8222
Joined: Tue Feb 27, 2007 9:00 pm

Re: Current Thinking About TIAA Real Estate?

Post by grok87 » Sun Apr 08, 2018 9:23 am

finite_difference wrote:
Sat Apr 07, 2018 9:17 pm
grok87 wrote:
Sat Apr 07, 2018 8:23 am
student wrote:
Sat Apr 07, 2018 8:03 am
grok87 wrote:
Sat Apr 07, 2018 7:47 am
student wrote:
Sat Apr 07, 2018 7:36 am
Unless someone is trying to take advantage of the lag time in prices, I don't view TREA to be better than a REIT index fund. In my limited understanding, I see no difference between TREA and a single REIT. So it is better to diversify and invest in a REIT index fund.
publicly traded reits use more leverage
Thanks for the info.
to go into this a bit further (mostly for my benefit!)
here is tiaa's fact sheet
https://www.tiaa.org/public/pdf/ffs/878094200.pdf
if you look at page 2 they mention debt a couple of times, for example
Real Estate Properties (Net Of Debt) 54.1%
and in the footnotes.
but they also have a 15% cash position.
when i looked at this a while ago i reached the conclusion that, after accounting for the cash, tiaa real estate was very slightly levered. like maybe 1.1:1. i.e. if you give them $1 they buy $1.10 worth of real estate.

reits on the other hand are very heavily levered
the top 5 holdings of the vanguard reit fund vnq have debt to equity ratios of
simon property group 5.56x
prologis 0.5x
equinix 1.47x
public storage 15.97x
avalon bay 0.71x

to translate if needed a debt/equity of 1.47x means $2.47 worth of assets for every $1 of equity.

cheers,
grok
So TREA would be 0.1x?

What’s the total weighted leverage for Vanguard’s REIT fund?
yes i think TREA would be about 0.1x levered. I'll take a look at the most recent financials when i get a chance. it's pretty transparent but one needs to pull the numbers from a few different parts of the report.

re the vanguard reit fund i don't know. i would love to see some sort of analysis on the reit industry's use of leverage, now compared to historical. It's tricky because even the numbers i posted above have some issues
the source was yahoo finance
https://finance.yahoo.com/quote/AVB/key ... tics?p=AVB

take avalon bay. the debt/equity is 71%. But you are not buying in at equity or book but at market price. the stock trades at 2.2 to book. Also the book value of equity may be understated because they don't mark their properties to market. here's how adjusting for all that might work:

Book = 1.00
debt = 0.70
price = 2.20
assets = 1.70 (i.e. the real estate it owns)
adjusted assets = 2.5 (just a guess at what marking to market might do)
adjusted book = 1.8
adjusted debt/equity = 0.7/1.8 = 0.39x
Keep calm and Boglehead on. KCBO.

tibbitts
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Re: Current Thinking About TIAA Real Estate?

Post by tibbitts » Sun Apr 08, 2018 9:48 am

Over at Morningstar everybody is assuming that at some point a signal will emerge telling them to dump TREA, similar to what happened when prices plunged a decade ago. As far as I know, in the history of the fund, that's occurred... once. Experts are trying to adjust for the changes in the fund (valuation frequency, trading policies) and determine the magic moment to get out and then back in.

I'm not sure the same events will ever again play out even close to the same way. I do think it's possible that everybody will jump out, only to find the fund not exactly responding the way they expect, then jump back in... at which time the fund will indeed drop the way they'd originally though. I'm just not buying the precision of the trade the next time around.

Also remember that previously, the alternatives (basically the fixed accounts at TIAA, including those with relatively fewer trading restrictions) were paying generally more interest than today.

Something I've never understood is the role of income in TREA. Everyone obsesses over property prices (represented by GreenStreet) in determining when to be in or out of TREA. But income should matter in total return, along with the return of the available alternatives. Lease/rental income is indirectly reflected in property prices, but not directly.

livesoft
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Re: Current Thinking About TIAA Real Estate?

Post by livesoft » Sun Apr 08, 2018 9:51 am

The Morningstar threads on TREA are a prime example of groupthink from a bunch of fan boys.

It was amusing to see the posting of the TREA prices as if divining tea leaves.
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beardsworth
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Re: Current Thinking About TIAA Real Estate?

Post by beardsworth » Sun Apr 08, 2018 10:15 am

livesoft wrote:
Sun Apr 08, 2018 9:51 am
It was amusing to see the posting of the TREA prices as if divining tea leaves.
Since this is a situation where the language of divination intersects nicely with the way people colloquially describe sustained up or down market direction, I would have said "as if looking for bear droppings." :)

grok87
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Re: Current Thinking About TIAA Real Estate?

