This Viewpoint is the fifth installment in a series exploring the relationship between the CRE quadrants of public debt, private debt, private equity and public equity. Specifically, we will examine the historic performance of directly held property and CRE equity funds in relation to the quadrants.

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. 

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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.

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