Investors have priced in a negative, forward-looking view of listed real estate. Slowing growth and higher inflation have created a stagflationary backdrop that has been especially challenging for REITs. The result is that there has been a dramatic performance difference between listed and private real estate in 2022. While REITs, as measured by the FTSE Nareit All Equity REITs Index, are down -27.9% through September and down -21% through November, the NCREIF ODCE index, a measure of private real estate that is calculated quarterly, is up 13% through September on a total return basis. Based on history, we believe that gap in performance will not persist. Indeed, private real estate returns are just beginning to slow as expected. Private real estate typically lags listed real estate due to its slower-moving price discovery and transactions.

When advising our sons and daughters on how to invest for their retirement in roughly 60 years, we point them to stocks and the budding venture capital ideas of their classmates. The same advice might also hold true for perpetual institutions with a nearly infinite time horizon, no annual cash-flow requirements, and a passing interest in market volatility.