Single-factor portfolio selection models that use risk (return volatility) as the sole factor are unlikely to yield reliable optimal allocations to real estate for pension funds. Pension fund investment in real estate is influenced by factors other than risk. These include the divisibility of ownership interests, liquidity, information availability, conflicts of interest, investor liability and owner involvement. Collectively, these non-risk factors constitute a significant impediment to the acquisition of real estate by pension funds.

These impediments to investment may not be as great for very large defined-benefit pension plans—especially large public funds—as they are for smaller plans, corporate- sponsored plans and defined-contribution plans. But if pension fund investment decisions take taxes into account, it becomes difficult to justify real estate investment by pension funds, regardless of fund size or plan type.