Berkshire Investment Advisors, Boston, and Walter Barnes, president of Mortgage Analytics of Madison, Wis., have developed the Berkshire/Barnes Multi-Family Mortgage Index, which measures the performance of multifamily mortgages.
Multifamily mortgages are the largest segment of the commercial mortgage market, but there has not been an index to solely measure commercial multifamily mortgage performance. Several indexes covering all commercial mortgages have been constructed, the most recent was the Salomon-Levy Commercial Mortgage Performance Index created by Michael Giliberto and John Levy in 1993.
Berkshire President Ross Keeler believes subindexes are desirable because they are more representative of actual investment results of a particular portfolio. Composite indexes are best suited for asset allocation studies, he noted.
In addition to the multifamily index, Berkshire and Mortgage Analytics plan to introduce subindexes for retail, office and industrial properties, as well as a composite index. The multifamily index also tells investors how the sector performed vs. other fixed-income securities. Among the findings, multifamily mortgages:
Historically returned 10.5% between 1973 and 1993;
Provided returns similar to corporate bonds and long-term Treasuries with substantially less volatility over one-, five- and 10-year holding periods;
Are modestly correlated to other fixed-income indexes and negatively correlated with the Russell-NCREIF index; and
Had returns that exceeded other forms of fixed-income securities in rising interest rate markets, but trailed other debt securities when rates were falling.