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REITs Have Provided Comparable Income With Much Higher Capital Appreciation Than Other Real Estate Investments Income an...
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Listed Equity REITs and Private Equity Real Estate: Income and Capital Appreciation

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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.

Published in: Real Estate
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  • Rob,
    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.
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  • Has the income component of REITs changed in the last 5 years? and if so has there been a permanent structural change? Rob
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  • Gerry,
    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
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  • Brad, great chart. How would the cart and respective returns look if the horizon were carried forward to today? Gerry
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Listed Equity REITs and Private Equity Real Estate: Income and Capital Appreciation

  1. 1. REITs Have Provided Comparable Income With Much Higher Capital Appreciation Than Other Real Estate Investments Income and Capital Appreciation Components of Net Total Return Income Component Through the Real Estate Market Cycle, 1989/90 – 2007/08 2.54 2.61 5.46 Income Component 7.74 5.20 7.68 5.07 9.07 3.62 12.94 3.26 16.00 14.00 12.00 10.00 8.00 6.00 4.00 2.00 Sources: NAREIT® analysis of data from NCREIF Property Index (unlevered core properties, NCREIF ODCE Index (core funds), NCREIF/Townsend Fund Indices (value added and opportunistic funds), and FTSE NAREIT All Equity REITs Index (equity REITs). Expenses for equity REITs are estimated at 50 bps per year, distributed equally across all months; expenses for unlevered core properties are assumed to equal 100 bps per year, distributed equally across all quarters. Expenses are attributed to income returns only, in accordance with ODCE. Assumes full reinvestment of net income. 9.68 13.38 4.86 8.53 0.00 Total Return (net) Income (net) Capital Appreciation Unlevered Core Properties Core Funds Value-Add Funds Opportunistic Funds Equity REITs 0

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