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Searching for a Common Factor in Public and Private Real Estate Returns

Posted: 12 Oct 2012 Last revised: 2 Oct 2017

Andrew Ang

BlackRock, Inc

Neil Nabar

Fidelity Investments, Inc. - Fidelity Management & Research

Samuel Wald

Fidelity Investments, Inc. - Fidelity Management & Research

Date Written: April 16, 2013

Abstract

We introduce a methodology to estimate common real estate returns and cycles across public and private real estate markets. We first place REIT indices and direct real estate — NCREIF appraisal-based and transaction-based indices (NPI and NTBI) — on a comparable basis by adjusting for leverage and sector. We extract a common real estate factor, which is allowed to be persistent, from all these markets. Individual real estate indices load on this common factor and they also are driven by persistent, idiosyncratic shocks. The common real estate factor is pro-cyclical and has low correlations with standard systematic factors from public markets. Short-run idiosyncratic deviations from the common real estate factor load on several capital market factors for REITs and on liquidity factors for direct real estate.

Keywords: Real Estate, Direct Real Estate Investments, REITs

JEL Classification: G12

Suggested Citation

Ang, Andrew and Nabar, Neil and Wald, Samuel, Searching for a Common Factor in Public and Private Real Estate Returns (April 16, 2013). Available at SSRN: https://ssrn.com/abstract=2158703 or http://dx.doi.org/10.2139/ssrn.2158703

Andrew Ang

BlackRock, Inc ( email )

55 East 52nd Street
New York City, NY 10055
United States

Neil Nabar (Contact Author)

Fidelity Investments, Inc. - Fidelity Management & Research ( email )

82 Devonshire Street
Boston, MA 02109
United States

Samuel Wald

Fidelity Investments, Inc. - Fidelity Management & Research ( email )

82 Devonshire Street
Boston, MA 02109
United States

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