There's room for more than one equity real estate index.
The NCREIF Property index, the industry standard for more than 30 years, is no longer the only game in town. Investors have a lot more choices today and new indexes are popping up all the time.
- Investment Property Databank, a London-based global real estate research firm, has big plans to add a vintage-year performance index and is in the midst of creating an index with the Pension Real Estate Association that measures performance of open-end funds in core, value-added and opportunistic strategies;
- The National Council of Real Estate Investment Fiduciaries is working with the European Association for Investors in Non-Listed Real Estate Vehicles, or INREV, and its Asian counterpart, ANREV, to launch a global fund index designed to be a global benchmark. They expect to present preliminary results of the new index at the ANREV Annual Conference in October and the NCREIF Fall Conference in November.
- In September, the National Association of Real Estate Investment Trusts and FTSE Group plan to publicly unveil their joint real estate index, which derives the value of the underlying properties from REIT stock prices; and
- Earlier this year, ratings firm Moody's Investors Service and real estate research firm Real Capital Analytics began sponsoring a transaction-based set of indexes, Moody's/RCA Commercial Property Price Indices.
Also, the NCREIF, creator of the Property index, developed its first fund index, the NCREIF Fund Index-Open-End Diversified Core Equity, in 2005. Now it is beginning to take hold as a benchmark, replacing NCREIF's standard benchmark. Investors that have adopted the new NCREIF index include the $237.5 billion California Public Employees' Retirement System and the $12 billion Ohio Police and Fire Pension Fund.
The board of the Ohio Police & Fire fund made the switch because members felt the index was more reflective of the investible universe, said Dave Graham, communications manager, in an e-mailed response to questions. When it made the switch in November, the board noted the pension fund's peers had been shifting steadily away from the NCREIF Property index toward the Open-End Diversified Core Equity index.
“There's been a significantly increased need from investors to know what the (real estate) market is doing,” said Claude Angeloz, partner and co-head of the Partners Group's real estate investment business.
Zug, Switzerland-based Partners Group does not earn any money on the index, Mr. Angeloz said. The firm began collecting market data a decade ago in order to measure how its non-core real estate portfolio was doing on an absolute and relative basis.
“It's a coincidence that the index is coming out at a time when the market is changing a lot,” he said. “Investors want to know how their returns are relative to the market. They are no longer willing to take track record numbers from the private placement memorandum and assess them on an absolute-return basis. They are looking for a suitable reference on how their investments have been doing.”