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[The real estate securities marketplace is a vast, multifaceted, and globally interconnected market. It spans public and private investments, debt and equity instruments, and everything from real estate-focused Mutual Funds and ETFs to listed securities of companies that comprise the gamut of residential, commercial, and other operating companies. The securitization of real estate into liquid vehicles allows investors the ability to strategically respond to the industry’s cycles and manage risks due to its sensitivities to macro pressures. But investment success will necessitate flexibility, in-depth research, foresight, and an ability to evolve with the ever-changing landscape.
Each niche area of the real estate securities market, by its nature, has differentiated intricacies and idiosyncratic company catalysts that cannot be realized by limiting investment to an index of the market’s largest players. There may even be a structural advantage for informed, nimble investors utilizing this flexibility versus institutional players, where their size does not allow them to take advantage of some of the embedded opportunities and inefficiencies in these markets. An active management approach with a focus on local market expertise and knowledge of the specific characteristics of each asset can potentially capture performance as these markets deviate within and across each real estate sector.
To learn more about the intricacies and investment benefits around listed real estate securities, we reached out to Ryan Dobratz (Third Avenue Real Estate Value Fund) and Quentin Velleley (Third Avenue International Real Estate Value Fund), Portfolio Managers at Third Avenue Management – a NYC-based pioneer in value investing and winners of the 2024 LSEG Lipper Fund Award for Best Equity Small Fund Family Group. We asked them questions about their differentiated approach to investing in publicly traded real estate securities and to share their decades of experience and insights into the nature of these securities.]
Hortz: What is the case for investing in real estate securities? What do they offer in an investment portfolio?
Dobratz: We have always believed that real estate offers exposure to essential assets and businesses that tend to generate resilient cash flows – providing a store of value over time with other interesting attributes, such as delivering current yield, protecting against inflation, and adding portfolio diversification. There are also several other advantages of investing in the sector through liquid, listed real estate securities.
The publicly traded real estate space gives investors the ability to invest in some of the highest-quality real estate portfolios and platforms globally, which they would not be able to access through the private markets. In addition to that, investors can align themselves with some of the most talented and accomplished real estate management teams, oftentimes on a very efficient basis, and these businesses have many advantages compared to those in the private space because they have access to multiple channels of capital. For those reasons and others, studies show that public real estate or listed real estate has outperformed most private vehicles over time.
It can be said that it is a more strategic way to access real estate, especially in times of volatility and market dislocation, where investors can buy into these real estate companies at substantial discounts to net asset values or intrinsic values over time. We believe it is the preferred way to get exposure to the global property space.
Velleley: Let me further emphasize that a key appeal of listed real estate securities is that investors can access these high-quality businesses, management teams, and properties, but with the liquidity to adjust and take advantage of changing market conditions and idiosyncratic opportunities.
I also think, in the current environment, it offers investors a real diversifier away from very tech-heavy portfolio positions by offering “real assets” diversification with long-term inflation protection.
Hortz: Can you provide us with an overview of the size and scope of the global real estate securities market you invest in?
Dobratz: At Third Avenue, our real estate universe is much wider than most. Many dedicated real estate investors only look at the real estate investment trust (REIT) market, which we invest in, but we also have a long track record of investing in real estate operating companies (REOC) and special situations as well. So, our universe is usually about two to three times larger than most of our peers.
When examining the real estate securities universe for the Third Avenue Real Estate Value Fund today, the universe is approximately $6 trillion in size, comprising about 500 companies that include REITs, real estate operating companies, and real estate-related businesses in developed markets worldwide. Investors must also consider that we run concentrated portfolios where an average position can be 3% – 4%, so we have gravitated towards companies that have a market cap of $1 billion or greater that provide enough liquidity and size for us to make substantial investments in them.
Velleley: The International Real Estate Value Fund also has a broader investment universe than traditional international funds, indices, or ETFs. Currently, the Fund’s universe includes 500 companies across both developed and emerging markets, compared to 380 companies in the benchmark index as of September 30, 2025. Our universe has a higher amount of real estate operating companies and real estate-related securities that other investors may overlook, like home builders, storage, and casino real estate companies.
Hortz: What are some differentiated aspects of investing in real estate securities to be aware of?
Dobratz: In our experience, there are two major drawbacks to investing in listed real estate relative to private real estate. First, listed real estate will have more short-term volatility due to daily trading, when compared to a direct asset that might be reappraised quarterly or annually. Secondly, most investors hold positions as outside passive minority investors and therefore lack the elements of control one might have as an owner of an individual asset or a General Partner in a private fund.
