IIJournals JPM-Special Real Estate Article Collection | Page 4

EXHIBIT 2

role of transaction-based indexes in
decision making for institutional invesU.S. Asset Class Historical Return and “Risk” Statistics
tors. In one sense, such indexes are more
(Quarterly Data, 1978:1–2013:1)
directly comparable to other asset class
indexes and therefore should be used in
making asset allocation decisions. However, a common counterargument is
that, since institutions calculate returns
using appraised values, appraisal-based
real estate indexes are a better ref lection
of how institutional portfolio returns
are actually reported. There may be no
single “true answer” to this question;
the right answer may vary depending on
investor and circumstance, or perhaps lies
somewhere between the two extremes.
Future research may help investors wrestling with this question make the most
effective use of the increasing number of
analytic tools available in the real estate
market.
*Real Estate is “adjusted-NPI” with volatility that reflects the NCREIF Transaction-Based
Index (NTBI) return volatility.
The rise of defined contribution
Source: Authors, NCREIF, NAREIT.
(DC) pension plans is an important
development in the institutional capital
markets, with significant implications for how real estate
market asset class in which investments are generally held
allocations are evaluated and what are the appropriate
for long periods, periodic returns are calculated based
analytical tools to use. DC plans have now almost entirely
on appraised values. It is well known, however, that
replaced defined benefit (DB) plans for new employees
appraised values tend to be less volatile than, and to lag,
in the private sector, and there is a growing trend within
transaction prices. Recently, a greater number of specialthe public sector to enroll new employees in DC plans.
ized commercial real estate indexes based on transacWhile legacy DB plans will remain a major force in the
tion prices have appeared. These include the NCREIF
capital markets for many years to come, there is little
Transaction Based Index (NTBI), as well as indexes from
doubt that the growth is in the DC space. But DC plans
Real Capital Analytics and CoStar. Exhibit 2