March 22, 2006—A team of Massachusetts Institute of Technology (MIT) economists has taken the wraps off a new index that they contend better compares the performance of commercial real estate to such traditional investments as stocks and bonds.
Preliminary figures show that total returns on US commercial property holdings last year reached 34 percent, the highest in the 22 years tracked by the researchers. By comparison, the total return for the Standard & Poor index of 500 publicly traded companies was only 4.9 percent in 2005.
The finding is one of many from a first-of-its-kind index, just unveiled by the center, that tracks the value of commercial real estate, which over the past 30 years has joined stocks and bonds as a major investment vehicle.
Historically, it has been difficult to keep current on investment performance in this sector. While the performance of stocks and bonds can be tracked daily because they are publicly traded, holders of commercial real estate don’t reveal comparable information.
The MIT quarterly index, the first tool released by the Center for Real Estate’s new Commercial Real Estate Data Laboratory (CREDL), uses sophisticated statistical techniques and proprietary transactions data provided by the National Council of Real Estate Investment Fiduciaries (NCREIF) to create an accessible source for this information, says MIT.
NCREIF is a nonprofit industry-governed organization consisting of firms that invest pension money; together the firms hold more than $200 billion in commercial real estate in nearly 5,000 properties nationwide.
For more information, visit the MIT Web site.
