CHICAGO—Even as the National Council of Real Estate Investment Fiduciaries reported a slight decline in third-quarter returns on the 7,165 income-producing properties in its NCREIF Property Index, the council also noted a slight uptick in core fund performance. The NCREIF Fund Index—Open‐end Diversified Core Equity (NFI-ODCE)'s quarterly returns gross of fees edged up to 1.87% in Q3 from 1.70% in Q2, although the index was down from the 2.0% seen in the year-ago period. The index covers 23 funds totaling $220.9 billion of gross real estate assets and $181.4 billion of net real estate assets; the oldest fund in the index was launched in 1970.
The income return on NFI-ODCE has been essentially flat over the past year and was 1.07% in Q3, NCREIF said Monday afternoon. Year to date, quarterly appreciation has averaged 0.70%, with Q3 seeing appreciation of 0.79%, down from the 1.02% quarterly average in 2016 and 2.38% in 2015. The appreciation return consists of real estate and debt valuation; Q3's debt valuation component was 0.33%, up from 0.30% last quarter and negative 0.14% a year ago.
For the trailing year, the annual NFI-ODCE total return gross of fees was 7.66%, down from 10.08% for the year ending Sept. 30, 2016 and below the annualized since inception return of 8.72%. However, it compares favorably to the trailing 12-month return for the NPI at 6.89%.
NFI-ODCE returns measure fund-level performance and therefore can reflect other investments beyond properties, including cash balances and leverage. The council notes that leverage is conservative among these funds given their core strategies, and has ranged from 15% to 34% over the quarterly series history beginning in 2000. NFI-ODCE leverage continued to edge down in Q3, to 21.3%, from 21.5% in the prior quarter and 22.1% a year ago.
Quarterly net NFI-ODCE fund flows have been negative for three of the past four quarters, with Q2 the sole exception. For Q3, net flows were negative $1.6 million, representing the narrowest gap in series history between quarterly contributions and distributions/redemptions, with both at roughly $4.1 billion each. For the trailing year, annual contributions were $14.6 billion with distributions/redemptions of $15.8 billion for negative net flows of $1.3 billion.
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
