NCREIF

FAQs

About the NCREIF Organization

• How is NCREIF Governed?

  Management and governance is the responsibility of NCREIF's full time staff and its Board of Directors.

• What is the Role of the NCREIF Standing Committees?

  NCREIF's information collection, processing and dissemination is overseen and supported by NCREIF's seven working committees:
  
  Accounting
  Database & Indices
  Information Management
  Performance Measurement
  Portfolio Management
  Research
  Valuation
  

  Each committee is made up of representatives of the broader NCREIF constituency. It is at the committee level where new NCREIF initiatives are first conceived; where completed initiatives are converted to information products; where outdated initiatives are removed from the docket. Each committee has a mission statement. When the individual committee mission statements are combined, they add up to the total mission of NCREIF. Each standing committee has responsibility for overseeing the execution of a segment of NCREIF's overall mission. Each of the Committee's mission statements can be found on the NCREIF web site. A link will also be provided.

  Committees play an active and critically important role in NCREIF governance. Committees meet at least three times a year. They report to the Board of Directors on the progress of open business issues and make recommendations on completed business in need of Board approval. Any committee recommendation to the Board follows a lengthy period of inquiry, open discussion and debate. While the Board is the final decision maker, it is at the individual NCREIF committee level where all of the issues are taken under advisement, addressed and brought to resolution. It is the committee which makes the final decision as to when a new initiative or old business revisited requires Board action.

• What is the Makeup and Role of the NCREIF Board of Directors?

  
  The activities and affairs of NCREIF are managed by its Board of Directors. The Board operates within the rules, regulations and limitations as set forth in NCREIF's Articles of Incorporation and Bylaws.

  The number of directors is nine. They serve four year staggered terms. Directors are elected by the membership. A subcommittee of the Board and key staff members serves as the Board's Nominating Committee. Five Board seats are set aside for Data Contributing Members - three to investment advisors/managers and two to plan sponsors. The remaining four Board seats are occupied by representatives of Professional or Academic members. Board members are drawn from the ranks of CEOs and other high-level decision makers of NCREIF member organizations.

  The Board meets at least three times a year. Committee Chairs report to the Board on the status of each committee's ongoing projects whenever the Board convenes.

• What is the Role of the NCREIF Staff?

  The Board has delegated the day-to-day management of NCREIF's affairs to a full-time association staff. The staff conducts the business of NCREIF in accordance with the Board's direction. Day to day operations is managed by a full-time staff of five. NCREIF also retains, on a project by project basis, outside consultants to manage certain initiatives whenever the situation warrants. Outsourcing to qualified third parties is an integral part of operations.

  The internal staff is responsible for data collection and processing, production of NCREIF statistical products, website development and management, membership management, conference planning, education programs, annual business plan and manager of REIS revisions and Standing Committee projects, initiatives and responsibilities.

About the Real Estate Information Standards (REIS)

• What is REIS (Real Estate Information Standards)?

  Since its inception, NCREIF has collaborated to formulate policies and procedures for standardizing the reporting of performance results for real estate investments acquired by tax-exempt institutional investors and owned in a fiduciary setting.

  The Real Estate Information Standards (REIS) represents an evolving body of work that presents guidance and recommendations on behalf of the tax-exempt institutional real estate investment industry for calculating, presenting and reporting real estate investment returns. It is an ongoing effort to identify and codify a single set of desired industry practices and to improve standardization of valuation procedures, financial accounting and reporting of performance return information. The overriding objective is to promote disclosure of reliable information, which is relevant to investment decision making that includes adequate descriptions of policies and practices to facilitate analysis.

  REIS seek to govern tax-exempt institutional investment in U.S. real estate only. REIS incorporates by reference, governance from other standard setting bodies where applicable to institutional investment in private equity real estate. Most importantly, REIS provides guidance in specific areas of valuation, market value accounting and performance measurement primarily because existing standards do not adequately address these particular issues, which are extremely important to tax-exempt institutional investors since they report to their beneficiaries using market value based financial reporting.

  REIS specifically addresses Property Valuation Standards, Market Value Accounting and Reporting Standards, and Performance Measurement Standards. REIS is not authoritative. It provides guidance and recommendations based on current best practices and accounting standards.

  NCREIF strongly encourages its members to comply with REIS but does not presently require third party verification of compliance from its members.

• What is the Process for Updating the Real Estate Information Standards?

  The NCREIF staff receives and reviews all requests for changes/updates to the REIS and the requests are given to the NCREIF Standing Committees for review and vetting. If the committees vote to recommend a change/update, it is brought to the REIS Council for review/vetting. If the REIS Council votes to approve the change/update, it is brought to the NCREIF Board of Directors for approval. Once the NCREIF Board approves a change, it is brought to the Boards of PREA and NAREIM for their approval as well.

About the NCREIF Property Index (NPI)

• What is the NCREIF Property Index (NPI)?

  The NCREIF Property Index is a quarterly time series composite total rate of return measure of investment performance of a very large pool of individual commercial real estate properties acquired in the private market for investment purposes only. All properties in the NPI have been acquired, at least in part, on behalf of tax-exempt institutional investors - the great majority being pension funds. As such, all properties are held in a fiduciary environment.

• What are the Accounting Policies for the NPI?

  Properties in the NPI are accounted for using market value accounting standards. Data contributed to NCREIF is expected to comply with REIS. Because the NCREIF Property Index measures performance at the property level without considering investment or capital structure arrangements, information reported to the index will be different from information reported to investors. For example, interest expense reported to investors would not be included in the NCREIF Property Index. However, because the property information reported to the index is expected to be derived from the same underlying books and records, because it is expected to form the underlying basis for investor reporting, and because accounting methods are required to be consistent, fundamentally consistent information expectations exist.

  NCREIF requires that properties included in the NPI be valued at least quarterly, either internally or externally, using standard commercial real estate appraisal methodology. Each property must be independently appraised a minimum of once every three years.
  
  Because the NPI is a measure of private market real estate performance, the capital value component of return is predominately the product of property appraisals. As such, the NPI is often referred to as an "appraisal based index."

• What is the Universe of Properties in the NPI?