Post by grok87 » Sun Apr 08, 2018 12:53 pm

tibbitts wrote:
Sun Apr 08, 2018 9:48 am
Over at Morningstar everybody is assuming that at some point a signal will emerge telling them to dump TREA, similar to what happened when prices plunged a decade ago. As far as I know, in the history of the fund, that's occurred... once. Experts are trying to adjust for the changes in the fund (valuation frequency, trading policies) and determine the magic moment to get out and then back in.

I'm not sure the same events will ever again play out even close to the same way. I do think it's possible that everybody will jump out, only to find the fund not exactly responding the way they expect, then jump back in... at which time the fund will indeed drop the way they'd originally though. I'm just not buying the precision of the trade the next time around.

Also remember that previously, the alternatives (basically the fixed accounts at TIAA, including those with relatively fewer trading restrictions) were paying generally more interest than today.

Something I've never understood is the role of income in TREA. Everyone obsesses over property prices (represented by GreenStreet) in determining when to be in or out of TREA. But income should matter in total return, along with the return of the available alternatives. Lease/rental income is indirectly reflected in property prices, but not directly.
it's a good point.

i am one of the culprits who typically posts the greenstreet stuff about whether reits are trading at a premium or discount to NAV. To recap that shows that Greenstreet's view is that reits are trading at a 10% or so discount to NAV.

I personally do not view that as a signal that folks should trade out of TIAA real estate and into reits. But i think it may be an indication that one may want to be at one's full reit allocation if one is not already, or rebalance back to it.

As another example, closed end funds often trade at a discount to NAV. but i don't think that means they are a buy. the discount usually reflects the fact that closed end funds usually have egregious expense ratios. if one capitalizes the value of those egregious expense ratios one usually gets an indication of a substantial discount.
Keep calm and Boglehead on. KCBO.

Valuethinker
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Re: Current Thinking About TIAA Real Estate?

Post by Valuethinker » Mon Apr 09, 2018 11:04 am

cinghiale wrote:
Sat Apr 07, 2018 5:44 am
Do those who hold TIAA Real Estate (Ticker: QREARX) or who watch it have any thoughts about its performance vis-a-vis most other REIT funds over the past few years?

I just reviewed a lengthy discussion from 2013 (See at viewtopic.php?p=1897019#p1897019) and was struck by the way in which TIAA is able to smooth out the performance of the fund. Since that discussion, well over four years have passed. I reviewed eight different REITs and found that most of them reached a price top in mid- to late-2016 and have fallen 20% in price since then, with half that loss coming in 2018. Meanwhile, TIAA Real Estate’s price has steadily risen, with no discernible downward movements.

Past discussion have also covered the “lag time” this fund appears to exhibit in relation to the prices of more traditional REITs. Also, note that fund is not immune to market swoons. It took a significant hit in 2008. If I’m reading the below chart correctly, it lost over 30% in value.

Anyone taking any action on this fund, given the continued disjuncture between its price and performance and that of most all other REITs?

Thanks in advance for your thoughts and insights.

http://quote.morningstar.com/fund/chart ... %2C0%22%7D
One manager. One fund. One set of properties. That all concentrates your risk.

I think it is more diversifying than holding REITs. And should have a greater correlation with inflation.

As a long term hold it's probably not a bad bet. The problem of "gaming" as per TIAA Forums is, well, a significant problem-- unless you face dealing restrictions (and there are more, now?) then it is at least theoretically possible to time investments into/ out of the fund. When the REIT index makes a significant move up, the TIAA RE fund should follow. Ditto for moves down.

Like all privately held assets, the valuations lag the actual market value of the constituent investments.

However I don't feel US commercial RE is particularly "cheap" right now. I don't know the approximate cap rates but they are not high (cap rate = Net Operating Income/ value thus low cap rate = more expensive). I think they have been pushed down by the generally low rates of interest.

Whilst I don't see evidence of a major US property bust coming a la 1990 or 2008, I do see pretty toppy valuations. And risk due to structural change-- that's shown up in retail but it will show up in other forms of CRE. In retail, demographics plus competitive forces (Amazon) are just killing US retail-- malls are dying. Similarly I note companies going to hot desking or "We Work" type places (that latter company seems shockingly overvalued) and that is reducing LT office space demand. Logistics I don't know but I imagine it is growing (Prologis).

Keep an eye on Calculated Risk-- Bill McBride has the best handle I know of on US economic stats (called the residential RE crash right on the way down *and* the turn back up).

I am not particularly bullish re TIAA RE fund, although I think long term it will be alright. Any sense of valuation metrics? Cap rate of portfolio? Yield per unit?

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