REIT-Based Property Return Indices: A New Way to Track and Trade Commercial Real Estate

• Main Authors: Horrigan, Holly (Contributor), Case, Brad (Author), Geltner, David M. (Contributor), Pollakowski, Henry (Contributor)
• Other Authors: Massachusetts Institute of Technology. Center for Real Estate (Contributor), Massachusetts Institute of Technology. Department of Urban Studies and Planning (Contributor)
• Format: Article
• Language: English
• Published: Institutional Investor, 2010-03-03T19:28:59Z.
• Subjects: Article
• Online Access: Get fulltext

 Using REIT return data, bond data, and property holding data, the authors construct property market segment-specific indices of asset returns. The authors show that these pure-play indices can be employed to make pure, targeted investments in the commercial real estate market while retaining the liquidity, transparency, and pricing efficiency benefits of the well-developed public market in REITs. These pure-play indices compare favorably with existing property market return indices, displaying volatilities similar to transaction-based indices, such as the Moody's/REAL Commercial Property Price Index, but tending to lead the private market in time. The pure-play indices can be generated at a daily frequency without significant noise and at various levels of market segment granularity and, notably, have led the transactions-based direct property market indices during the recent market downturn. The authors' findings suggest that the REIT-based pure-play indices may provide a unique, new information source about the commercial property market, as well as a unique capability to facilitate targeted investments, construct hedges, and potentially support derivatives trading.