  The qualifications for inclusion in the NPI are:
  

  • Operating properties only
  • Property types - apartments, hotels, industrial properties, office buildings, and retail only
  • Can be wholly owned or in a joint venture structure.
  • Investment returns are reported on a non-leveraged basis. While there are properties in the NPI that have leverage, returns are reported to NCREIF as if there is no leverage
  • Must be owned/controlled by a qualified tax-exempt institutional investor or its designated agent
  • Existing properties only (no development projects)

• What is the Composition of the NPI?

  The composition of the NPI can change over time. The numbers of properties changes as Data Contributing Members buy and sell properties and new Data Contributing Members are added. Properties exit the NPI when assets are sold or otherwise leave the database. All historical data remains in the database and in the Index. The Index represents investment returns from a single class of investor. As such, the NPI may not be representative of the market as a whole.

• What are the requirements for a property to be added to the NPI?

  There are three requirements that must be met for initial entrance of a property into the NPI. The requirements are as follows:
  1) The property must be classified as one of the following property types: office, retail, industrial, apartment, or hotel.
  2) The accounting of the property must be performed using market value accounting (see "What Are The Accounting Policies for the NPI")
  3) The property must be an operating property

• What is an operating property?

  a) For a newly developed property, operating is defined as reaching 60% occupancy or having been available for occupancy for a year from its certificate of occupancy (CO).
  b) If a property has been recently purchased with a "redevelopment" strategy, and the property is undergoing substantial expansion or re-tenanting, rehabilitation or remodeling, the property is defined as operating when occupancy reaches 60%.
  c) All existing properties (not recently developed or undergoing redevelopment as covered in a) or b) above) that are purchased regardless of current occupancy are defined as operating properties.

• Does a property, once included in the index, ever get removed from the index?

  Once a property has met all the criteria to be included in the NPI it is only removed if:

  • The property is sold
  • The property is no longer subject to fair market value accounting
  • The property has a change of use to a non-NPI qualified use
  In all cases, the history of the property remains in the NPI.

• What if the property is sold to another NCREIF member?

  If a property is sold from one NCREIF member to another NCREIF member, the property leaves the NPI as a sale, but then re-enters the NPI a quarter later (the first full quarter of ownership) if, at that time, the property meets all of the inclusion criteria for the NPI.

• When does a property type change?

  If there is a change in use for the property included in the NPI, e.g., conversion to a different property type, the property will normally be classified under its original property type until the property is deemed substantially converted to the new property type. If the conversion is to a property type that still qualifies for inclusion in the NPI then it will stay in the NPI but move to the new property type upon substantial completion. If the property is converted to a use that does not qualify for inclusion in the NPI then it will be removed from the NPI upon substantial completion of the use change, although its history will remain in the index.

  If a property is being converted into condominiums by the manager, the proceeds from sale of the condominium units are reported as partial sales. The property should continue to be classified under its original use until the units have been sold.

• Is the NPI a Core Property Index?

  NCREIF has no official position regarding the classification of the NPI as being a "core" investment strategy index.

  The NPI is a collection of unlevered property level returns that meet NCREIF's defined inclusion requirements. Some consider it reflective of a "core" investment strategy based on the property types included, the exclusion of development projects, and returns being reported on an unleveraged basis. Others, meanwhile, note the need to consider geography, leverage, and credit risk, to name a few, when defining a "core" investment strategy. The NPI includes properties that meet its defined inclusion criteria regardless of the location, risk of existing leases, and potentially varying occupancy levels.

• What is the NPI Index Methodology?

  The Index is set at 100 starting fourth quarter of 1977. Calculations are based on quarterly returns of individual properties before the deduction of portfolio-level management fees, but inclusive of property level management fees. Each property's return is weighted by its market value (value-weighted). Index values are calculated for income, capital value and total.

• What if the NPI Rate of Return Methodology?

  The NPI quarterly, annual and annualized total returns consist of three components of return - income, capital and total.

  The Income Return measures that portion of total return attributable to each NPI property's net operating income, or NOI. Net operating income (NOI) is gross rental income plus any other income less operating expenses - utilities, maintenance, taxes, property management, insurance, etc. The income return is computed by dividing NOI by the average daily investment for each quarter. The formula takes into consideration any capital improvements and/or any partial sales that occurred during the quarter.
  
  

  NOI .

  Beginning Market Value + 1/2 Capital Improvements - 1/2 Partial Sales - 1/3 NOI

  The Capital Return measures the change in market value from one period to the next. A property's value can go up (appreciation) or it can decline (depreciation) depending on market forces. The formula takes into consideration any capital improvements and/or any partial sales that occurred during the quarter. When a property enters the Index, the capital return is not impacted until the second quarter of inclusion.

  (Ending Market Value - Beginning Market Value) + Partial Sales - Capital Improvements

  Beginning Market Value + 1/2 Capital Improvements - 1/2 Partial Sales - 1/3 NOI

  Total Return is computed by adding the Income Return and the Capital Value Return.

• What is the Difference Between a Value-Weighted, or "Market Cap," Weighted Return and Equal-Weighted Return?

  The NPI can be thought of as a market cap weighted index as opposed to an equal weighted index. Thus, larger properties in terms of market value have a greater impact on the index than smaller properties. What is being calculated is essentially the return for the entire portfolio of NCREIF properties.

  In equal weighted performance analysis each property counts the same weight, regardless of the value of the fund. Index aggregates are typically value-weighted. Equal weighting however; is useful for statistical analysis as well as peer comparisons. Some of the NPI query tools and Fund Level Indices provide Equal-Weighted Return Analysis, however the overall index is published on a Value-Weighted Basis.

• What Does the NPI Return Mean?

  An NPI quarter-to-quarter return provides an estimate of the quarterly Internal Rate of Return (IRR) as if a property was purchased at the beginning of the quarter and sold at the end of the quarter with the investor receiving all net cash flow (NOI-Cap X) during the quarter.

• What Assumptions are used in the NPI Return Formula?

  The NPI rate of return formula assumes:

  • NOI is received at the end of each month during the quarter.
  • Capital Expenditures occur at mid-quarter.
  • Partial Sales occur at mid-quarter. A partial sale is the sale of a portion of the property such as excess land.

  These assumptions are the reason that the formulas above include terms in the denominator for adding ½ Capital Expenditures, subtracting ½ Partial Sales and subtracting 1/3 NOI. These adjustments make the denominator an estimate of the average investment during the quarter.

