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Working Papers

Should Commercial Real Estate Be Included in the S&P 500?

Working paper #390
Peter Linneman and Stanley Ross

In the 1980’s leading commercial operators found it unnecessary to access public equity markets in order to grow, but by 1993, owners needed equity and commercial real estate finance was integrated into the mainstream of global financial markets. Publicly traded real estate companies represent approximately one percent of the value of all US publicly traded companies. However, a glaring omission from the S&P 500 index today is commercial real estate. No commercial real estate company has been included in the S&P 500 since the late 1970’s. There is no substantive difference between REITs and “normal” corporations in the US investment landscape. Investors who use the S&P 500 as an important benchmark are being deprived of the benefits of commercial real estate investment. Failure to include these companies causes the S&P index to misrepresent the true pattern of common stock returns, particularly in view of their relatively low betas – 0.41 or less for the largest company.

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