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Executive Summary

• Property returns exhibit serial correlation, making them partially predictable based on past returns. This needs to be considered when comparing private and public property returns.

• This serial correlation masks the risks from private CRE equity. Failure to account for this hidden risk would lead to overallocation relative to the other quadrants.

• Our property models explain more than 80% of the historic levered and unlevered property (NPI) returns. These models include lagged REIT returns, BBB CMBS returns, NOI growth, and lagged property returns. 

1 CBRE Econometric Advisors invited Dr. Randall Zisler to co-author this paper on the real estate quadrants. His unique approach reflects a multifaceted career as a Princeton University professor, Goldman Sachs research director, pension fund consultant, and investment banker.