CHICAGO—Consistent with the National Council of Real Estate Investment Fiduciaries' fourth-quarter NCREIF Property Index, released this past Friday, the council's latest core real estate fund index has displayed progressive improvement since midyear 2017. Q4 numbers for the NCREIF Fund Index – Open‐end Diversified Core Equity (NFI-ODCE) showed total returns of 2.07%, compared to 1.87% in Q3 and 1.7% in Q2. However, it's down by four basis points compared to a year ago.
The income return for the quarter was 1.06%, down .01% from the previous quarter. Quarterly appreciation averaged 0.78% across '17, with strong 1.01% appreciation in Q4. In comparison, the quarterly average appreciation in 2016 and 2015 was 1.02% and 2.38%, respectively.
For the trailing year, the annual NFI-ODCE total return gross of fees was 7.62%, down from 8.77% for the year that ended Q4 '16 and below the annualized return of 8.72% since inception. The annual total return was comprised of a 4.35% income return and 3.15% appreciation.
Since the NFI-ODCE—which consists of 24 funds totaling $225.9 billion of gross real estate assets—measures fund-level performance, the index's returns can reflect other investments beyond properties, including cash balances and leverage. Leverage among the funds has ranged from 15% to 34% over the quarterly series history beginning in 2000. Q4 saw a slight uptick to 21.4% leverage, but that's still lower than the 21.7% recorded a year ago.
Quarterly net NFI-ODCE investor cash flows were negative $1.1 billion for Q4 '17 compared to negative $1.2 billion in the year-ago period. NCREIF says that for the trailing year, annual contributions were $14.5 billion with distributions/redemptions of $15.6 billion for negative net flows of $1.1 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.
