REIT-Based Property Return Indices: A New Way to Track and Trade Commercial Real Estate
Author(s)Horrigan, Holly; Case, Brad; Geltner, David M.; Pollakowski, Henry
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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.
DepartmentMassachusetts Institute of Technology. Center for Real Estate; Massachusetts Institute of Technology. Department of Urban Studies and Planning
Journal of Portfolio Management
Horrigan, Holly et al. “REIT-Based Property Return Indices: A New Way to Track and Trade Commercial Real Estate.” The Journal of Portfolio Management 35.5 (2009): 80-91.
Author's final manuscript