Podcast
06.12.20

Q2 2020 TIAA Real Estate Account Outlook

The COVID-19 pandemic has presented many challenges to our economy.  Portfolio Manager, Randy Giraldo, shares some perspectives on the Account and the real estate investment market in general.

Podcast: A Q2 Update on the TIAA Real Estate Account

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TIAA Real Estate Account Quarterly Update: Perspectives on market turmoil and the TIAA Real Estate Account - [Randy] Hello, I'm Randy Giraldo, Portfolio Manager for the TIAA Real Estate Account. I'd like to take a moment and share with you some perspectives on the account and the real estate investment market in general. The COVID-19 pandemic has presented many challenges to our economy. Our immediate response to the pandemic was to ensure that our tenants could live, work, and congregate in a safe environment. Our property managers implemented a number of protocols, such as additional cleaning services and temporary closure of communal gathering spaces. Throughout this period, we will continue these and many other best practices as an industry leader. In the short term, investors are likely concerned about the account's ability to collect rents from tenants which have had their businesses disrupted, possibly causing in increase in vacancy rates within the property portfolio. With a portfolio of 186 properties and approximately 2,300 commercial tenants, the account will likely experience some near-term reductions in net operating income. The extent and length of these effects will depend greatly on the nation's economic response to the current COVID-19 pandemic. The longer term effects on real estate demand could also be front-of-mind for investors and will take time to play out. During times of market turmoil, three critically important investment attributes rise in importance, liquidity, low leverage, and diversification. Each of these is a hallmark of the TIAA Real Estate Acount. Let's start with liquidity. Real estate is an illiquid asset class but the account has unique features that make it highly liquid for investors. The account holds a portion of its assets in professionally-managed liquid investment grade fixed-income securities. If the account can't fund investor redemption requests from its own cashflow and liquid investments, TIAA, a triple-A-rated financial services company, as rated by Fitch in 2020, will purchase units of the account in order to guarantee investor liquidity. The key thing to remember is that because of these features, which no other private real estate investment vehicle can claim, your investment in the TIAA Real Estate Account will remain liquid at all times. Now let's look at our second investment attribute, leverage. The account began 2020 with a leverage level below 20%, which is less than its benchmark and the public REIT market. This low leverage, along with operating cash flow, ensures that the account has the capital it needs to maintain its portfolio and potentially capitalize on attractive investment opportunities. Our third and last investment attribute that sets us apart is diversification. The Real Estate Account is well-diversified, both by property type and geography. We've been preparing for a potential economic downturn by adjusting its sector allocation over the past few years. A greater emphasis has been placed on apartment properties, alternative property types, and property loans, all of which have outperformed in prior downturns. Also, certain property types, such as hotels, casinos, and retail have a greater likelihood to be more negatively impacted by the current economic environment. The account does not own any casinos, and only owns one hotel asset, representing just .3% of the account's total investments, as of March 31, 2020. Even in the current environment, the TIAA Real Estate Account is doing what it was designed to do, providing long-term investors with investment exposure to an asset class that has low volatility and low correlation to traditional stock and bond investments. Investors are encouraged to maintain a long-term view of their allocation to the Real Estate Account. The account is not appropriate for market timing and frequent trading, and in order to discourage this activity, transfers of accumulations out of the account are restricted to once per calendar quarter. I hope that you have found these points informative and we appreciate the opportunity to help you with your retirement objectives. We wish you continued health and well-being throughout the remainder of 2020 and beyond. [END] This material is for informational or educational purposes only and does not constitute investment advice under ERISA. This material does not take into account any specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on the investor’s own objectives and circumstances. Past performance does not guarantee future results. The TIAA Real Estate Account is an insurance separate account of Teachers Insurance and Annuity Association of America, New York, NY. TIAA-CREF Individual & Institutional Services, LLC, Member FINRA, distributes securities products. For its stability, claims-paying ability and overall financial strength, Teachers Insurance and Annuity Association of America (TIAA) is a member of one of only three insurance groups in the United States to currently hold the highest rating available to U.S. insurers from three of the four leading insurance company rating agencies: A.M. Best (A++ as of 6/19), Fitch (AAA as of 4/20) and Standard & Poor's (AA+ as of 12/19), and the second highest possible rating from Moody's Investors Service (Aa1 as of 8/19). There is no guarantee that current ratings will be maintained. The financial strength ratings represent a company's ability to meet policyholders' obligations and do not apply to variable annuities or any other product or service not fully backed by TIAA's claims-paying ability. The ratings also do not apply to the safety or the performance of the variable accounts, which will fluctuate in value. 1194876

