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Institutional Investment

Institutional real estate investment has become an increasingly popular way for large pension funds, insurance companies, commercial banks, and other corporations to invest their money. As real estate values and as competition to invest in desirable properties increased, these organizations continued to place more of their assets into development projects.

These businesses are not seeking to be developers themselves, yet they could be important sources of equity or start-up money for developers as they begin their new projects. Commercial banks, like KeyBank based in Cleveland, often have an arm that focuses on the real estate investment. This could involve providing financing to Real Estate Investment Trusts (REIT) as well as partnering with developers in the construction of a new retail center or large residential community.

Another form of large institutional investing has begun over the last half century with the creation of REITs. These trusts can operate as developer and/or owners of real estate, but there are specific characteristics that a company must meet in order to be qualified as a REIT.

REITs focus on investing in income producing properties, meaning that they place money in projects that will continue to return revenue back to the company. They must invest at least 75 percent of the company’s assets into real estate with at least 75 percent of their income coming from rent or mortgage obtained through those properties. Many of these REITs control their own interests in their properties by also managing them once they are fully constructed.

Additionally, REITs must return at least 90 percent of their taxable income back to their investors through dividends. REITs can focus on specific sectors of real estate across a variety of markets. For example Health Care REIT Incorporated focuses on health care properties and senior living facilities across the country. Post Properties invests in the development of upscale apartments nationally. In Columbus, Glimcher Realty Trust owns and manages shopping malls in multiple states.

Most of the career options in institutional investment companies are focused on financial analysis in some capacity. It is important for these firms to identify quality investments from less desirable ones, and the best way to do so is through pro-forma valuations and financial projections for a specific property. It is vital for these professionals to have a strong knowledge of a property’s local market and comparable properties so they know whether or not a better investment opportunity exists.

Portfolio management and asset management are key positions within institutional investment companies. These professionals know how best a fund’s money should be spent and adjustments in fund spending that may be necessary in order to improve the company’s income.

Analysts are needed in order to help with the valuation of properties and may provide a good entry-level opportunity for those looking to be part of large real estate transactions. There could also be opportunities for positions in market research and statistical research, but finance related positions hold the key for these firms longevity.

Similar to development positions, one of the best ways to gain a foothold into institutional investing is to have a degree in finance or other quantitative subject matter. Additional skills in market research are helpful in studying information related to different geographic and property-specific market segments.

If you are able to secure a position with one of these types of companies, spend time studying the business of the properties you will be analyzing. For a hospitality REIT, understand how a hotel or resort operates, or for a new residential community understand the local demographics as to why this project would sell versus competitors.