Benchmarking Real Estate Performance

Benchmarking Real Estate Performance
Considerations and Implications

By
Frank L. Blaschka
Principal, The Townsend Group


The real estate asset class has difficulties in developing and applying benchmarks to
measure performance. Most investors acknowledge the limitations in this area relative to
more efficient asset classes (e.g., stocks and bonds). As a result of these limitations,
many investors do not fully appreciate the implications of the benchmark on how to
manage a real estate program.

This paper will examine three issues: (1) the choice of benchmark for today’s real estate
program, including the NCREIF Property Index and several alternatives; (2) how your
benchmark can assist in risk budgeting within the real estate program; and (3) how the
time period used to measure performance relative to your benchmark affects portfolio
construction and ultimately performance. The focus in this paper is on private equity real
estate, and does not address publicly traded real estate securities or real estate related debt
investments.

CHOICE OF BENCHMARKS TODAY

The first issue most institutional investors must face is the selection of an appropriate
1benchmark for their real estate program. The choice of a benchmark actually entails two
levels of discussion: do you select a real estate related benchmark, and if so, what are
your choices within real estate?

Do you select a real estate related benchmark?

While it may seem obvious to ...