Q2 2020 TIAA Real Estate Account Outlook

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Performance

TIAA Real Estate Account performance returns

 
Why real estate?
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Direct investment exposure to commercial real estate

  • True diversification1
  • Alternative to the “safety” of bonds2
  • Hedges against inflation as rents rise with other prices
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Access to income you can’t outlive

  • Convert some or all of your balance into payments that last a lifetime3
  • Access your money anytime through a range of withdrawal options4.
Properties

Check out some TIAA Real Estate Account properties

why tiaa?

An effective way to get exposure to real estate

The TIAA Real Estate Account is a variable annuity designed to maximize the benefits of real estate investing, while minimizing the drawbacks of managing your own properties.
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Returns are largely unaffected by movements in stock or bond markets  since returns are generated by rental income and changes in property values. For the 10-year period ended March 31, 2020, REA correlation to the S&P 500 Index and Barclay’s Aggregate Bond Index was 0.20 and 0.10, respectively. Over this same period, correlation between the FTSE Nareit All Equity REIT Index and the S&P 500 Index was 0.75. You cannot invest directly in any index. Index returns do not reflect a deduction for fees and expenses.
 
Direct real estate has delivered higher risk-adjusted returns than bonds since the account’s inception in 1995. As of March 31, 2020, the REA since-inception Sharpe ratio (a measure of risk-adjusted return) was 1.1, while the Bloomberg Barclays U.S. Aggregate Bond Index was 0.9 over the same period. The REA inception date is October 2, 1995. You cannot invest directly in any index. Index returns do not reflect a deduction for fees and expenses. Past performance does not guarantee future results.
 
Other payout options are available. Any guarantees under annuities issued by Teachers Insurance and Annuity Association of America are subject to its’ claims-paying ability. Payments from the TIAA Real Estate Account  will rise or fall based on investment performance.
 
Withdrawals of earnings are subject to ordinary income tax, plus a possible federal 10% penalty if you make a withdrawal before age 59 ½. Transfers out of the account to another TIAA or to a CREF account or into another investment option can be executed at any time, but are limited to once per calendar quarter, although some plans may allow systematic transfers that result in more than one transfer per calendar quarter, and certain other limited exceptions to this restriction apply.
 
*Diversification is a way to help avoid risk and does not guarantee against loss.
 
The real estate industry is subject to various risks including fluctuations in underlying property values, expenses and income, and potential environmental liabilities.

In general, the value of the TIAA Real Estate Account will fluctuate based on the underlying value of the direct real estate or real estate-related securities in which it invests. The risks associated with investing in the Real Estate Account include the risks associated with real estate ownership including among other things fluctuations in underlying property values, higher expenses or lower income than expected, risks associated with borrowing and potential environmental problems and liability, as well as risks associated with participant flows and conflicts of interest. For more complete discussion of these and other risks, please consult the prospectus.

This material is for informational or educational purposes only and does not constitute investment advice under ERISA. This material does not take into account any specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on the investor’s own objectives and circumstances.
 
Past performance does not guarantee future results.
 
The TIAA Real Estate Account is an insurance separate account of Teachers Insurance and Annuity Association of America, New York, NY. TIAA-CREF Individual & Institutional Services, LLC, Member FINRA, distributes securities products.
 
For its stability, claims-paying ability and overall financial strength, Teachers Insurance and Annuity Association of America (TIAA) is a member of one of only three insurance groups in the United States to currently hold the highest rating available to U.S. insurers from three of the four leading insurance company rating agencies: A.M. Best (A++ as of 6/19), Fitch (AAA as of 4/20) and Standard & Poor's (AA+ as of 12/19), and the second highest possible rating from Moody's Investors Service (Aa1 as of 8/19). There is no guarantee that current ratings will be maintained. The financial strength ratings represent a company's ability to meet policyholders' obligations and do not apply to variable annuities or any other product or service not fully backed by TIAA's claims-paying ability. The ratings also do not apply to the safety or the performance of the variable accounts, which will fluctuate in value.
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