Searching for a common factor in public and private real estate returns

We introduce a methodology to estimate common real estate returns and cycles across public and private real estate markets. We first place REIT indices and direct real estate—NCREIF appraisal-based and transaction-based indices (NPI and NTBI)—on a comparable basis by adjusting for leverage and sector. We extract a common real estate factor, which is allowed to be persistent, from all these markets. Individual real estate indices load on this common factor and they also are driven by persistent, idiosyncratic shocks. The common real estate factor is procyclical and has low correlations with standard systematic factors from public markets. Short-run idiosyncratic deviations from the common real estate factor load on several capital market factors for REITs and on liquidity factors for direct real estate.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.

MORE ABOUT NETSPAR


Mission en strategy           •           Network           •           Organisation           •          Magazine
Board Brief            •            Actionplan 2023-2027           •           Researchagenda

ABOUT NETSPAR

Our partners

B20160708_tilburg university
B20200214_BlackRock_BLK_eng_black_rgb_small
B20200104_RailOV_logoo.original.grijswaarden
Print
B20190823_mn-logo_small
View all partners