A First Look at the Historical Performance of the New NAV REITs

Fisher College of Business Working Paper No. 2024-03-001

Charles A. Dice Center Working Paper 2024-01

44 Pages Posted: 12 Jan 2024

See all articles by Spencer J. Couts

Spencer J. Couts

University of Southern California - Sol Price School of Public Policy; USC Lusk Center of Real Estate

Andrei S. Gonçalves

Ohio State University (OSU) - Fisher College of Business

Date Written: January 10, 2024

Abstract

Private Commercial Real Estate (CRE) funds provide institutional investors an opportunity to access the CRE market, but most of them are inaccessible to typical individual (retail) investors. In this paper, we study the early performance (2016 to 2023) of a special and emerging class of non-listed CRE funds that are accessible to individual investors. These funds, referred to as Net Asset Value (NAV) Real Estate Investment Trusts (REITs), have grown in importance over the last decade. They now represent a major alternative to publicly traded REITs in providing individual investors a way to access CRE investments without direct ownership. We find that the observed returns from these NAV REITs suffer from smoothness due to lagged pricing updates, and thus unsmoothing returns is important for studying their risk-adjusted performance. We then show that NAV REITs have delivered large alphas relative to public indices over our sample period. Finally, we highlight that traditional alpha analysis may not be adequate for a short sample like ours and provide an alternative alpha analysis that indicates the alphas of NAV REITs over our sample period were economically meaningful, albeit substantially lower than traditional alpha analysis suggests.

Keywords: Real Estate Investment Trusts, Risk-Adjusted Performance, Portfolio Allocation, Individual Investors

JEL Classification: G11, G23

Suggested Citation

Couts, Spencer J. and S. Gonçalves, Andrei, A First Look at the Historical Performance of the New NAV REITs (January 10, 2024). Fisher College of Business Working Paper No. 2024-03-001, Charles A. Dice Center Working Paper 2024-01, Available at SSRN: https://ssrn.com/abstract=4692973 or http://dx.doi.org/10.2139/ssrn.4692973

Spencer J. Couts

University of Southern California - Sol Price School of Public Policy ( email )

Los Angeles, CA 90089-0626
United States

USC Lusk Center of Real Estate ( email )

650 Childs Way
Los Angeles, CA 90089
United States

Andrei S. Gonçalves (Contact Author)

Ohio State University (OSU) - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

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