The subset of real estate companies that simultaneously own real estate and manage real estate assets for third-party investors, using third-party capital, have a built-in performance advantage. Rather than suggesting how well the real estate will perform, we offer a relative predictive variable that says it is better to own real estate and manage it on behalf of third parties than simply to own real estate.
A large holder of real estate can achieve informational advantages in ways that generally are not possible in the financial markets, including information on upcoming lease renewals, the financial conditions of certain tenants, the intentions of certain tenants, and pending zoning changes to a neighborhood that might be either positive or negative. This general knowledge is held among real estate investors interested in a certain neighborhood, but it is unusual to find it in publicly available real estate databases. To the degree that one exploits information via third-party capital one can bring more capital to bear on the exact same phenomena more rapidly.
In theory, one could construct an alternative real estate index designed to be compared with the iShares Dow Jones U.S. Real Estate ETF (IYR). Examples of companies for inclusion would be W.P. Carey, DREAM (Dundee Real Estate Asset Management, recently spun off from Dundee Corporation), Kennedy Wilson, CBRE Corporation (formerly known as CB Richard Ellis), and possibly even Brookfield Asset Management.
As a generalization, in most periods of time those companies outperform IYR. A significant exception to that phenomenon was CBRE. Between July 2007 and March 2009 the price dropped from roughly $41 per share to slightly above $2 per share, which was a horrendous loss. By comparison, IYR lost about 64% of its value in the same period.
See Full PDF here: Contrarian_Compendium_October_2013