Can Private Real Estate Portfolios Be Rebalanced/Diversified Using Equity REIT Shares?

Executive Summary. The purpose of this study is to determine whether or not private real estate portfolios can be diversified or rebalanced using public real estate (equity real estate investment trust stocks). An examination of resulting efficient frontiers and their corresponding optimal portfolio weights across various levels of expected return reveals that the ability of public real estate to rebalance private real estate only portfolios, using either long or short positions, is very much in doubt. The results found in a mixed-asset setting are more promising, but not convincing. Hence, if institutional investors wish to continue to hold public real estate, they should do so for reasons other than rebalancing or diversifying their private real estate portfolios.