Private Real Estate vs REITs Exposed: The Proven, Profitable Choice That RIAs Need to Know

November 29, 2022

Private Real Estate vs REITs has been a topic often debated time and time again. For decades, David Swensen’s asset allocation model at Yale served as the gold standard for institutional diversification. But the true differentiator? His conviction that private real estate provided non-correlated, inflation-protected returns—unlike REITs, which move in tandem with public equities.

Why Swensen Chose Private Real Estate Over REITs

According to Swensen’s model, private real estate vs REITs isn’t just a matter of preference. It’s about achieving uncorrelated exposure. Swensen steered clear of publicly traded REITs and REIT ETFs precisely because their correlation to equity markets diluted the benefits of alternative allocation.

“A historic benefit of [private real estate funds] is their returns are less volatile than REITs.”
— Bloomberg, January 17, 2023

In essence, if a portfolio already holds public equities, Swensen argued that layering on REITs offered little additional value. Private real estate, on the other hand, introduced a truly distinct return stream.

What’s Changed: Private Real Estate vs REITs Access and Fee Barriers Are Evolving

For years, institutions reserved access to top-tier private managers for Qualified Purchasers with over $5 million in investable assets. As a result, many advisors defaulted to REITs out of necessity rather than conviction.

But the landscape has shifted. Today, the market offers:

  • Lower minimums across high-quality private offerings.
  • Increased transparency and reporting, closing the perceived gap with public vehicles.
  • Custody integration (via platforms like DTC AIP) that allows private assets to sit inside existing RIA infrastructure (e.g., Schwab, Fidelity, Pershing).

That means smaller advisors no longer have to choose between operational ease and portfolio integrity.

The Best Managers Aren’t Always the Biggest

Size doesn’t always equal outperformance. Some of the most compelling opportunities reside with boutique managers who are overlooked by the largest allocators. As one of PRPI’s investment partners—a CEO at a $1.5T NYSE-listed asset manager—put it:

“I can easily meet the minimums. But I choose to partner with managers who are just as thoughtful about risk, fees, waterfall structures, and alignment of interests as larger, more well-known managers.”

In other words, selectivity beats scale.

Liquidity Has a Price: The Illiquidity Premium Is Real

While liquidity is often seen as an advantage, it can quietly erode long-term performance. Research from Franklin Templeton confirms that private real estate, private equity, and private credit consistently deliver higher returns than their public counterparts. You can download the research report here.

In their report, “The Cost of Being Too Liquid,” Franklin Templeton defines this as the illiquidity premium—a structural advantage that investors sacrifice when defaulting to REITs for convenience.

This premium isn’t just theoretical. It compounds meaningfully across a portfolio over time.

Private Real Estate vs REITs: True Diversification, Without Operational Trade-Offs

By taking the time to identify and establish relationships with smaller, high-quality managers, we believe that smaller advisors and RIAs can still obtain above market returns through true, non-correlated exposure to real estate under Swensen’s asset allocation model without sacrifice. [RELATED UPDATE: Calpers Makes $1 Billion Bet on Small Funds.]

RIAs seeking uncorrelated real estate exposure no longer need to sacrifice AUM visibility or back-office efficiency. Thanks to platforms like DTC AIP, direct private real estate investments can:

  • Remain fully custodied on platforms like Schwab, Fidelity, and Pershing.
  • Flow through to client statements just like REITs or ETFs.
  • Avoid disrupting billing or compliance workflows.

If you are an Registered Investment Advisor considering direct investments, please ask us about the Depository Trust Company’s AIP product, which was designed specifically for RIAs. Piping Rock joined DTC’s AIP platform because it allows advisors to maintain custody of private real estate assets within their existing clearing, custody and settlement platforms, including Pershing, Schwab and Fidelity. This means that investing in private real estate will not affect your AUM and that your monthly client statements will remain fully integrated and complete.

That means advisors can finally align their portfolios with their principles—without operational friction.