However, those are also opportunities in our view because volatility provides moments in time where investors can buy into these real estate companies, assets, and platforms at huge discounts. And even though investors may not have elements of control, they can align themselves with management teams that are likely to take steps to close those discounts over time. We often say that there are two ways to win in listed real estate: either the public markets are going to recognize the underlying value of these businesses by the stock prices moving higher, or management teams will take steps to monetize that value by selling properties or spinning off what are underappreciated assets.
Velleley: In other areas of this marketplace, both funds have benefited from what are called resource conversions. These include classic M&A opportunities such as privatizations by private equity firms or mergers between real estate companies.
Another example, currently taking place in Asia, is the divestment of assets, with proceeds deployed either to return capital to shareholders or to buy back shares. Additionally, several value-additive spin-offs have occurred, where undervalued non-core real estate portfolios or businesses are separated to unlock value.
Since we manage more concentrated portfolios focused on real estate value, we tend to benefit more frequently from those occurrences.
Dobratz: Another distinctive area is in special situations where we have the ability and the expertise to invest across the capital structure of portfolio companies. While our primary focus is investing in the common stock of well-capitalized and managed businesses, to the extent that we can earn equity-like returns in other instruments across the capital structure – preferred equity, unsecured debt, convertible bonds, bank debt, etc. – we will capitalize on those opportunities as well. We have had up to 15% of the Real Estate Value Fund invested in more special situation investments across the capital structure at times, and that is actually the case today, where the fund has a meaningful investment in the preferred equity of Fannie Mae and Freddie Mac, which is more special situation in nature.
Hortz: What are the key drivers of performance that you look for across these real estate securities?
Velleley: In our view, investors need to focus on the underlying local real estate markets – analyzing the different real estate asset classes, demand outlook, and demographics – to determine the opportunities and where these real estate companies are exposed. What are the levels of supply in that market? How easy is it to build new supply? The risk with real estate is that when new supply is added, it can have a negative impact on rents, occupancy, and cash flows.
Another key factor we consider, which has historically been underappreciated in real estate, in our opinion, is the amount of capital, or capital expenditures, which is required to maintain assets, cash flows, and potentially grow rent. We prefer to invest in real estate asset types that have lower capital requirements, which enhances long-term returns by increasing the ability to compound value instead of deploying capital to maintain income streams.
For example, office real estate has traditionally required significant capital, a requirement that has increased recently due to evolving market conditions globally. In contrast, asset types such as self-storage generally require minimal reinvestment. Compared to other indices and ETFs with substantial exposure to capital-intensive real estate, we believe the long-term return outlook is more favorable for portfolios focused on asset classes with lower capital requirements.
Dobratz: When we are assessing real estate companies, and their securities, for the Real Estate Value Fund, there are really four factors that we look at:
One, whether they are well capitalized, has high-quality assets, and limited levels of debt.
Two, if they are run by aligned management teams that have a track record of running the business efficiently and prudently allocating capital.
Three, whether we can buy into these companies and their securities at a discount to conservative estimates of what we think the businesses are worth, or their net asset value.
And four, if the companies not only trade at discounts, but have prospects of increasing that underlying value, ideally at 10% or more per year when including dividends.
In combination, these items underpin the “checklist” we utilize for assessing real estate securities and frankly serve as the foundation for our focus on investing in strategic real estate at value prices.
Hortz: How would you differentiate your investment approach from other real estate securities managers?
Dobratz: Outside of placing a heavy emphasis on investing in very well-capitalized companies, we tend to point to a few other differentiators for the Global Real Estate strategy compared to most of our peers:
First, we are long-term value-oriented investors in the real estate securities space, where we are typically buying into companies, property types, or regions that are out of favor. As a result, we are getting into those positions at discounted valuations and, on average, we are holding them for five to six years at a time. So, it is a much lower turnover strategy, between 15 to 20% annually.
In addition, we focus on total return and emphasize capital appreciation over current income because we believe it is a more tax-effective way to compound capital over time. Consequently, the Fund ends up owning a greater number of real estate operating companies and real estate-related businesses, predominantly structured as C corporations as opposed to traditional REITs. In fact, about two-thirds of the portfolio is typically allocated to Real Estate Operating Companies (REOCs) and real estate-related businesses, with one-third in REITs, although the mandate is flexible.
We also have a wider universe of real estate securities to invest in, as we mentioned earlier. We can invest in REITs, REOCs, real estate-related businesses, and special situations, where we approximate our universe is two to three times larger than most competitors. That said, when filtering through these companies with Third Avenue’s criteria, there are usually only about 60 companies that we track closely, with roughly half already in the fund, and the other half in a shadow portfolio that we utilize as a tool to keep tabs on companies we want to buy, just at lower prices.
