- The Washington Times - Tuesday, October 22, 2002

Low interest rates and a tumbling stock market have persuaded some investors to add real estate assets to their portfolio. Responding to employee demand, more companies are offering a real estate fund option in their 401(k) plans.
About 8.6 percent of all companies now offer a real estate option, up from about 6.3 percent a year ago, according to the Profit Sharing/401(k) Council of America.
"Ten years ago, you could not have done this," said Jack McAllister, vice president for Institutional Investment Affairs for the National Association of Real Estate Investment Trusts.
With interest rates at historic lows, many investors have turned to dividends for income. Most real estate investment trusts are required to return 90 percent of income to shareholders. The result: REIT yields are starting to outpace bond yields for the first time in years, and are averaging about a 7 percent dividend yield so far in 2002.
Mortgage REITs have performed even better, with a 13 percent yield. FBR Asset Investment Corp., a mortgage REIT based in Arlington, boasts a quarterly dividend of $1.25, for an annual yield of about 18 percent.
"There's going to be an increase in the demand for income," Mr. McAllister said. "These people are going to reallocate their investment accounts. Real estate has always been known as an income investment."
The news surrounding REITs hasn't been all good, especially in recent weeks. Many REITs are struggling to maintain cash flow, and might cut dividends. Earning reports of several REITs sent share prices sliding in the sector, and shares of many companies, including those of Bethesda-based Host Marriott and Rockville-based Federal Realty Investment Trust, hit 52-week-lows.
The recent declines came amid an overall stock market dip. While the Standard and Poor's Composite REIT Index hit a yearly low on Oct. 10, so did the S&P; 500. And though the REIT Index has fallen about 6.4 percent this year, the S&P; 500 has fallen more than 20 percent.
The bulk of the companies with real estate options in retirement plans have 1,000 employees or fewer, but large companies are getting in on the action. Dow Chemical and Eastman Kodak introduced options this year. Verizon, with the third-largest 401(k) plan in the nation, formed a real estate option in January when it combined the retirement plans from the Baby Bells it acquired.
Real estate funds, such as Vanguard's REIT Index Fund or the Wells S&P; REIT Index Fund are virtually invisible in corporate 401(k) plans. The average plan allocates just two-tenths of 1 percent of its total assets to real estate.
Finding out about REIT stocks and funds requires some digging, companies admit. Many REITs are smaller and regionally oriented, they don't get much press and they don't sell stocks that average consumers buy on a regular basis. And their growth is rarely meteoric, which is why real estate was never a big investment option during the stock market's rise in the 1990s.
On the flip side, real estate is still a familiar concept compared to bonds and other equity stocks. Savvy investors particularly those looking for income over growth can see its potential benefits, companies say.
One key attribute is increased diversification. REITs perform differently than most stocks or bonds, analysts said. They are often immune to precipitous declines in the stock market and the economy, and are more affected by the local market.
"It provides diversity to somebody's portfolio," said David Steinwedell, chief investment officer for Wells Real Estate Funds, which operates a mutual fund that tracks the S&P; REIT Composite Index.
And while REIT stocks are struggling these days, they have had larger compound returns than bonds and the S&P; 500 over the last 30 years, analysts point out.

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