REIT Bulls Look to Pension Funds

REIT stocks have been under pressure for the past few months, and some analysts say a nasty short-term correction could be in order, especially if Treasury yields continue to rise. But bulls, when asked why they like the sector, often offer a very simple reason: "It's the dedicated pension fund money, stupid!"

Glenn Mueller, a real estate investment strategist with Legg Mason and endowed chair of real estate at Colorado State University, hammered this message home, although a tad more eloquently, at the recent National Association of Real Estate Investment Trusts convention in Chicago. On a panel that was supposed to consist of bulls and bears, Mueller found himself as the lone REIT bull.

Mueller argued that there is $50 billion of pension fund money sitting on the sidelines ready to be invested in direct commercial real estate properties and REITs. Because of this "dedicated" money, there is a floor for REIT prices -- meaning they can't drop too low, he said. ...