I was talking to a portfolio manager last week just as he was reviewing the latest benchmark quarterly return for open-end diversified funds from the NCREIF-ODCE. The total return for the first quarter on the highly followed index was 3.39%, including a hefty appreciation component of 2.20%. The NCREIF-ODCE has been registering annualized returns for core real estate managers in the low teens for the last several years well above the annualized mean, which sits more in the 7-8% range. My portfolio manager friend took a deep breath, a nervous expression of concern about inevitable reversion to the mean.
“We've been talking (in the office) about what is driving these returns,” he said. “The big open-end funds are all writing up their properties in the top urban markets, reflecting the influx of sovereign wealth funds and other offshore capital into these cities, buying up real estate with cap rates as low as 3.”
His trepidation expressed a clear note of “this can't continue.”
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Jonathan D. Miller
A marketing communication strategist who turned to real estate analysis, Jonathan D. Miller is a foremost interpreter of 21st citistate futures – cities and suburbs alike – seen through the lens of lifestyles and market realities. For more than 20 years (1992-2013), Miller authored Emerging Trends in Real Estate, the leading commercial real estate industry outlook report, published annually by PricewaterhouseCoopers and the Urban Land Institute (ULI). He has lectures frequently on trends in real estate, including the future of America's major 24-hour urban centers and sprawling suburbs. He also has been author of ULI’s annual forecasts on infrastructure and its What’s Next? series of forecasts. On a weekly basis, he writes the Trendczar blog for GlobeStreet.com, the real estate news website. Outside his published forecasting work, Miller is a prominent communications/institutional investor-marketing strategist and partner in Miller Ryan LLC, helping corporate clients develop and execute branding and communications programs. He led the re-branding of GMAC Commercial Mortgage to Capmark Financial Group Inc. and he was part of the management team that helped build Equitable Real Estate Investment Management, Inc. (subsequently Lend Lease Real Estate Investments, Inc.) into the leading real estate advisor to pension funds and other real institutional investors. He joined the Equitable Life Assurance Society of the U.S. in 1981, moving to Equitable Real Estate in 1984 as head of Corporate/Marketing Communications. In the 1980's he managed relations for several of the country's most prominent real estate developments including New York's Trump Tower and the Equitable Center. Earlier in his career, Miller was a reporter for Gannett Newspapers. He is a member of the Citistates Group and a board member of NYC Outward Bound Schools and the Center for Employment Opportunities.