  This methodology is well accepted in performance measurement and is consistent with what is referred to as the "Modified Dietz" formula for measuring investment performance which considers the average daily investment in an asset. In this case it is as if the NOI was received on days 30,60 and 90 of the quarter and capital expenditures and partial sales occur on day 45.

• How is the Index Created from Quarterly Returns?

  The index discussed earlier is calculated from the quarterly returns by increasing the index level by the return for each quarter. The NCREIF Property Index is started with ha value of 100 in the fourth quarter of 1977. Each quarter the index represents the cumulative return of the periods following. The index explains what the value of $100 invested in the NCREIF property set from 1977 would be in the index period. This can be thought as chain linking the quarterly returns.

  An index of total return, capital return and income return are calculated from NCREIF. The cumulative time-weighted return between any two periods can be calculated easily from this index by a simple change in index value calculation (Index Value Period 2 - Index Value Period 1) divided by Index Value Period 1.

• What are the NPI Data Submission Policies?

  Two sets of data are collected for the NPI. The first represents property specific descriptor information submitted when a property enters the database for the first time. Key property data fields include:
  Property Name, Address, Zip Code
  Property Type & Sub-Type
  Acquisition Date
  Investment Cost
  Number of Floors, Units (Apartments, Hotels)
  Gross and Net Rentable Square Feet
  Year Built
  Date of Most Recent Renovation
  Occupancy Rate
  Retail Anchor Store Square Feet
  Retail Non-Anchor Store Square Feet
  How Acquired
  Joint Venture - Note, on JV properties, the data is reported to NCREIF as if 100% owned.

  The second data set is collected quarterly and includes the components of return needed to calculate quarterly rates of return and index values. NCREIF collects considerably more data than what is required to calculate the NPI. Additional data are used in NPI data validation tests, to calculate additional statistical measures of performance, to develop operating benchmarks and for use in real estate research. The key quarterly data fields include: Market Value (MV)
  Gross Revenues Breakouts
  Operating Expenses Breakouts
  Net Operating Income (NOI)
  Capital Expenditures (Cap. X.)
  Partial Sales Proceeds
  Appraisal Activity
  Percentage Leased
  Percentage Occupied
  Leaseable Area
  Leasing Commissions
  Tenant Improvements

• How is NPI Data Submitted to NCREIF?

  Data are submitted in accordance with NCREIF's data submission manual, NCREIF Property Indexes Data Collection and Reporting Procedures. The manual is a detailed step-by-step narrative, which clearly identifies all data components required for submission and instructions on how to deliver data to NCREIF. The manual is periodically updated to reflect any additional data submission requirements and/or whenever technological improvements in the information delivery systems are made.

  The data NCREIF collects originates from the accounting and property management systems of Data Contributors. The process involves uploading data files to a NCREIF standard data submission template through a secured members-only area at NCREIF's web site. Data are then extracted from each Data Contributor's files and downloaded into NCREIF's database server. The server is under the operation and control of NCREIF's Database Manager.

  Data are maintained in a state of confidentiality. Individual property data are masked in order to protect each Data Contributor's proprietary property level information. Individual property data cannot be accessed without Data Contributor approval.

  Once the quarterly data submission process is completed and the NPI and other standard quantitative products have been published, the data are transferred to a second secured database for web site queries. All data are available for research. To protect the identity of individual property level data, the minimum number of properties accessible for research is four and must be owned/managed by two or more Data Contributors.

• What is the NPI Data Submission and Publication Schedule?

  NCREIF Data Contributing Members are required to deliver all NPI qualifying data no later than 20 days following the end of the most recent business quarter. Note: NCREIF operates on a January-December calendar-year. If a member is late in contributing data to NCREIF and the result is a delay in the release of the Index, the member's name is published in the Index report. This has only happened one time since this rule was established in 2000. In the case of a late member submission, NCREIF staff will work with the manager to try to help resolve any issue(s) that might cause a delay and if a delay is inevitable, the Index Oversight Committee (IOC) will have to make a decision to wait a day or two in hopes of receiving the data or to publish without the member's data. The size of the manager will have a large impact on this decision.

  NCREIF Staff meets with the Index Oversight Committee (IOC) via conference call 25 days following the end of the business quarter to review the data and approve the release of the NPI.

  NCREIF produces various data products once the index is released, a description of those products are attached. Most products are released the day the index is approved and released.

• How Are Index Data Validated?

  NCREIF has set up a three-step data validation process. It is designed to identify and correct data submission errors. Data are delivered to NCREIF via a standard data submission software package specifically designed for this process. Built into the system of the Data Contributors are validation tests run on a pre-submission basis to indicate any data errors or other warnings.

  Errors are defined as problems needing fixing before final submission. Warnings are defined as outliers evidencing deviations from standard norms. Warnings require being checked into before final submission. Typically, a warning is issued when an unusually large change in an individual property's market value takes place from one quarter to the next. Most often, a big change in value is the result of a property sale, the net proceeds of which deviate significantly from its most recent appraised value.

  Data Contributors represent the first level of validation screen. A significant majority of data errors and outliers are flagged at the front end of the submission process. Individual Data Contributor systems include NCREIF compatible software to run validation tests. Data Contributors are in the best position to identify and correct data errors.

  When the data are delivered to NCREIF, NCREIF conducts its own level of validation. This is a two-step process. The first involves running the same validation tests as run by the Data Contributor. The second involves comparing a Data Contributor's returns with those of all Data Contributors. This test produces a summary report of potential errors and outliers, which is then sent to each Data Contributor flagged for review. When a Data Contributor is notified of possible data errors or warnings, the Data Contributor reviews the report, makes whatever corrections are necessary, resubmits the corrected data, and then signs off on the accuracy of the returns reported for the quarter.

  Examples of validation rules that are performed include examining properties with the greatest increase or decrease in value, properties with the highest or lowest income, capital or total returns, properties with a price per square foot that is outside of the normal range for peers of the same property type, excessive capital expenditures, partial sales that are a high percentage of the property value, and other similar tests for any input that differs significantly from the norm.

