Is real estate primarily an equity vehicle or an income vehicle?
Traditionally, pension funds have viewed real estate as a relatively high-income-producing asset class with equity characteristics, and underwriting has focused primarily on assessing the quality or sustainability of cash flow. Over the past several years, many investors have been changing their perspectives, viewing real estate now as more of an equity asset class with better-than-average income characteristics. As more and more pension funds begin to pay out more cash to beneficiaries (i.e., pensioners) than they are receiving in annual contributions, they can be expected to become much more income-oriented so that they will be in a better position to fund those negative cash flows without having to liquidate assets. Because of its inherent potential for generating relatively high cash distributions, we would expect pension funds to continue to view real estate as an income-producing asset with equity characteristics.