A major result of all the above items is that we have high active share measures with our portfolio holdings, not mirroring any real estate indices. In fact, several of the attractive opportunities we have identified over the years have been in securities or businesses that are not a part of traditional real estate indices or benchmarks. In addition, we actively manage the portfolio by prudently concentrating on our best ideas and implementing hedges to enhance the risk-adjusted profile of the portfolio, not only around positions but also currencies. We will also hold a portion of the fund in cash when we are not finding suitable opportunities, which is not something that a lot of others will do who run fully invested.
Velleley: The International Real Estate Value Fund, also maintains high active share through its differentiated geographic exposures. Rather than tracking the international indices’ geographic weightings, we take a bottom-up approach to identify the best worldwide, value-oriented real estate opportunities in building the portfolio. This approach represents a key differentiator as well.
Hortz: How are your funds currently allocated, and what does that positioning tell us about how you see the real estate markets?
Velleley: In the International Real Estate Value Fund, the portfolio is exposed to four key thematics outside the U.S.
The first allocation is to industrial real estate companies. A major theme driving the sector, is the ongoing transformation of the global industrial supply chain, as manufacturers and governments push to reduce supply chain risk and diversify manufacturing out of China. We are invested in several industrial real estate companies that are developing properties to meet this increased demand. We believe that exposure to this structural theme is limited in most indices and ETFs.
Additionally, the Fund is invested in self-storage real estate, where supply levels outside the U.S. remain dramatically lower than domestic markets. In other developed markets, the industry is much less mature, and we see a long runway for self-storage to grow cash flows and for management teams to create value over time.
The Fund also has exposure to residential real estate. In major cities globally, we see a structural undersupply of residential real estate, despite favorable demographics, growing populations, and ongoing urbanization. Governments and developers have faced challenges adding sufficient supply to meet the increased demand. As a result, we believe there are strong housing market fundamentals in many cities around the world.
Finally, the Fund has special situation investments. These are traditionally deep-value or special situation companies with high-quality real estate that trade at significant discounts to net asset value, are well-managed, and have some form of catalyst to recognize that value.
Dobratz: In the Global strategy, there are many similarities. We have about 25% of the fund’s capital invested in strategic residential businesses focused on the U.S., which we believe are poised to benefit from favorable supply and demand dynamics over the next 5 to 10 years, particularly as millennials continue to move into their prime home-buying years. I should add that on the residential side, we see opportunities throughout the value chain – land, home builders, and certain single-family rental companies.
We have another quarter of the fund invested in select commercial real estate companies with a broader emphasis on real estate services businesses as opposed to commercial REITs, just because we believe that they are superior business models and positioned to benefit from structural changes taking place within commercial real estate.
We then have about 25% of the global strategy’s capital invested in international real estate companies that are largely focused on the same themes of residential and commercial real estate.
Lastly, we have about 15% of the fund’s capital invested in special situations right now, which are mostly comprised of investments in the preferred equity of Fannie Mae and Freddie Mac.
It is also worth noting that we are sidestepping certain pockets of the real estate universe that are large components of many other real estate portfolios out there. For instance, right now, we do not have significant investments in traditional senior housing, which has become so popular with investors – the valuations are quite stretched in our opinion, and that same sort of description applies to the data center space and tower companies that have been bid up in excess of their long-term fundamental value, in our view. So, we have strategically avoided those real estate areas.
Hortz: Any other thoughts to share with financial professionals about the case for active management for real estate securities?
Velleley: International real estate securities valuations are currently very discounted, in our view, as these markets have not fully recovered from their pre-COVID levels. As a result, discounts on NAV or discounts on the value of the underlying real estate are still quite high, and earnings multiples are low even though the earnings growth outlook is quite good.
Dobratz: In addition to the international opportunities, listed real estate is one of only three sectors trading at a discount to its historical averages in the U.S. markets. Therefore, we think it’s an interesting time to revisit real estate securities and feel the investment opportunity is very similar to the early 2000s, when broader equities were trading at similar valuations and real estate was also out of favor, but heightened valuations ultimately came in following the tech bust at the time. Real estate outperformed in a big way and we think the setup is similar.
The second item I would mention, to the extent that someone is looking at the real estate space, they should do so through an active strategy, not a passive strategy, due to listed real estate being a pocket where active managers have historically outperformed passive funds. Third Avenue’s Real Estate strategies are not dissimilar in that respect, but we believe in continuous improvement, so we have taken steps to further bolster the team, processes, and strategies with the goal of further differentiating our portfolios over time.
This article was originally published here and is republished on Wealthtender with permission.
About the Author
Bill Hortz
Founder Institute for Innovation Development
Wealthtender is a trusted, independent financial directory and educational resource governed by our strict Editorial Policy, Integrity Standards, and Terms of Use. While we receive compensation from featured professionals (a natural conflict of interest), we always operate with integrity and transparency to earn your trust. Wealthtender is not a client of these providers.