  A third level of data validation is conducted by NCREIF's Index Oversight Committee (IOC). At the end of each data reporting period and prior to the release of the NPI quarterly returns, the IOC reviews property type and regional returns for purposes of comparing current NPI returns with industry forecasted returns based on current market conditions. Any data concerns raised by the IOC are immediately checked and, if necessary, confirmed or corrected via Data Contributor follow up.

• What is the Role of the NPI Oversight Committee (IOC)?

  IOC responsibilities include reviewing and recommending changes to the Board of Directors in index policies and procedures, required data elements, qualifying properties, quarterly index production review and the taking of any other actions deemed necessary to assure index statistical integrity.

  The IOC is also responsible for reviewing and recommending to the Board for approval any changes to the Index Policies and Procedures, including, but not limited, to sanctions for failure to report data in a timely, thorough and accurate manner, all required data elements and qualifying properties.

  The IOC is made up of 5 senior researchers from member firms that have a significant understanding of the database, the index and its methodologies, and also an understanding of the current markets. A majority vote is technically required to approve and release the index or to make recommendations to the Board of Directors on policy changes or other such items.

• Is the NPI Ever Revised?

  The NPI was "frozen" each quarter beginning First Quarter 2003. This means that a snapshot of the index was taken each quarter and changes are not made historically unless there is a significant error that is caught later that would require the restatement of the NPI. A significant error is considered to be one that affects the National, Property Type or Regional returns by 10 basis points or greater. A restatement has only happened once since the "freeze." The restatement took place in Fourth Quarter 2004 due to a manager submission error that affected a property type return by 16 basis points.

  Prior to 2003, the NPI was restated historically every quarter for various reasons, the majority being the fact that when there were property sales in a given quarter, the previous quarter's ending market value was changed to reflect the sales price.

  Changes in data were also due to the fact that when a new member joined NCREIF, their historical data was put into the database and would be included in the NPI returns on future releases. There were also data errors that were caught after the release of the index and those would be corrected historically, though over time errors became less and less frequent as new and better validation screens were built into the systems and as information technology programs were enhanced and upgraded to catch potential errors during the submission process.

  Beginning First Quarter 2003 NCREIF made a decision to "freeze" the NPI for two reasons. First, the database had reached a size, in both number of properties and market values, that the benefits of backdating were no longer important. Secondly, more and more investment managers and in-house real estate staffs' compensation is being tied to outperforming the NPI. The market wants a single return number at the time when NCREIF releases the quarterly NPI.

• Where Do the Property Valuations Come from for Properties in the NPI?

  Each quarter, the Data Contributing Members submit a market value for each NPI qualifying property. The value the Data Contributor submits is the value they believe is the property's fair market value as of that particular reporting period - i.e., the end of each calendar quarter.

  A change in value from one quarter to another can be for one of several reasons.
  The property was externally appraised by an independent third party appraiser.
  Observed changes in market conditions as so determined by the manager to recognize any changes during the quarter in occupancy, rental rates, capitalization rates, interest rates, a partial sale, unexpected capital expenditures, or changes in discount rates.
  A property value may be adjusted only for capital expenditures made during the quarter - effectively, an accounting adjustment to reflect the amount of the capital expenditure.
  The value submitted can be the previous quarter's value because, in the judgment of the manager/owner, the property's value did not change during the period.

• What are the Appraisal Practices for Properties in the NPI?

  An appraisal is an estimate of a property's current market value at a particular point in time based on traditional appraisal methodology and techniques. Appraisers take into account recent sales of comparable properties, replacement cost, and other appraisals of similar type assets, when such information is available.

  Whenever an NPI property is appraised, Data Contributing Members are required to report as to whether the appraisal was internal or external. An internal appraisal is one prepared at the investment manager or institutional investor level by the in-house professional real estate staff. An external appraisal is one performed by an independent party, typically an MAI (Member of the Appraisal Institute).

• What Other Properties are in the NPI Database?

  The NPI database consists of all qualifying properties whose returns represent the most recent quarterly NPI calculation, plus all properties that have been in the database historically, but are no longer included in the Index.

  Of the 12,455 properties that have been in the Index, 5,116 with a combined net sales proceeds generated of $104.9 billion represent outright sales. When a property is sold, the Data Contributor submits to NCREIF the net sales proceeds received, which represents the final quarterly value for that particular property. When a sale takes place, the property "exits" the Index. While the sold property no longer remains in the NPI, its history is a permanent part of the NPI's historical returns. More properties leave the NPI database as the result of outright sales than for any other reason.

  An "Event" property exits the database for reasons other than an outright sale. These include when: a pool of properties is sold as a portfolio; a Data Contributor is merged or consolidated with another manager; a Data Contributor is terminated or goes out of business; a property was destroyed by an act of God; a property was transferred to a lender or joint venture partner.

  Two "Events" cause properties to exit the database more than all others combined. The first is a portfolio sale. A portfolio sale occurs where a manager sells a number of properties to a single buyer in a single transaction. When this happens, while technically a sale, portfolio sales prices are not allocated on a property-by-property basis. Under these circumstances, the individual properties that make up the portfolio exit the NPI database at their respective most recent market values.

  "Event" properties also represent properties transferred from one manager to another as a result of a merger, consolidation or termination. When such an event takes place, the property exits the database at its most recent appraised value. If the property is then transferred to another Data Contributing Member, the property re-enters the database under the name of the successor manager.

  The NPI is not, and was never intended to be, a static database. It is both dynamic and evolving. Each quarter, the database property mix changes due to:
  
  

  New property purchases
  Property sales
  Changes in NCREIF data Contributing membership
  "Events," such as portfolio sales, manager mergers, terminations
  

• How are Annual and Annualized Returns Calculated?

  Annual and Annualized Returns are computed by chain linking quarterly rates of return to calculate time-weighted rates of return for annual and annualized periods under study. Returns are assumed to be compounded quarterly. For periods of over one year, returns are expressed on a return-per-year basis.

  Compounded quarterly. Quarterly returns are compounded in annual calculations. This assumes that returns in early quarters are "reinvested" in the property in subsequent quarters. An annual"compounded" return is calculated from quarterly returns as follows:
  
  Example
  Quarter 1 return = 2.3607%
  Quarter 2 return = 2.4737%
  Quarter 3 return =1.5957%
  Quarter 4 return = 2.4734%
  
  Annual Return is equal to ((1+Quarter 1 return) x (1+Quarter 2 return) x (1+Quarter 3 return) x (1+Quarter 4 return)) - 1
  
  The annual return would therefore be (1.023607 x 1.024737 x 1.015957 x 1.024734) - 1 = 9.2024%.

