Income and Capital Appreciation from Real Estate Investing: The Participation Trophy and the Performance Record
August 29, 2017 | Brad Case | REIT.com
Recently I was looking at marketing materials for a core private equity real estate investment fund touting a so-called “benefit” that was, to put it bluntly, weird: the manager boasted that “income accounts for nearly all of the total return.” (No need to call out that particular manager—I’ve seen many other instances of the same thing—so that’s not an exact quotation.)
Why would anybody brag about failing to earn any return other than income, in an asset class where sizeable current income is all but guaranteed and where others seem to be generating the growth in income that results in capital appreciation on top of it?
Over the past 25 years (1992Q3-2017Q2), the NCREIF Property Index (NPI) published by the National Council of Real Estate Investment Fiduciaries has shown income averaging +5.25% per year (compounded) after fees and expenses that average about 100 basis points per year. (Fees and expenses are charged against income, not capital appreciation.) NCREIF’s Open-End Diversified Core Equity (ODCE) Fund Index shows net income averaging +5.09% per year after fees and expenses that averaged 103 bps/yr.
