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Missing the (bench)mark: The advantages and disadvantages of benchmarking to an index
“How are we doing?” That is a commonly asked question in the investment world, and the world in general. As this article is written for Institutional Real Estate Americas, however, it focuses on how institutional real estate investors try to answer this question with respect to their investment performance, specifically through benchmarking performance to an index.
Although evaluating real estate investment performance by benchmarking to an index is now quite common, it is actually a somewhat recent phenomenon. Institutional real estate indices began in the early 1980s when the venerable Frank Russell Company and the fledgling National Council of Real Estate Investment Fiduciaries (NCREIF) created what is now known as the NCREIF Property Index (NPI). While most people today take the existence of multiple real estate indices for granted, there are still people active in the industry who can remember when there were none.
Subsequent to the creation of the NP
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