  For multi-year periods, or those shorter than a year, the above formula would show an annualized rate of return for the calculation period.>

About the Additional, or Non-NPI Qualifying, Properties

• About the Additional, or Non-NPI Qualifying, Properties

  Members are required to submit data from all assets under management. Often this data includes Non-NPI Qualifying properties. These properties can be non-Qualifying for the NPI for a number of reasons including the tax status of the ownership, appraisal policy, property type other than those in the NPI or life cycle of the property (i.e. under development or in lease-up). Additional members have joined to contribute non-NPI qualifying property including REITs, Insurance Companies and other taxable institutional real estate investors. The combined npi-qualifying and non-qualifying data is available for research purposes through the operating data product.

About the NCREIF Operating Data

• What is the Universe of Properties in the Operating Data?

  The operating data includes a broader set of properties than those included in the NPI. Some property data is not eligible for the NPI due to the valuation policy, ownership structure or the like, however is included within the operating data. This allows for a more robust sample of line item income and expense data.

• What is the NCREIF Operating Data Query Tool?

  The NCREIF operating data includes the income and expense categories. This allows you to see trends in different income and expense categories for selected property types and locations. Each user has their own private query list in which he or she can store queries for later review, edit queries, or remove old queries.

• How far back does the operating data go?

  The detailed income and expense data began collection in 2000.

• What are the operating data fields and their definitions?

  Base Rent -
  Income derived strictly from leased space, i.e., not including Percentage Rents (contingent rents), which is a separate data field.

  Contingent Rent or Percentage Rent -
  Income received as a percentage of the gross or net income to a tenant. Most often applied in retail property leases.

  Income from Reimbursements -
  Any payment made by tenants to reimburse the landlord. Generally these are reimbursements for expenses that have occurred which the landlord initially paid and is being reimbursed for.

  Other Income -
  All other income going into the Net Operating Income calculation that is not otherwise categorized.

  Total Income or Operating Revenue -
  Total Income is the sum of base rent, Contingent Rent, Income from Reimbursements and other income

  Utility Expense -
  All utility costs, including water, sewer, power, fuel oil, etc.

  Property Tax Expense -
  Property Tax includes Real Estate Taxes as well as personal property taxes on the investment.

  Insurance Expense -
  Premiums paid to insure the property.

  Repairs and Maintenance -
  All expenses associated with the daily upkeep of the property including materials and labor, maintenance salaries, cleaning and janitorial, engineering costs. This category does not include major capital expenses including building improvements, building expansions and other capital improvements (see description).

  Marketing/Advertising -
  Marketing costs, including salaries, advertising, and promotions.

  Property Management Fees -
  Fees paid to an external property manager, along with uncapitalized leasing agent fees.

  General and Administrative Expenses -
  Office expenses, licenses, legal, travel, audit. Excludes amounts allocated to Repairs and Maintenance, Marketing/Advertising, or Property Management Fees, which are separate expense fields, as noted above.

  Other Expenses -
  All other expenses accrued during the quarter going into the Net Operating Income calculation that is not otherwise categorized.

  NOI (Net Operating Income) -
  NOI or Net Operating Income is the sum of the income on the property less the sum of the expenses (excluding capital expenses).

  Tenant Improvement -
  Tenant Improvements include costs to construct (or reconstruct) space for tenant occupancy after the Certificate of Occupancy has been issued. Demolition costs (even when a tenant is not under lease), are also included in this category.

  Leasing Commissions -
  Leasing commissions are fees paid for the procurement of tenants after the Certificate of Occupancy Date for the property?

About the NCREIF Valuation Data

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About the NCREIF ODCE Fund Index Data

• What is the NFI-ODCE?

  The NFI-ODCE, short for NCREIF Fund Index - Open End Diversified Core Equity, is the first of the NCREIF Fund Database products and is an index of investment returns reporting on both a historical and current basis the results of 26 open-end commingled funds pursuing a core investment strategy, some of which have performance histories dating back to the 1970s. The NFI-ODCE Index is capitalization-weighted and is reported gross of fees. Measurement is time-weighted. NCREIF will calculate the overall aggregated Index return.

• Who Can Access The ODCE Report?

  Presently, only members can access the report. There is no subscription available to the NFI-ODCE.

• What is the Universe of Funds in the NFI-ODCE?

  The universe of funds comprising the NFI-ODCE employ, or did employ in the case of liquidated funds, a generally acknowledged investment style or strategy known in the business as "core" investing. Every fund included in the Index as well as any existing funds or those in the planning stages that aspire to be included in the Index must meet the following inclusion criteria.
  
  A fund must market itself as an open-end commingled fund pursuing a diversified core investment strategy, primarily investing in private equity real estate with the following guidelines.

  Net Assets Criteria "
  • Real Estate - at least 80% of the market value of net assets must be invested in real estate with no more than 20% invested in cash or equivalents.
  Real Estate Net Assets Criteria
  • Investment - at least 80% of the market value of real estate net assets must be invested in private equity real estate properties [no more than 20% of such assets may be invested in, but not limited to, property debt, public company, equity/debt or private company (operating business) equity/debt].
  • Domain - at least 95% of market value of real estate net assets must be invested in US markets.
  • Property Types - at least 80% of market value of real estate net assets must be invested in office, industrial, apartment and retail property types.
  • Life Cycle - at least 80% of market value of real estate net assets must be invested in operating properties [no more than 20% of such assets may be invested in, but not limited to, (pre)development/redevelopment or initial leasing/lease-up cycles].
  • Diversification - no more than 70% (± for market forces) of market value of real estate net assets may be invested in one property type or one region as defined by the NPI.
  Total Assets Criteria
  • Leverage - no more than 40% leverage. Leverage is defined as the ratio of total debt, grossed-up for ownership share of off-balance sheet debt, to the fund's total assets, also which are grossed-up for such off-balance sheet debt.

