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This chart shows the components of total return over the last full real estate market cycle for five ways of investing in real estate: unlevered core properties (NCREIF Property Index), core private equity funds (NCREIF ODCE Index), value add and opportunistic private equity funds (NCREIF/Townsend Fund Indices), and listed equity REITs (FTSE NAREIT All Equity REIT Index). Core investments on the private side have provided very little capital growth--in fact, with CPI inflation averaging 2.8% over the cycle, they actually lost value.
The REIT index represents a passive investment in the universe of investable listed U.S. equity REITs, but this analysis assumes fees typical of actively managed portfolios. The private indices represent returns reported by active managers selected by large institutional investors, so likely overstate the universe of private real estate investments. Returns are not adjusted for leverage: value add and opportunistic funds typically use much greater leverage than listed equity REITs, while core funds use less.
Questions? Contact me at bcase@nareit.com.
For the 5-year period from 2008Q2 through 2013Q2 (data for value add and opportunistic funds aren't yet available for 2013Q3), net total returns for listed U.S. equity REITs have averaged +1.41% of which income provided +0.61% (43%) and capital appreciation +0.80% (57%). On the private side, institutionally owned core properties (NCREIF Property Index) averaged unlevered net total returns of +0.36% per year with +0.85% income and -0.49% capital appreciation; core private equity real estate funds (NCREIF ODCE Index) averaged net total returns of -0.22% per year with +0.75% income and -0.96% capital appreciation; value add private equity real estate funds (NCREIF/Townsend Fund Indices) averaged net total returns of -1.13% per year with income of +0.54% and capital appreciation of -1.66%; and opportunistic private equity real estate funds (NCREIF/Townsend Fund Indices) averaged net total returns of -0.97% per year with income of +0.35% and capital appreciation of -1.32%. Those are all compounded.
We do another slide that uses the full history of data available on all five types of real estate investment--starting in 1988Q4 and extending (so far) through 2013Q2. I'll post that slide separately and link to this one. Thanks for asking,
--Brad