The destruction of wealth induced by the current crisis has wreaked havoc on institutional portfolios. The denominator effect, which has left many portfolios with high allocations to real estate, happened partly because property assets held up better compared to other asset classes and partly because the appraisal community has not been aggressive enough in writing down the value of these assets.

As a result, many institutional investors are now at a loss as to whether they should ask their boards for higher real estate allocations or start rebalancing their portfolios to bring these allocations to the levels agreed upon earlier. Rebalancing one’s portfolio under the current conditions means selling at a loss, and not many investors or asset managers are looking forward to it.

To gauge the investor sentiment in the current environment, Institutional Real Estate, Inc. and Kingsley Associates conducted a survey of pension U.S. plan sponsors at the end of 2008. Although