  The fund must comply with the NCREIF Real Estate Information Standards, including annual audits, quarterly valuations and time-weighted returns. Further, the fund must submit information in accordance with the NCREIF Fund Data Collection and Reporting Manual. Timely, accurate and industry compliant data is required.

• What is the Calculation used to calculate returns for NFI-ODCE?

  For the fund formula, use the modified-dietz formula which is well documented in GIPS. This is the industry standard for all asset classes.
  
  The formula is basically;
  1) Numerator = Total Return $ (Income and Appreciation)
  2) Denominator = Weighted Average Equity (Beginning Net Assets plus weighted contributions minus weighted distributions for the period, generally quarterly). The weighting of contributions and distributions is based on the actual day of each cash flow and how long the cash flow is "in" or "out" of the portfolio.
  
  The numerator varies depending upon whether it's before or after fee. The denominator is the same for both.

About the NCREIF Property Index Trends Spreadsheets

• What are the Capitalization Rate Products?

  NCREIF currently publishes two “cap rate" (or capitalization rate) series in the Property Value Trends (PVT). Both of these cap rates series are calculated by dividing the Net Operating Income by Market Value. The series only differ in the sample of properties included. Because accounting data is used, the most recent full quarter's income from the property, annualized, provides the net operating income. This would be different from most reported "cap rate" reports, which often use a forecast of year one net operating income. The "transaction cap rate" series is the Net Operating Income (defined above) divided by the transaction price of only properties that have sold from the NCREIF Property Index. The "current value cap rate" series is similar, but includes all properties that have been revalued in the quarter (so the market value is known to be current). The Current Value Cap Rate series is available at the regional level and property type level.

About the NCREIF Leverage Property Report

• What is the Universe of Properties in the NCREIF Leverage Property Report?
  • In addition to NPI qualification, properties that are in included in the leverage report, must have property level debt
  • The methodology used in this report is consistent with that of the NPI, with the exception that investment returns are reported on a leveraged basis.

• What is the Composition of Properties in the Leveraged Property Report?

  The Leveraged Property quarterly, annual and annualized total returns consist of three components of return - income, capital appreciation and total.

  The Leveraged Property Income Return measures that portion of total return attributable to each NPI property's net operating income after interest expenses. The income return is computed by dividing NOI by the average daily investment for each quarter. The formula takes into consideration any capital improvements and/or any partial sales that occurred during the quarter.

  Net Operating Income - Interest Expense

  (Beginning Market Value - Beginning Balance) + (1/2 Capital Improvements - 1/2 Partial Sales) - (1/2 New Debt) + (1/2 Other Payment) - 1/3 (Income - (Interest Expense + Principal Payment))

  Leverage Property Capital Appreciation Return: Measures the change in market value adjusted for any capital improvements, partial sales, principal repayment and other debt receipts or payments for the quarter.

  (Ending Market Value - Ending Balance) - (Beginning Market Value - Beginning Balance) + Partial Sales - Capital Improvements + New Debt - Other Payment - Principal Payment

  (Beginning Market Value - Beginning Balance) + (1/2 Capital Improvements - 1/2 Partial Sales) - (1/2 New Debt) + (1/2 Other Payments) - 1/3 (Income - (Interest Expense + Principal Payment))

  Leverage Property Total Return: Includes appreciation (or depreciation), realized capital gain (or loss) and income. It is computed by adding the Income return and Capital Appreciation return on a quarterly basis.

• What is the Leverage Property Report Methodology?

  The Index is set at 100 starting fourth quarter of 1982. Calculations are based on quarterly returns of individual properties before the deduction of portfolio-level management fees, but inclusive of property level management fees. Each property's return is weighted by its market value (value-weighted). Leveraged property index values are calculated for income, capital value and total.

• What is the Leveraged Property Rate of Return Methodology?

  The Leveraged Property quarterly, annual and annualized total returns consist of three components of return - income, capital appreciation and total.

  The Leveraged Property Income Return measures that portion of total return attributable to each NPI property's net operating income after interest expenses. The income return is computed by dividing NOI by the average daily investment for each quarter. The formula takes into consideration any capital improvements and/or any partial sales that occurred during the quarter.

  Net Operating Income - Interest Expense

  ---

  (Beginning Market Value - Beginning Balance) + (1/2 Capital Improvements - 1/2 Partial Sales) - (1/2 New Debt) + (1/2 Other Payment) - 1/3 (Income - (Interest Expense + Principal Payment))

  Leverage Property Capital Appreciation Return: Measures the change in market value adjusted for any capital improvements, partial sales, principal repayment and other debt receipts or payments for the quarter.

  (Ending Market Value - Ending Balance) - (Beginning Market Value - Beginning Balance) + Partial Sales - Capital Improvements + New Debt - Other Payment - Principal Payment

  ---

  (Beginning Market Value - Beginning Balance) + (1/2 Capital Improvements - 1/2 Partial Sales) - (1/2 New Debt) + (1/2 Other Payments) - 1/3 (Income - (Interest Expense + Principal Payment))

  Leverage Property Total Return: Includes appreciation (or depreciation), realized capital gain (or loss) and income. It is computed by adding the Income return and Capital Appreciation return on a quarterly basis.

About the NCREIF Farmland Index

• What is the NCREIF Farmland Index?

  The NCREIF Farmland Index is a quarterly time series composite return measure of investment performance of a large pool of individual agricultural properties acquired in the private market for investment purposes only. All properties in the Farmland Index have been acquired, at least in part, on behalf of tax-exempt institutional investors - the great majority being pension funds. As such, all properties are held in a fiduciary environment.

• What is the Universe of Properties in the Farmland Index?

  The qualifications for property inclusion in the Farmland Index are:

  • Agricultural properties only, including permanent, row and vegetable cropland.
  • Can be wholly owned or in a joint venture structure.
  • Income producing properties only
  • Investment returns are reported on a non-leveraged basis. While there may be properties in the Index that have leverage, returns are reported as if there is no leverage
  • Must be owned/controlled by a qualified tax-exempt institutional investor or its designated agent
  • Property is included in the index beginning in the first full quarter it qualifies (properties are generally excluded in the acquisition quarter)

• What is the Composition of the Farmland Index?

