From a small northwestern observatory…

Finance and economics generally focused on real estate

Posts Tagged ‘NCREIF

So, how’s Real Estate?

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OK, OK, OK — we get it.  The stock market has been the “place to be” the past few months.  Actually, it’s been a great place the past few years.  You may not realize it, but 2016 was the first year in the past 6 that the S&P 500 did NOT turn in a double-digit return.  That said, the S&P came in at 9.4% for the year, and that’s nothing to sneeze at.  The Nasdaq turned in 7.5%, also a decent number.

So, comparatively speaking, how were the returns in Real Estate?  Two of the best markers for that are indices produced by the National Association of Real Estate Investment Trusts (NAREIT) and the National Council of Real Estate Investment Fiduciaries (NCREIF).  NAREIT is made up of 167 publicly traded equity REITs and 34 mortgage REITs (for our purposes, we’re only interested in the equity side).  These have a total market capitalization of slightly over $1 Trillion.  NCREIF is an index of non-securitized commercial properties, generally owned by tax-exempt institutions, and totals slightly over $500 Billion in value.  Both indices do a pretty good job of benchmarking commercial real estate returns.

For 2016, the NAREIT index came in at 8.63%, or slightly above the NASDAQ and slightly below the S&P.  The NCREIF index came in at 7.97%, also not a shabby number.  Because of the nature of the NCREIF index, it’s not quite as granular as the NAREIT index, and only reports quarterly.

However, NAREIT reports monthly, and also gives us some return numbers on a sector basis.  This can be very telling, because it reminds that an equally weighted REIT portfolio may be inferior to one more carefully chosen.  Year to date, the NAREIT index has come in at 4.19%, which is somewhat below the S&P’s 6.68%.  However, some sectors such as timber, specialty, and single family homes have turned in double-digit returns already this year, and data centers, infrastructure, and manufactured homes have also bested the S&P.  On the other hand, shopping are actually turning in negative returns thus-far this year (notably, regional malls came in negative for 2016).  The industrial sector has turned negative in 2017, but enjoyed the top returns of all sectors in 2016, at 30.72% for the year.  Lodging/resorts is also negative thus-far in 2017, and also turned in significant positive returns in 2016 at 24.34%.

As always, this is not a recommendation or solicitation to purchase any particular investment, and prior returns are not indicative of what may happen tomorrow.  This is just a blog — nothing more than that.

Written by johnkilpatrick

March 2, 2017 at 8:32 am

FED raises rates — now what?

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from-tiaaThere is plenty of news about the FED bumping rates today — a whopping 0.25% (“yawn”) and only the 2nd time in a decade.  The argument is that the FED no longer sees low rates as a needed crutch for the economy.  Perhaps they’re right.  My interest is real estate — how will higher rates impact property returns?  More to the point, if the Trump administration goes ahead with infrastructure spending, as was promised, and the FED follows with further rate bumps, as has been projected, will real estate continue its upward climb?

Rather than answer that directly, there’s a great piece on that topic from TIAA — you can access it by clicking here.  Looking at data from back to 1980, TIAA finds that real estate appears to perform just as well during periods of rising rates as it does in other times.  Indeed, they find a 70% correlation between acquisition cap rates and long-term Treasury rates, suggesting that real estate buyers are agnostic on rates, within reason. Indeed, as the graphic above indicates, the most upsetting quarterly property returns came during periods of relatively stable, downward trending long-bond rates.  For the last half-decade, quarterly property returns have tracked the long-bond quite nicely.

So there ya have it, folks.

Written by johnkilpatrick

December 14, 2016 at 3:38 pm

Posted in Economy, Finance

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