The Influence of Publicly-traded REITs and Market-based Inflation Expectations on Daily-priced Private Commercial Real Estate Returns

Investors requiring daily Net Asset Values (NAV) represent a large and growing source of capital for the private institutional real estate asset class. Defined contribution and other daily-valued vehicles are increasing their investments into private, direct commercial real estate through funds that estimate changes to income and values in order to mark a daily NAV. Utilizing nine years of daily data from the NCREIF Fund Index – Daily Priced, we optimize a generalized autoregressive conditional heteroskedasticity model with generalized error distribution parameterization (GARCH-GED) to better understand the influence of publicly-traded real estate securities and changes in market-implied inflation expectations on daily private real estate returns. Bai-Perron and Markov Switching regressions are used to compare periods of shifting influences on private real estate volatility in the aftermath of the Global Financial Crisis