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Investors can be fooled by comparing volatility or risk-adjusted returns of assets over the wrong investment horizon. Real estate returns are commonly reported quarterly, but most institutional and retirement investors (including endowments, foundations, and pension funds) have multi-year investment horizons.
These graphs show volatility and risk-adjusted returns based on the reported returns for five different types of U.S. real estate investment: listed equity REITs, unlevered core properties, core funds, value-add funds, and opportunistic funds. Quarterly data makes it seem as though unlisted real estate is much less volatile than listed equity REITs, but that's only because unlisted real estate returns are measured very poorly, with substantial smoothing.
For basically all assets, volatility over long investment horizons is less than over short horizons: that just means that volatility measures uncertainty about returns, and average returns over long periods aren't very uncertain. That effect shows up very strongly with listed assets, including listed equity REITs, but not very strongly with unlisted assets, including private real estate, because volatility has already been disguised through the appraisal process.
Quarterly data makes it seem as though unlisted real estate has provided better risk-adjusted returns than listed equity REITs, but the truth is the opposite: listed U.S. equity REITs have provided dramatically better risk-adjusted returns than private U.S. real estate investments over historical periods extending back to the beginning of 1978.