The Advanced Fundamental CRE Indexes measure real time changes in total returns across multiple sectors of the commercial real estate market to support hedging, benchmarking, and portfolio allocation strategies for both public and private real estate investors.
Indexes are priced using real-time public market data that aggregates over $600 billion in property values, measuring unlevered returns in commodity pricing such as $/Sqft, $/Key, and $/Unit to support hedging, benchmarking, and portfolio allocation strategies for both public and private real estate investors.
The Advanced Fundamentals Composite Index has a correlation of over 90% to the most-widely accepted private market index, NCREIF Property Index (NPI), with 12 months lead time.
Using the Advanced Fundamentals index methodology, investors can realize unlevered based returns comparable to NPI typically available through private market real estate, yet with the timing, transparency, and liquidity that public market securities funds offer.
Further, investors will be able to control their sector allocation and leverage approach, providing customizable alpha strategies.
The Advanced Fundamental CRE Indexes enable the trading of real estate derivatives in the form of swaps, futures, and options.
While most asset classes (equities, fixed income, commodities) have derivatives markets that dwarf the underlying markets, the real estate derivatives market in the United States is almost nonexistent. The reason for this is simply that a true, real-time valuation measurement index to provide the transparency and correlations required for widespread use and adoption did not exist until now.
With the introduction of the Advanced Fundamentals structured products, the real estate derivatives market could quickly grow to a notional value in the trillions of dollars.
Leading Correlation = 12 month lead period: e.g. 2006 AF Composite v. 2007 NCREIF
Source: NCREIF based on quarterly returns, all property types
NPI = NCREIF Property Index
ODCE = NCREIF Fund Index- Open End Diversified Core