A First Look at the Historical Performance of the New NAV REITs

Private Commercial Real Estate (CRE) funds provide institutional investors an opportunity to access the CRE market, but most of them are inaccessible to typical individual (retail) investors. In this paper, we study the early performance (2016 to 2023) of a special and emerging class of non-listed CRE funds that are accessible to individual investors. These funds, referred to as Net Asset Value (NAV) Real Estate Investment Trusts (REITs), have grown in importance over the last decade. They now represent a major alternative to publicly traded REITs in providing individual investors a way to access CRE investments without direct ownership. We find that the observed returns from these NAV REITs suffer from smoothness due to lagged pricing updates, and thus unsmoothing returns is important for studying their risk-adjusted performance. We then show that NAV REITs have delivered large alphas relative to public indices over our sample period. Finally, we highlight that traditional alpha analysis may not be adequate for a short sample like ours and provide an alternative alpha analysis that indicates the alphas of NAV REITs over our sample period were economically meaningful, albeit substantially lower than traditional alpha analysis suggests.