They’re all under one roof.

Who sets the price?

Historically, the real estate sector, and in particular the listed real estate, was regarded as a single asset class and generalist investors (ie, not real estate specialists) typically increased weightings ahead of what they perceived to be the next upswing in the real estate cycle, with a view to trying to exit at or close to the top of the cycle before the tsunami of leverage-induced value destruction wiped out their previous gains. As a result, the influence of (active and passive) generalists entering, or exiting, the sector en masse has led to them becoming de facto price setters. This flow of funds can result in temporary dislocation of pricing away from the traditional anchor of NAV, as they are more concerned about the real estate weighting relative to the other 10 equity sectors rather than the pricing of real estate securities, relative to the underlying assets (the parallel asset pricing model). That is the domain of the property specialists who are looking at the relative valuation of each stock to its forecast NAV, adjusted for idiosyncrasies such as goodwill. They will then adjust the weighting of their holding in that stock relative to their fund’s benchmark (typically EPRA) index. They will typically have a very informed and nuanced view of each underlying portfolios growth prospect and their own adjusted NAV forecast will be the most common valuation tool.