What is the NCREIF?
The NCREIF is an acronym of the National Council of Real Estate Investment Fiduciaries, and it operates as a non-profit making entity. The main aim of the NCREIF is to inform the concerned parties on the actual performance of the real estate industry and use the information to make an informed decision. The association performs its role by collecting relevant data, analyzing the data, and then presenting it in relevant forms to the target audience.
The NCREIF attempts to inform real estate investors on the risks of return in the market, as well as the current trends that investors should be aware of. It also improves the transparency of the real estate industry through the various statistical data it releases in the market. For example, the property index and other statistical analysis published by the association help investors understand the operations in the real estate investment industry while identifying weaknesses and opportunities that investors can leverage.
- The NCREIF oversees the collection, dissemination, and validation of reports on the performance of the real estate investment market.
- Institutional investors count on the NCREIF for timely analysis of the risk of returns in the market at any given time.
- The NCREIF publishes the property index and other inferential statistics on a quarterly basis.
The NCREIF comprises approximately 215 members, mostly institutions and academic groups. The association is categorized into three classes of members. The first group comprises data contributing members, which consist of institutional investment managers that oversee real estate investments with a market value above $50 million.
The second category comprises professional practice members like pension consultants, information brokers, and appraisers. The second group is heavily involved in various areas of the real estate industry, even though they do not own any assets under management. The last category comprises academic group members who play a significant research role in the real estate industry.
The NCREIF members are required to operate within the stipulated rules and regulations provided by the entity. For example, each category of members must perform their assigned roles within the stipulated periods; failure of which results in their membership being revoked.
For example, if a member joins as a data contributor, they must submit the appropriate data in each quarter; failure of which leads to the termination of their membership. The NCREIF also prohibits members from joining more than one of the three categories or switching membership to another category.
The NCREIF Property Index (NPI)
The NCREIF Property Index measures the performance of real estate investments on a quarterly basis and evaluates the rate of returns in the market. The NPI covers properties that are acquired in place of institutional investors that are exempted from taxes in the fiduciary environment. The NPI uses the current property values in the market as opposed to using the initial cost for developing the property.
Therefore, the properties used in the NPI are supposed to be valued as often as every three months. It means that every time they are being reported, they are also being valued at least four times annually. The appraisal can be done internally or externally but should undergo an external valuation at least once every three years.
NPI Inclusion Attributes
For a property to be included in an NPI, they should fulfill the set-out requirements.
Properties already in operation should be at least above 60% occupancy rate when taking part In the NPI. The property types allowed into the NPI are hotels, office buildings, industrial properties, apartments, and other retail use properties. Allowed properties can be wholly owned or even jointly owned properties. Returns on investment are required to be reported without leverage. The property should also be run by a tax-exempted and qualified institutional investor.
Index Data Validation
The NCREIF follows a data validating procedure that comprises three steps. The process is quick to ensure that any errors in data submission are noted and consequently corrected. The submission process is undertaken by specialized software engineered specifically for the exercise. The software runs tests on the data to pinpoint any inconsistencies in conforming to the set standards.
Errors should be corrected before the final submissions. Warnings issued by the system highlight any outliers from usual norms. Abrupt changes in the value of a property from one period to the next is an outlier, and thus the system will issue a warning on such occurrence.
The NCREIF also conducts its own form of validation after the final submission to iron out any conspicuous anomalies, The validation is a two-step process. The first step is repeating the tests done by the contributors on the data, while the second step is the comparison of a contributor’s result to the results of other contributors.
The Index Oversight Committee (IOC)
The Index Oversight Committee (IOC) is tasked with the responsibility of upholding integrity in the board of directors by recommending changes, where necessary. It also reviews policies and quarterly indices to maintain the highest levels of transparency. The committee can also sanction the board for inconsistencies, including untimely reporting of the required reports.
The IOC comprises five top researchers who have enough understanding of the member firms’ databases. The researchers have a deep understanding of the prevailing market trends, indices, and their methodologies. The IOC always takes a vote to pass policies, recommend directors’ changes, or release any indices. The majority vote wins; hence, the odd number of members.
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