The publicly traded real estate industry has taken many dramatic strides during the modern REIT era. Among the most significant steps has been the progress made in ensuring that every defined contribution plan provides investors with a real estate option. I am confident the trend line is moving in the right direction, but now is the time to accelerate the pace.

Six years ago only about 4 percent of all 401(k) plans included a real estate option, according to the Profit Sharing/401(k) Council of America (PSCA). The latest data show that number has risen closer to 12 percent. From 2001 to 2002 alone, the percentage increased from 8.6 percent to 11.8 percent.

This progress has been made as word about the diversification benefits of REITs has increasingly spread to plan providers, sponsors and participants. Study after study clearly illustrates that a portfolio that includes an allocation to REITs outperforms one that doesn't. Ibbottson Associates found that REITs could raise returns by up to 50 basis points while lowering risk by up to 70 basis points.

Diversification is only one of the persuasive reasons REITs should be included in every 401(k) mix. As the population ages and their investment priorities shift from growth to yield, the strength of REIT dividends becomes an even more compelling story. On average, REIT dividends are 5.0 percent before taxes, compared to a pre-tax yield of 1.6 percent for companies in the S&P 500.

In short, REITs are the most efficient and effective way for 401(k) plans to invest in real estate. Thanks to NAREIT's efforts, REITs have earned a seat at the table and are now included on major indexes like the S&P 500 and have become integrated with the rest of the capital markets. However, obstacles still remain.

The predominant challenge remains fighting inertia and getting plan sponsors and providers to change their pattern of overlooking REITs. While 18 of the 20 largest plan sponsors include a real estate option in their defined benefit plan, only four of those companies offer the same benefits to employees in their defined contribution plan. Beneficiaries may well question why sponsors provide companies with plans that include the yield and diversification benefits of REITs but fail to offer the same option to employees.

Even when inertia can be dispelled, REITs face a fight for "shelf space." The average corporate defined contribution plan has 13 options and there is debate over how many options are too many. Our industry must ensure that when plan providers rethink their menu of options the need to include REITs is crystal clear.

Given how far we have come, I am confident our industry can meet these challenges. Nonetheless, with only one in eight 401(k) plans offering a REIT option, too many plan participants are being deprived of an investment alternative that would significantly enhance their retirement portfolios. It is now time to accelerate our 401(k) efforts and secure a REIT option in every retirement plan.

Hamid R. Moghadam
NAREIT Chair
Chairman and CEO,
AMB Property Corporation