https://orcid.org/0000-0001-6640-0988
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Abstract
Real estate investment trusts (REITs) have been around since 1960 but have only become major players in housing markets in the last twenty years. The current and ongoing wave of residential REIT (R-REIT) expansion has attracted significant scholarly and broader public interest. This article examines how real estate, finance, and the state are configured in relation to each other through R-REITs. While much of the housing financialization literature has focused on the real estate/state axis of this relationship, we explore the underexamined connections between the real estate/finance axis and the finance/state axis of the real estate–finance–state triangle. We analyze the financial accounts of the world’s fifteen largest publicly traded R-REITs and R-REIT–like funds in the two largest markets: the United States and Germany. Our findings demonstrate how the ownership of R-REIT stock is remarkably homogeneous: the largest shareholders in each of the studied R-REITs are the three largest index exchange-traded funds, which are heavily backed by pension fund capital. For these investors, it is important that R-REITs provide a healthy return on investment at the lowest possible risk. The investors require the state, in its various guises, to guarantee attractive risk-adjusted returns on R-REITs investments. We identify six dimensions of state de-risking in this context, deepening our understanding of the role of the state in housing financialization. It is the state that creates the trust in real estate investment trusts, and it thus is what generates the investment in real estate investment trusts.
Acknowledgments
The authors would like to thank the reviewers, the editor of this journal, and the members of the Real Estate/Financial Complex research group at KU Leuven for providing suggestions on earlier drafts of this article.
Notes
1 The two largest funds in Germany have announced a merger that is planned for 2023.
3 Dow Jones U.S. Select REIT Index is run by S&P, while the FTSE EPRA Nareit Global Real Estate Index is jointly managed by three actors: First, the Financial Times Stock Exchange (FTSE), originally a joint venture between daily newspaper the Financial Times and the London Stock Exchange, but currently wholly owned by FTSE Russell, a subsidiary of the London Stock Exchange Group. Second, EPRA, a nonprofit association representing Europe's publicly listed property companies, founded in Amsterdam in 1999 but now headquartered in Brussels. And third, Nareit established in 1960 one day after President Eisenhower signed REITs into law, and headquartered in Washington, DC.
4 In Refinitiv’s guide, Investor Advisors are defined as “buy-side institutions that have discretionary power over assets under management (AUM) and make buy/sell decisions” and Investment Advisors/Hedge Funds as “investment firm[s] that uses both ‘traditional’ and hedge fund (i.e. “alternative") investment techniques.” For our purposes here, we have no way of knowing how heavily the latter use these alternative techniques.
5 We identified the respective entities by name only, implying that our results could underestimate the actual ownership shares.
6 Note that investor information in Eikon differed between US and German R-REITs. Whereas the investment value obtained from the database for the year 2020 on average added up to 99.1 percent of the market capitalization of US R-REITs (in some cases exceeding 100 percent because of temporal incongruity in the data), it only did so for 68.7 percent in the case of German R-REITs, dipping as low as 58.4 percent for Vonovia. For this reason some bar lengths in Figures 3 and 4 differ from those in . All subsequent statements regarding relative shares refer to the available investor information.
7 BlackRock also invests through an Irish subsidiary, which would bring its combined investment up to US$22 billion. Vanguard and State Street both invest in R-REITs through other subsidiaries as well, none of which however feature on this list because of the threshold of US$1.5 billion per entity.