NAREIT and NCREIF: REIT Share Returns Versus Property Returns
Summary
The document distinguishes two US real estate performance measures. NAREIT indices track returns on publicly traded REIT shares, so they reflect investments in listed companies rather than direct ownership of the properties those companies hold. NCREIF tracks commercial property returns and relies on periodic appraisals because such assets are infrequently sold.
The choice between them depends on the exposure being studied: NAREIT is relevant to indirect investment through REIT shares, while NCREIF is intended to represent direct property investment. The discussion notes that NAREIT has shown higher volatility, which may reflect both stock market influences on REITs and delayed or smoothed property valuations in appraisal-based data. It does not resolve how much each effect contributes, and the indices measure different forms of real estate exposure rather than interchangeable versions of the same return series.
Key ideas
- NAREIT indices measure returns on publicly traded REIT shares.
- NCREIF measures commercial property returns using periodic appraisals.
- Listed REIT performance can differ from the value and performance of underlying properties.
- NAREIT's higher observed volatility may reflect equity market effects and appraisal smoothing in property data.
- Choose an index based on whether the exposure of interest is indirect REIT ownership or direct property investment.
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Full text
# Nareit indices representing underlying assets or traded REITS? # Nareit indices representing underlying assets or traded REITS? I’m looking into using Nareit for my analysis but do not understand exactly what it is. From the website it sounds like the indices track the REIT returns… not the returns of the properties underlying the REITs. Does Nareit track the underlying property returns, or does it track the returns of the REITs themselves? This would make a massive different since the REITs themselves are like stocks and not actual property. ## Answer by Si Chen (score 1) https://quant.stackexchange.com/a/68875 It tracks the returns of the REIT stocks in the REIT index, not the underlying properties. The two vary from each other. Green Street Advisors is a research firm that specializes in analysing the relative valuations of REIT stocks versus vs underlying properties, among other things. ## Answer by nbbo2 (score 0) https://quant.stackexchange.com/a/68876 This question comes up in the CFA Level 3 curriculum, where you learn about the ins and outs of various asset classes. There are two commonly used indexes to track the performance of real estate investments in the US. NAREIT is a monthly index of returns on publicly traded US REIT (Real Estate Investment Trusts) shares NCREIF is an quarterly index of returns on commercial real estate properties. Because such properties are seldom sold, this index relies on periodic appraisals of the value of the properties. The volatility of NAREIT is higher than the volatility of NCREIF. Some say this is because the stock market introduces extra volatility in REIT returns. They seem to be correlated to other Midcap and Smallcap stocks, and move in sympathy with them. Others say that the appraisals used in NCREIF result in artificial smoothing of NCREIF returns because appraisers tend to be conservative and do not adjust values quickly enough. I don't know how to tell who is right and there may be some truth to both views. You can use one or the other index depending on your purpose. Direct investment in real estate => NCREIF, indirect investment via shares => NAREIT>
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