Traditional performance measures do not distinguish between “upside risk” and “downside risk.” Downside risk is based on returns that are either below a target rate, below zero, below average or below a benchmark and vice versa for upside risk. Downside risk measures and the “duality” of beta have been discussed extensively in literature related to public markets but have not been applied to the analysis of private equity real estate in the academic literature. This article examines the measures that can distinguish between upside and downside risk that are commonly used in public markets, such as upside and downside beta and the Sortino ratio for downside analysis and applies them to different property sectors and Core Based Statistical Areas (CBSAs) in the NCREIF Property Index (NPI). In addition, these measures are used to analyze gateway vs. non-gateway markets’ historical performance on both an upside and downside risk basis. The same techniques are applied to perform an attribution analysis of a portfolio’s alpha into upside and downside components.

Commercial real estate investors prefer coastal, gateway, markets for liquidity, demand density, and durable returns. Yet, these areas are more vulnerable to the effects of climate change from more intense and frequent weather events such as hurricanes and typhoons as well as to gradual changes such as sea-level rise. Recognition is growing of the risks that these events pose to investment performance, but little is known about how this risk has impacted property values and returns when an event such as a hurricane occurs. This is the first study to analyze the impact on property values and returns from hurricanes causing the most significant damage by value over the past 30-plus years throughout the nation. Using individual property data from the National Council of Real Estate Investment Fiduciaries database, we find a significant impact on the value and rates of return, after accounting for any additional capital expenditures for repairs, for properties that are in areas impacted by a hurricane, relative to areas that were not impacted by a hurricane. These impacts vary by property type and can last for several years after the hurricane hit land in the area.

This article proposes a risk-adjusted performance attribution analysis that integrates risk measures with the Brinson models of attribution which allows us to decompose the excess portfolio return into components of risk, allocation, selection and net selectivity that is additive and consistent with financial theory. Authored by Jeffrey D. Fisher, Ph.D., NCREIF Senior Consultant and Joseph D’Alessandro, NCREIF Director of Performance Measurement

Until now, no method has been capable of identifying the implied cash flows and the related PME IRR. As a result, it is impossible to know which method is correct or the most accurate. This article solves the dilemma, provides a solution and the missing link for private equity benchmarking. It is now possible to identify the correct IRR spread as well as the public market equivalent portfolio implied cash flows and the related PME IRR.

Sara Rutledge, NCREIF Director of Research. NCREIF Insights June 2017.

Published in the Summer 2016 Journal of Portfolio Management, this paper uses Brinson attribution to explore and explain the differences between the TWR and IRR for measuring investment performance. The TWR is an industry standard for performance reporting and lends itself nicely to liquid investments, although an IRR can be a more appropriate fit for alternative asset classes and some investment structures. Author Joe D’Alessandro.

NCREIF Director of Research, Sara Rutledge, provides an overview of this 2016 Real Estate Research Institute-funded research paper and its implications for investors.

NCREIF Consultants Mike Young and Jeff Fisher provide a follow-up to January’s article on three new metrics formally released by NCREIF during the first quarter of 2015 with an in depth discussion on the methodolgy and use of the Free Cash Flow Yield (FCFY) and Capital Expense Ratio (CXR).

NCREIF Consultants Mike Young and Jeff Fisher introduce three new indicators, the Market Value Index (MVI), Free Cash Flow Yield (FCFY), and the Capital Expense Ratio (CXR).

Discussion of the distribution and property type composition of properties in the NPI over three time periods – 2004, 2009 and 2014.

Discussion of the composition and returns for NPI-Plus, which consists of non-NPI properties classified in the “Other” property type, such as senior living, self-storage and parking.

Discussion of ten main reasons the core fund-level benchmark (NFI-ODCE) and property-level index (NPI) differ in methodology and composition.

NCREIF Consultant, Jeff Fisher, explores pricing and income data for core and non-core NPI properties to shed light on valuations in the recovery from the Great Recession.

Comparison of the composition and performance of NFI-ODCE funds and non-ODCE open-end funds tracked for the NFI-OE.

Discussion on capitalization rate calculations available in the NCREIF database and how to interpret/apply each measure.

During the Great Recession, some “underwater” properties were returned to their lender. This piece explores whether or not this practice was impactful to the NPI.

