IND E-Xter i ty
BY ALLEN KENNEY
MIT researchers
have developed an
innovative index
for measuring
commercial
real estate
performance
What’s in a stock price? The theory behind the market mechanism for valuation of publicly traded stocks is elegant in its simplicity—
hordes of investors instantaneously determine how much a company is
worth, based on their buying and selling decisions.
For a REIT, that means investors collectively judge its value every second
of every trading day. If a REIT’s market capitalization stands at $10 million
at the end of a trading day, that means the company is judged to be worth
that amount at that time.
Building on this principle, academics at the Massachusetts Institute of
Technology Center for Real Estate have developed a new index series for
commercial real estate property values—which they’re calling the NAREIT
PureProperty Index—based on the daily fluctuations in REIT stock prices.
The index uses data on REIT property holdings along with REIT financial
data to generate estimates of the returns on the underlying property assets.
It represents a major break from other property valuation metrics.
“These new indexes are supported by tradeable baskets of stocks, offering
a major advantage,” says David Geltner, a professor and director of research
for the MIT Center for Real Estate.
LONN Y KALFUS/GETT Y IMAGES
