Institutional Segmentation and Dynamic REIT Demand

Since the REIT form of real estate securitization began, the variety of property types available for investment has grown while institutions have increasingly played a more prominent role in the REIT market. If different types of institutions have no property sector preferences, their investments would be the same across REIT property types and unchanging over time. Understanding investor clientele is very important to REIT managers, and the investment behavior of institutions is of broad interest especially as institutional ownership of REITs has grown, and another institution type would generally absorb a shift out of one category of REITs if such movements exist. In this paper, we explore the institutional investment behavior among the REIT property sectors. We examine the relationship between institutional ownership and REIT property types from 1990 to 2019 using a rolling Tobit regression model with control variables for market risk, liquidity, and prudence factors. The results show that while institutions have consistently favored liquidity and low transaction cost, REIT property sector preferences exist and have been dynamic over time. The factors behind specific institutional sector preferences appear to be driven by a desire to exploit informational advantages