David Geltner reviews the original TBI as it has been produced at MIT from 2006 through 2010, and explores a simplified average-price-based alternative version for possible NCREIF production and publication, including detailed operating instructions for such production.

NCREIF Executive Director, Doug Poutasse, examines NPI total returns by acquisition year cohorts and their relative performance to the overall NPI.

Ryan Reddish, Acquisitions Manager, Forest Investment Associates. Timberland index article published in the First Quarter 2023 NCREIF Performance Report.

Daniel Murray, Executive Director, UBS Farmland Investors LLC. Farmland index article published in the First Quarter 2023 NCREIF Performance Report.

Kenneth W. Kapecki, Managing Director and JP Montross, Senior Advisory Consultant, Deloitte. Apartment Index article published in the Fourth Quarter 2022 NCREIF Performance Report.

ORG Research Team: Kevin Stone, Consultant, ORG Portfolio Management. Industrial Index article published in the Fourth Quarter 2022 NCREIF Performance Report.

Del Kendall, Senior Director, SitusAMC. Office Index article published in the Fourth Quarter 2022 NCREIF Performance Report.

Art Jones, Senior Director, J.D. Stehwien, Senior Research Analyst, and Tommy McGing, Research Analyst, Principal Global Investors. Retail Index article published in the Fourth Quarter 2022 NCREIF Performance Report.

Joe D'Alessandro, Director of Real Estate Performance Measurement, NCREIF. ODCE Index article published in the Fourth Quarter 2022 NCREIF Performance Report.

Josh Roth, Performance Analyst, Campbell Global. Timberland Index article published in the Fourth Quarter 2022 NCREIF Performance Report.

Daniel V. Serna, Director & Senior Portfolio Manager, Manulife Investment Management Timber and Agriculture. Farmland Index article published in the Fourth Quarter 2022 NCREIF Performance Report.

Beth Burnham Mace, Chief Economist, and Caroline Clapp, Senior Principal, National Investment Center for Seniors Housing & Care (NIC). Published in the Third Quarter 2022 NCREIF Performance Report.

Ryan Davis, CEO, Witten Advisors. Published in the Third Quarter 2022 NCREIF Performance Report.

Tobin Olson, Research, Dream. Published in the Third Quarter 2022 NCREIF Performance Report.

Matthew Warner, Managing Director, Portfolio Manager, and Kamran Soleiman, Director, Real Estate Research, Manulife Investment Management. Published in the Third Quarter 2022 NCREIF Performance Report.

Bernadette Mussell, Vice President, Acquisitions, L&B Realty Advisors, LLP. Published in the Third Quarter 2022 NCREIF Performance Report.

Jay Johnston, Senior Associate Research, USAA Real Estate. Published in the Third Quarter 2022 NCREIF Performance Report.

John Griffith, Manager, Performance Measurement, Manulife Investment Management. Published in the Third Quarter 2022 NCREIF Performance Report.

Joseph Villani, Portfolio Manager, Westchester Investment Management. Published in the Third Quarter 2022 NCREIF Performance Report.

Ryan Luby, Henri Torbey, and Brian Vickery, McKinsey & Company. Published in the Second Quarter 2022 NCREIF Performance Report.

Gerard Mitchell, Associate, Research & Strategy, BentallGreenOak. Published in the Second Quarter 2022 NCREIF Performance Report.

Trevor Ashmun, Analyst and Gio Tramonto, Analyst, IDR Investment Management, LLC. Published in the Second Quarter 2022 NCREIF Performance Report.

Manuel Martin, Global Head of Retail, Nuveen Real Estate. Published in the Second Quarter 2022 NCREIF Performance Report.

Justin Shanahan, Deputy Portfolio Manager, CBRE Investment Management. Published in the Second Quarter 2022 NCREIF Performance Report.

Chung-Hong Fu, Director of Economic Research and Analysis, Timberland Investment Resources. Published in the Second Quarter 2022 NCREIF Performance Report.

Clint Leman, Director of Portfolio Management, US Agriculture, LLC. Published in the Second Quarter 2022 NCREIF Performance Report.

Laura Craft, Global Head of ESG Strategy, Heitman. Published in the Fourth Quarter 2021 NCREIF Performance Report.