  The composition of the Farmland Index can change over time. The number of properties changes as Data Contributing Members buy and sell properties and new Data Contributing Members are added. Properties exit the Farmland Index when assets are sold or otherwise leave the database. All historical data remains in the database and in the Index. The Index represents investment returns from a single class of investor. As such, the Farmland Index may not be representative of the agricultural investment market as a whole.

• Does a property, once included in the index, ever get removed from the index?

  Once a property has met all the criteria to be included in the Farmland Index it is only removed if:

  • The property is sold
  • The property is no longer subject to fair market value accounting
  • The property has a change of use to a non-agricultural use
  In all cases, the history of the property remains in the Farmland Index.

• What is the Farmland Index Methodology?

  The Index is set at 100 starting fourth quarter of 1990. Calculations are based on quarterly returns of individual properties before the deduction of portfolio-level asset or investment management fees, but inclusive of property level management fees. Each property's return is weighted by its market value (value-weighted). Index values are calculated for income, appreciation and total.

• What if the Farmland Index Rate of Return Methodology?

  The Farmland Index quarterly, annual and annualized total returns consist of three components of return - income, appreciation and total.

  The Income Return measures that portion of total return attributable to the Farmland Index properties' net operating income, or NOI. Net operating income (NOI) is gross income less operating expenses - taxes, property management, insurance, costs of growing crops if the farmland is operated by the investment manager, etc. The income return is computed by dividing NOI by the average daily investment for each quarter. The formula takes into consideration any capital improvements and/or any partial sales that occurred during the quarter.

  NOI

  Beginning Market Value + ½ (Capital Improvements - Partial Sales + Partial Purchases - NOI)

  The Appreciation Return measures the change in market value from one period to the next. A property's value can go up (appreciation) or it can decline (depreciation) depending on market forces. The formula takes into consideration any capital improvements and/or any partial sales or purchases that occurred during the quarter. When a property enters the Index, the appreciation return is not impacted until the second quarter of inclusion.

  (Ending Market Value - Beginning Market Value) + Partial Sales - Capital Improvements - Partial Purchases

  Beginning Market Value + 1/2 (Capital Improvements - Partial Sales + Partial Purchases - NOI)

  Total Return is computed by adding the Income Return and the Appreciation Return on a quarterly basis.

• How are Annual and Annualized Returns Calculated?

  Annual and Annualized Returns are computed by chain linking quarterly rates of return to calculate time-weighted rates of return for annual and annualized periods under study. Returns are assumed to be compounded quarterly. For periods of over one year, returns are expressed on a return-per-year basis.

  Quarterly returns are compounded in annual calculations. This assumes that returns in early quarters are "reinvested" in the property in subsequent quarters. An annual "compounded" return is calculated from quarterly returns as follows:

  Example
  Quarter 1 return = 2.3607%
  Quarter 2 return = 2.4737%
  Quarter 3 return =1.5957%
  Quarter 4 return = 2.4734%
  

  Annual Return is equal to ((1+Quarter 1 return) x (1+Quarter 2 return) x (1+Quarter 3 return) x (1+Quarter 4 return)) - 1

  The annual return would therefore be (1.023607 x 1.024737 x 1.015957 x 1.024734) - 1 = 9.2024%.

  For multi-year periods, or those shorter than a year, the above formula would show an annualized rate of return for the calculation period.

• What Assumptions are used in the Farmland Index Return Formula?

  The rate of return formula assumes:

  • NOI is received mid-quarter.
  • Capital Expenditures occur at mid-quarter.
  • Partial Sales and Partial Purchases occur at mid-quarter (a partial sale or purchase is the sale or purchase of a portion of the property).

  These assumptions are the reason that the formulas above include terms in the denominator for adding ½ Capital Expenditures and partial purchases and subtracting ½ Partial Sales and NOI. These adjustments make the denominator an estimate of the average investment during the quarter.

  This methodology is well accepted in performance measurement and is consistent with what is referred to as the "Modified Dietz" formula for measuring investment performance which considers the average daily investment in an asset. In this case it is as if the NOI, capital expenditures and partial sales occur on day 45.

• How is the Index Created from Quarterly Returns?

  The index discussed earlier is calculated from the quarterly returns by increasing the index level by the return for each quarter. The Farmland Index is started with a value of 100 in the fourth quarter of 1990. Each quarter the index represents the cumulative return of the periods following. The index explains what the value of $100 invested in the NCREIF property set from 1990 would be in the index period. This can be thought of as chain linking the quarterly returns.

  An index of total return, appreciation return and income return are calculated. The cumulative time-weighted return between any two periods can be easily calculated from this index by a simple change in index value calculation (Index Value Period 2 - Index Value Period 1) divided by Index Value Period 1.

• Where Do the Property Valuations Come from for Properties in the Farmland Index?

  Each quarter, the Data Contributing Members submit a market value for each Farmland qualifying property. The value the Data Contributor submits is the value they believe is the property's fair market value as of that particular reporting period - i.e., the end of each calendar quarter.

  A change in value from one quarter to another can be for one of several reasons:

  • The property was externally appraised by an independent third party appraiser.
  • Observed changes in market conditions as so determined by the manager to recognize any changes during the quarter in rental rates, capitalization rates, interest rates, a partial sale, unexpected capital expenditures, or changes in discount rates.
  • A property value may be adjusted only for capital expenditures made during the quarter - effectively, an accounting adjustment to reflect the amount of the capital expenditure.

  The value submitted can be the previous quarter's value because, in the judgment of the manager/owner, the property's value did not change during the period.

About the NCREIF Timberland Index

• What is the NCREIF Timberland Index?

  The NCREIF Timberland Index is a quarterly time series composite return measure of the investment performance of a large pool of individual timberland properties in the United States acquired in the private market for investment purposes only. All properties in the Timberland Index have been acquired, at least in part, on behalf of tax-exempt institutional investors - the great majority being pension funds and endowments. As such, all properties are held in a fiduciary environment.

• What is the Universe of Properties in the Timberland Index?

