REIT backers also tout the level of price disclosure and transparency the instruments bring to the property market. In their absence, the market would suffer from the same lack of portfolio transparency and performance data that dogs other alternative asset classes. "As publicly traded companies, [U.S. REITs] are required by regulatory agencies to file standardized financial reports and to follow generally accepted accounting principles," says Michael Grupe, executive vice president of research and investor outreach for the National Association of Real Estate Investment Trusts, a trade group in Washington. They are also scrutinized by investment analysts. REIT markets in other developed economies have similar disclosure requirements, and investors can expect comparable regulatory and analyst scrutiny. However, investors in emerging-market REITs may have to settle for less.

The Direct Method
The diversified portfolios backing REITs reduce risk, but also dampen returns. Investors with higher risk tolerances and access to outstanding real estate investment expertise may prefer to shoulder bigger risks in the pursuit of making outsized returns.

Peter Smedvig, the patriarch of the Norwegian oil drilling family, set up his own private equity firm, Smedvig Capital, in 1996 to invest his family’s money. To date, the business has committed more than $250 million to over 50 investments, and is in the process of partnering with Protego Real Estate Investors to set up a fund that will invest in properties throughout Europe.

John Hewett, Smedvig Capital’s chief executive and cofounder, says the crucial factor is finding best-in-class property managers. "Here, it’s about being led by the right individuals rather than being led by the right product," he says. While Smedvig has avoided emerging-market property investments to date, Hewett believes the firm will expand in that direction once it finds the appropriate expertise. "That is something that we are starting to take a look at with third-party managers," he says.

Setting up a firm to pursue property investments makes sense only for those with significant family wealth, like the Smedvigs. But there are a host of third-party private equity outfits pursuing international property investments. One is McKinley Reserve, a specialist in emerging market developments, based in Hilbert, Wis. McKinley’s subsidiaries develop major property initiatives, often in conjunction with host governments. Todd Thiel, its chief executive, says McKinley is working on developments in Jamaica and Dubai. McKinley aims to provide investors annual returns of more than 20 percent, Thiel says. "You don’t get those kinds of returns without stepping into a world that’s a little foggy, but we like to think we have the ability to mitigate that risk," he says.

"You don’t get those kinds of returns without stepping into a world that’s a little foggy."   –Todd Thiel

Those seeking vehicles with more liquidity than traditional private equity firms, but who want access to the best fund managers, may consider unlisted funds. "Someone with an investment portfolio in the hundreds of millions of dollars will have the option of investing in some of the funds managed by large firms like Goldman Sachs or Morgan Stanley," Blank says.