John Caruso, Managing Director, TH Real Estate and Barbara Flusk, Head of Real Estate Fund Services, Citco Fund Services. Published in the First Quarter 2018 NCREIF Performance Report.

TIAA Global Real Estate's Senior Director, Fabiana Lotito, explores if newly acquired product, in a rapidly rising market, will tend to lag as they generally price at the top of market.

Jeff Bean and Richard Kleinman of LaSalle Investment Management discuss how custom analysis of the NCREIF property database can occasionally produce counter-intuitive results that are not the outcome of errors in the query or data, but statistical quirks.

This paper examines the NCREIF-Open End Diversified Core Equity Index’s (ODCE) exposure to different employment sectors through its geographic allocation. Authors and contributors from LaSalle Investment Management include: Jeff Bean, Bill Maher, Richard Kleinman, Daniel Mahoney

Nathan Kane of LaSalle Investment Management compares vintage year returns for core properties between the six 'gateway markets' and the rest of the NCREIF universe between 2000 and 2011.

This RERI funded paper tests the hypothesis that investors’ ex ante discount rates help predict ex post investment returns and ex post investment risk. Author Liang Peng.

This RERI funded paper builds on existing methods to estimate abnormal performance of real estate assets from cash flows to strengthen the position that open-end core real estate funds earn high returns. Authors Jin Man Lee, James D. Shilling, and Charles Wurtzebach.

This RERI funded paper seeks to identify the causes of market-specific transaction activity and liquidity risks across US metropolitan office markets. Authors Steven Devaney, Pat McAllister, and Anupam Nanda.

This RERI funded paper investigates the disconnected roles of credit policy versus property market fundamentals in producing volatility for commercial real estate prices. Author Jonathon A. Wiley.

Chinmoy Ghosh and Milena Petrova used a sample of 56,144 annual property observations during 2000 – 2011 to analyze the determinants of capital expenditures and their sub-components at the property level when accounting for uncertainty.

This paper compares the unlevered returns on value added and core investments of private commercial real estate equity in the National Council of Real Estate Investment Fiduciaries (NCREIF) database. This paper is authored by Liang Peng and Thomas Thibodeau

This RERI funded paper tests the option pricing theory that capital improvement expenditures are positively linked with high or increasing market lease rates and the conjecture that capital expenditures are fully capitalized into market value. Authors Shaun A. Bond, James D. Shilling, and Charles H. Wurtzebach.

This RERI funded paper empirically analyzes how individual property cap rates are affected by macroeconomic conditions, local market conditions, and property characteristics and then analyzes what drives uncertainty in property cap rates. Author Liang Peng.

This RERI funded paper empirically analyzes the non-monotonic influences that interest rate changes have on irreversible investment in income producing properties. Authors Liang Peng and Thomas G. Thibodeau.

This RERI funded paper explores hedge funds’ investment strategy relating to their exposure to the real estate market by introducing a real estate source of variation to proxy for investments in the securitized and direct real estate markets. Authors Brent W. Ambrose and Charles Cao.

This RERI funded paper uses a parametric portfolio to estimate optimal commercial real estate portfolio policies. Authors Alberto Plazzi, Walter Torous, and Rossen Valkanov.

This RERI funded paper examines the relation between the availability of credit, market liquidity, and asset price movements in both public and private commercial real estate markets. Authors David C. Ling, Andy Naranjo, and Benjamin Scheick.

This RERI funded paper provides new evidence on the performance measurement and reporting of commercial real estate returns by examining the accuracy of property appraisals prior to sale. Authors Susanne E. Cannon and Rebel A. Cole.

This RERI funded paper seeks to complement the NPI by developing a rental index based upon the property-level rent data collected by NCREIF. Authors Xudong An, Yongheng Deng, and Jeff Fisher.

This RERI funded paper explores fund managers’ abilities to generate abnormal profits in the real estate market, a market characterized by relative inefficiency compared to the publicly-traded market. Authors Yael V. Hochberg and Tobias Muhlhofer.

This RERI funded paper investigates whether value-added and opportunistic real estate investing has resulted in appropriate risk-adjusted returns. Authors James D. Shilling and Charles Wurtzebach.