  The qualifications for property inclusion in the Timberland Index are:

  • Timberland properties only
  • Can be wholly owned or in a joint venture structure
  • At least 80% of the property must be in a fee-simple ownership status (no more than 20% may be leased).
  • After the year in which the property was purchased, the value of the property must be assessed at least quarterly (internally or externally), and at least once every three years by an independent, external appraiser. This 'marked to market' value is the value used to calculate the appreciation return component reported to NCREIF.
  • Investment returns are reported on a non-leveraged basis. While there may be properties in the Index that have leverage, returns are reported as if there is no leverage.
  • The property must be managed in a fiduciary manner for the owners of the property, whom may be either tax-exempt institutions or taxable investors.
  • The property is included in the index beginning in the first full quarter it qualifies (properties are generally excluded in the acquisition quarter).

• What is the Composition of the Timberland Index?

  The composition of the Timberland Index can change over time. The number of properties changes as Data Contributing Members buy and sell properties and new Data Contributing Members are added. Properties exit the Timberland Index when assets are sold or otherwise leave the database. All historical data remains in the database and in the Index. The Index represents investment returns from a single class of investor. As such, the Timberland Index may not be representative of the timberland investment market as a whole.

• Is the Timberland Index a National Index?

  The Timberland Index is reported on a national level, and is also subdivided into three geographic regions within the United States: the Pacific Northwest, South and Northeast. For aggregated return data to be reported for a region in a particular quarter, properties must be reported therein by at least three data contributors, for masking purposes. Other regional indices may develop if the reported data meets this criteria.

• Does a property, once included in the index, ever get removed from the index?

  Once a property has met all the criteria to be included in the Timberland Index it is only removed if:

  • The property is sold
  • The property is no longer subject to fair market value accounting
  • The property has a change of use to a non- timberland use

  In all cases, the history of the property remains in the Timberland Index.

• What is the Timberland Index Methodology?

  The Index is set at 100 starting fourth quarter of 1990. Calculations are based on quarterly returns of individual properties before the deduction of portfolio-level asset or investment management fees, but inclusive of property level management fees. Each property's return is weighted by its market value (value-weighted). Index values are calculated for income, appreciation and total.

• What is the Timberland Index Rate of Return Methodology?

  The Timberland Index quarterly, annual and annualized total returns consist of three components of return - income, appreciation and total.

  The Income Return measures that portion of total return attributable to the Timberland Index properties' revenue, or EBITDDA. EBITDDA is earnings before interest, taxes, depreciation, depletion and amortization. The income return is computed by dividing EBITDDA by the average investment for each quarter. The formula takes into consideration any capital improvements and/or any partial sales that occurred during the quarter.

  EBITDDA

  ---

  Beginning Market Value + ½ (Capital Improvements - Partial Sales + Partial Purchases - EBITDDA)

  The Appreciation Return measures the change in market value from one period to the next. A property's value can go up (appreciation) or it can decline (depreciation) depending on market forces. The formula takes into consideration any capital improvements and/or any partial sales or purchases that occurred during the quarter. When a property enters the Index, the appreciation return is not impacted until the second quarter of inclusion.

  (Ending Market Value - Beginning Market Value) + Partial Sales - Capital Improvements - Partial Purchases

  ---

  Beginning Market Value + ½ (Capital Improvements - Partial Sales + Partial Purchases - EBITDDA)

  Total Return is computed by adding the Income Return and the Appreciation Return on a quarterly basis.

• How are Annual and Annualized Returns Calculated?

  Annual and Annualized Returns are computed by chain linking quarterly rates of return to calculate time-weighted rates of return for annual and annualized periods under study. Returns are assumed to be compounded quarterly. For periods of over one year, returns are expressed on a return-per-year basis.

  Quarterly returns are compounded in annual calculations. This assumes that returns in early quarters are "reinvested" in the property in subsequent quarters. An annual "compounded" return is calculated from quarterly returns as follows:

  Example
  Quarter 1 return = 2.3607%
  Quarter 2 return = 2.4737%
  Quarter 3 return =1.5957%
  Quarter 4 return = 2.4734%

  Annual Return is equal to ((1+Quarter 1 return) x (1+Quarter 2 return) x (1+Quarter 3 return) x (1+Quarter 4 return)) - 1

  The annual return would therefore be (1.023607 x 1.024737 x 1.015957 x 1.024734) - 1 = 9.2024%.

  For multi-year periods, or those shorter than a year, the above formula would show an annualized rate of return for the calculation period. For annualized returns, total return may be different than the sum of income and capital, due to the compounding effect.

• What Assumptions are used in the Timberland Index Return Formula?

  The rate of return formula assumes:

  • EBITDDA is received mid-quarter.
  • Capital Expenditures occur at mid-quarter.
  • Partial Sales and Partial Purchases occur at mid-quarter (a partial sale or purchase is the sale or purchase of a portion of the property).

  These assumptions are the reason that the formulas above include terms in the denominator for adding ½ Capital Expenditures and partial purchases and subtracting ½ Partial Sales and EBITDDA. These adjustments make the denominator an estimate of the average investment during the quarter.

  This methodology is well accepted in performance measurement and is consistent with what is referred to as the "Modified Dietz" formula for measuring investment performance which considers the average daily investment in an asset. In this case it is as if the EBITDDA, capital expenditures and partial sales occur on day 45.

• How is the Index Created from Quarterly Returns?

  The index discussed earlier is calculated from the quarterly returns by increasing the index level by the return for each quarter. The Timberland Index is started with a value of 100 in the fourth quarter of 1990. Each quarter the index represents the cumulative return of the periods following. The index explains what the value of $100 invested in the NCREIF property set from 1990 would be in the index period. This can be thought of as chain linking the quarterly returns.

  An index of total return, appreciation return and income return are calculated. The cumulative time-weighted return between any two periods can be easily calculated from this index by a simple change in index value calculation (Index Value Period 2 - Index Value Period 1) divided by Index Value Period 1.

• Where Do the Property Valuations Come from for Properties in the Timberland Index?

  Each quarter, the Data Contributing Members submit a market value for each Timberland qualifying property. The value the Data Contributor submits is the value they believe is the property's fair market value as of that particular reporting period - i.e., the end of each calendar quarter.

  A change in value from one quarter to another can be for one of several reasons:

  • The property was externally appraised by an independent third party appraiser.
  • Observed changes in market conditions as so determined by the manager to recognize any changes during the quarter in rental rates, capitalization rates, interest rates, a partial sale, capital expenditures, or changes in discount rates.