MIT to Track Real Estate

The MIT Center for Real Estate of the Massachusetts Institute of Technology has released a commercial real estate index that tracks the investment performance of commercial properties. According to this index, commercial real estate properties turned in a return of 34% for 2005, MIT reports.

The index uses input on transactions data provided by the National Council of Real Estate Investment Fiduciaries, a body that represents firms that invest pension fund money. David Geltner, director of the MIT Center for Real Estate, said, "The index addresses the need for a 'fundamental asset class research' index of real estate investment performance and market conditions.

"It is designed to tap the capabilities of modern econometrics to distill information from property transaction prices." The index is based on transaction prices of properties sold each quarter from the property database that underlies the NCREIF Property Index. As well, it uses appraisal information for the properties.

The index covers the period 1984 through 2005, and is going to be updated quarterly by the center's Commercial Real Estate Data Laboratory.

Henry Pollakowski, co-director, CREDL, said, "This has been a major undertaking. There is demand for this information, and we have been driven by this demand to take this undertaking very seriously to get the most precise results possible." According to the MIT index, the previous highest total return for commercial real estate was in 1997, at 23%.

For 2005, returns on the four major commercial property types - office, retail, multifamily and industrial - ranged from 29% to 40%, the MIT center reports. The 2005 return of 34% based on this index compares with an S&P 500 return of 4.9%, and a 12.2% return on the NAREIT Equity REIT index.

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