By Eric Henon
Executive Director, Retirement Advisor Council
President, EACH Enterprise
Defined contribution plans are increasingly looking to real estate investments to diversify plan participants’ portfolios. But not all real estate investments are the same. So thoughtful consideration is required to optimize a retirement plan’s exposure to the alternative asset class.
Roughly three in 10 DC plans offer real estate in their core lineup according to a 2025 PSCA study1. That was before the Trump administration, through a 2025 executive order, encouraged retirement plan sponsors to broaden access to private assets including private real estate. So, we can expect private real estate’s role in DC plans to grow in the months and years to come.
At a Retirement Advisory Council Soundbites session in April, Diane Smola, Managing Director, DC Real Estate Solutions at Principal Asset Management, and Seth Laughlin, Head of Real Estate Strategy & Research a Cohen & Steers, provided insights on how DC plan sponsors can make real estate available to their plan participants.
According to the 2025 Private Real Estate in Defined Contribution Survey, total net AUM of DC capital invested in private real estate exceeded $45 billion as of year-end 2024. DC capital was invested in both “institutional daily valued pure play (all private real estate) products and blended products that include both private real equity real estate representing 75% - 95% of the strategy with the balance in REITs,” said Smola. The REIT allocation provides some ongoing liquidity intended to cover participant withdrawal needs and portfolio rebalancing needs.
Smola’s firm, Principal, manages over $107 billion in all four quadrants of real estate, including private equity and debt as well as public equity and debt. Incepted in 1982, Principal’s U.S. Property Account, was the first daily-valued pure play private equity real estate strategy offered to Defined Contribution plan investors. DC investors currently represent over 18% of the Account’s assets. DC investors seek private real estate to enhance risk-adjusted performance, benefiting from its low correlation to the stocks and bonds that dominate traditional DC multi-asset portfolios.
Laughlin’s firm, Cohen & Steers, has specialized in managing real estate investments since the 1980s and currently manages close to $60 billion in REITs.
“The biggest differentiator between listed and private real estate is liquidity,” Laughlin said.
That liquidity, while providing DC participants with easier access to their real estate assets, also results in greater volatility because listed REITs trade daily from 9:30 a.m. to 4:00 p.m.
Laughlin said the two types of real estate exposure are remarkably similar in terms of their underlying physical assets. For example, consider two identical neighboring buildings. One might be owned privately while the other is held in a publicly traded REIT.
An important consideration in evaluating private versus public real estate is that while REITs have tended to outperform private real estate over the long term, and provide much greater liquidity, they also come with increased volatility because of their daily trading. The risk is that a poorly timed fund redemption or withdrawal could result in a loss. Blended strategies available to DC investors combine the stability of private real estate with the liquidity of REITS.
Four diverse sectors to consider
If real estate generally can improve portfolio diversification, then tactically mixing the four diverse sectors within real estate – residential, retail, office, and industrial – can extend that further.
Office has been the weakest real estate sector by far since the 2020 COVID pandemic because of the major shift to working from home for many white-collar office workers.
Laughlin said that REITs were able to identify unfavorable trends for office real estate even before the pandemic as “company valuations were hurt by cash flows that couldn’t keep pace with rent growth because of the high costs of upkeep for office buildings.” The demand destruction for office buildings resulting from work-from-home trends further compounded that impact.
Laughlin compared the recent slump in office real estate with what occurred in retail real estate a few years ago when shopping malls and retail stores were threatened by e-commerce. “Just as the more desirable malls survived the threat from e-commerce, the best office buildings in major cities will hold up well, but the bottom half could face a fight for survival.”
The next-generation property types offer opportunities
According to both Laughlin and Smola, the higher growth areas within real estate in the coming years will include high-demand non-core categories, including senior housing, storage, and data centers. Exposure to these alternative sectors within private real estate has grown over the past several years, but REITs continue to hold greater exposure to non-core sectors.
Charlie Wenzel, Head of Retirement at Cohen & Steers, pointed out that office makes up only 3.5% of the company’s benchmark today. In contrast, cell towers, telecommunications, data centers, and industrial warehouses collectively make up 34% of the REIT benchmark. Healthcare, which includes senior housing in the form of nursing homes, comprises 17% of the benchmark.
These are dynamic times for DC plans, and real estate is likely to grow in usage and importance for plans for years to come.
Notes
1 https://www.psca.org/news/psca-news/2025/7/real-estate-investment-options-in-retirement-plans/
