Indices for Investment Benchmarking and Return Performance Analysis in Private Real Estate

Abstract

In U.S. commercial real estate markets, a single index product produced by the National Council of Real Estate Investment Fiduciaries (NCREIF) has been used for both asset class research and for agent evaluation benchmarking. While the NCREIF Index is an invaluable tool for the U.S. real estate investment industry, in some respects its construction is not optimized for either research or the benchmarking function, though the gap between the reality and the ideal is arguably greatest on the research side. This paper first discusses the purpose of the ideal research index, the optimal depth and breadth of market coverage, and the type of information included in the research index database. This discussion is followed by an analysis of the ideal agent evaluation benchmark index, including the definition, purpose, and uses of evaluation benchmarking, the characteristics of the ideal benchmark index, market coverage and information considerations, and a comparison of benchmark indices in the private real estate market to comparable indices used to benchmark public securities.
 

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