Enhanced Returns: Timing TIAA Real Estate

TIAA Real Estate is a unique account which provides direct ownership interest in commercial real estate.  It offers an asset class not widely available to individual investors.  The returns of TIAA Real Estate and the corresponding unit values are affected by the value of the underlying commercial properties along with vacancy rates and the cost of rent.  A graph of the returns of TIAA Real Estate from inception in 1995 through present includes a smooth increase for the first thirteen years, followed by a smooth decrease, ending in another smooth increase.  It looks like the outline of a roller coaster.  Unlike other asset classes, this volatility takes place over a period of years as opposed to daily. Which brought me to my question – Can an investor time TIAA Real Estate?
My first goal in evaluating TIAA Real Estate was to eliminate the “noise” associated with daily unit values.  To do this, I took the unit value on the last trading day of each month from inception of the account through the date this paper was written.  Evaluating the month-end unit values condenses the amount of data to evaluate from over 4,500 daily unit values to slightly over 220 month-end unit values.  Not only does this eliminate many false positives of trying to evaluate daily unit values, but it also provides a manageable system that allows investors to look at the TIAA Real Estate once per month at the end of each month (as opposed to daily).
The Findings
Considering the nearly 20 years of data collected and evaluated, the results were astonishing.  Over this period, there were only seven single months when TIAA Real Estate lost value.  Each single month TIAA Real Estate decreased, there was a bounce in subsequent months of sustained growth.  These seven month-end to month-end losses occurred randomly throughout the life of the account.
On only one occasion did TIAA Real Estate lose for more than one month in a row.  Starting in July of 2008, TIAA Real Estate decreased for 20 consecutive months.  After 20 consecutive months of the unit value decreasing, TIAA Real Estate increased for 17 consecutive months.  The consistency and the momentum of the returns associated with TIAA Real Estate make it susceptible to timing – the data cannot be ignored.
The Rules
The data provides the evidence so the rules for timing TIAA Real Estate are easy. 
First, move out of real estate into money market if there is a decline in the month-end unit value for two consecutive months.  A single occurrence (one month decrease) has happened multiple times and should not be cause for action. 
Second, if you are out of TIAA Real Estate, allocate back into the account with the first increase in the month-end unit value. 
I am not a proponent of market timing.  However, if the data is clear, there is no reason an investor should not improve the return of their investment.  Since inception of the fund, this strategy would have allowed an investor to participate in every positive annual return in TIAA Real Estate while eliminating almost entirely the -14.15% return in 2008 and eliminating the -27.64% decrease in 2009.  The numbers tell the truth – this may just be one method TIAA does not want you to know.
This article is written by Kevin J. McNab.  Kevin works with professors, doctors, and university executives across the country.  Kevin is President of McNab Financial, LLC and is a CFP®, ChFC®, and CRPC®. This article is not intended to contain investment or tax advice. Please contact your investment and tax professional to discuss investments discussed in this article.  McNab Financial, LLC is a Registered Investment Advisor in the State of Colorado. Kevin McNab is The Professor’s Advisor!

Kevin McNab

This article is written by Kevin J. McNab. Kevin is President of ACE Wealth Partners, LLC and is a CFP®, ChFC®, and CRPC®. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by ACE Wealth Partners, LLC unless a client service agreement is in place. If you have any questions regarding this Blog Post, please Contact Us. Please read our website DISCLOSURE carefully for additional information.