NAREIM DIALOGUES FALL 2016
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Commercial real estate in the US has had a great run during the past five years as the
market has been recovering from the financial crisis. As shown in Exhibit I, the values of
institutional grade commercial real estate have recovered to be slightly above its pre-
recession peak and slightly above a long term trend line since 1978.
In the previous edition of this journal, Jim Costello observed that last January, the Moody's/RCA
Commercial Property Price Indices (CPPI) national all-property composite index recorded its first
monthly drop in six years. Since then, we have seen a continued decline of real estate returns in the
NCREIF Property Index (NPI) from the double digit unleveraged returns we had been experiencing. The
CPPI resumed growth in May and June which is consistent with the price increases observed in the
NCREIF market value index (MVI) ending in the June quarter.
There are, of course, differences between the two indices. The CPPI uses repeat sale data from Real
Capital Analytics (RCA) and includes properties with transaction prices as low as $2.5 million whereas
the MVI is based on appraised values for much higher value institutional real estate. Yet we can learn by
observing both indices and trying to discern what they are telling us about whether the market appears
to be peaking or just reverting to the mean. The 37-year history of the NCREIF data that spans two
major recessions as well as the tech bust and 9-11 can help give us a longer term perspective about
where returns are compared to historical levels.
Exhibit I: NCREIF Market Value Index for Institutional Real Estate
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Views expressed in this article are solely those of the author.
