Wednesday, November 26, 2014

The S & P Finally Gives Real Estate Its Own Home

As hard as it is to believe, Real Estate as an equity asset still falls under the “Financials” sector within the Standard & Poor’s.  All these years, investors have had to manually differentiate their portfolio holdings of say, Wells Fargo, versus any stock of a Real Estate Investment Trust.  There are so many successful wealth managers out there.  There is not a scarcity of financial advisors.  So why has it taken the S & P Dow Jones Indices until November 2014 to finally announce the divorce between banks per se and an asset class that has an entire market of its own?

Some would say that tradition has a lot to do with it.  Just like the baseball purists who see doing away with the designated hitter as blasphemy, so too perhaps stock market fundamentalists like to keep things status quo.  Here are the ten sectors the S & P Dow Jones Indices (represented by the S & P 500 index) maintains:

Real Estate would become the eleventh sector.  Why not (for the S & P) have made Real Estate a sector sooner?  There are several explanations I can think of.  For one, real estate is for many investors a part of their tangible asset portfolio, just like gold coins, for example.  Investors not wanting anything to do with being a landlord have had to carve out a piece of the real estate pie by buying shares of REITs.  Owning shares of various REITs, apartment, single-tenant, office buildings, etc., is now easier than ever!  You can get an Exchange Traded Fund that holds a bunch of equity REITs all perfectly weighted for an investor.  I believe this is why now is the perfect time for the S & P to sector out Real Estate.  Indeed, the week of November 17, 2014 brought with it the largest REIT Initial Public Offering ever, see: WSJ Paramount Group.

On Saturday 11/22/2014, during the First Annual Rich-Uncles Investor Meeting, an event CCM covered, Ray Wirta, Chairman of CBRE Group,, made an enormous prophecy.  

He said, summarizing and paraphrasing, that he wouldn’t be surprised if after he is gone ("Uncle Ray" is the “wisest” of all of the three Founders) Real Estate has its own market.  He meant that real estate would not be a collective of thousands of agents, listings with several different realtors, and so on, rather it would have a market place with its own sectors, e.g., Residential, Multi-Unit, Apartment, Commercial (All), Commercial Office, Commercial Mall…REITs, all available and tradable on online marketplaces like and, well, you get the point.

Mr. Wirta also predicted that the Nexregen REIT I investment would go viral (reaching critical mass) sometime in 2015; that’s a lot sooner than when the S & P Dow Jones Indices will finally make Real Estate an “official” sector.  We’ll have to wait until August of 2016 for that!  Happy Thanksgiving!     

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