PREA chairman Stephen Furnary opened the combined 2005 Pension Real Estate Association and National Council of Real Estate Investment Fiduciaries conference by telling his audience how the event would give them a better understanding of the NCREIF Property Index. He said: “The index allows us to do a better job for both our colleagues and plan sponsors.” This was the general theme of the conference that ran from 18-21 October at the Westin Copley Place in Boston. The index was discussed in many of the major sessions of the event which attracted 120 institutional investors among an audience of over 800 industry professionals.
Through the second quarter of 2005, the NCREIF index covered total real estate assets of $169.5bn (e141.3bn). These included a mixture of 37% office buildings and around 20% each for the residential, industrial and retail sectors. Many of the attendees at the conference believed that pension funds and other institutional investors use the index as a guide. They said that they don’t try to copy the index verbatim, but take its information into consideration when putting together a real estate investment strategy.
There were some critical comments made by panellists. One of these came from Ms Nori Gerardo Lietz, managing director of Pension Consulting Alliance. She said: “Not a single client of ours invests like NCREIF.” Ms Lietz has contracts with some of the largest and most active pension funds investing in real estate in the country. These include the California Public Employees Retirement System (CALPERS), California State Teachers Retirement System and the Oregon Public Employees Retirement System. She said she was not in favour of the total return figure that NCREIF uses for its data. Ms Lietz preferred an IRR cash return figure when putting together a real estate investment strategy.
One of Ms Lietz’s clients, Mike McCook, senior investment officer for CALPERS, joined her on the panel. He does not like the total return figure either when it comes to evaluating real estate transactions. He said: “I like the IRR return as a better way to look at transactions.” He feels that the NCREIF Index is better suited to gauge a core strategy. His real estate portfolio is currently made up of 33% core, 64% non-core and 3% public real estate investment trusts (REITs). He said that another factor was that most commingled funds are IRR return-oriented rather than total returns.
The use of the NCREIF Index came into play when the conference was split into various council sessions. One of these was the Pennsylvania Council. This was led by Mary Ludgin, managing director of US private equity for Heitman. The session involved setting up a case study. A mock pension trust was created with a $300m real estate allocation. The council had to agree on a final decision with four separate outcomes.
Pretty much everyone agreed that the NCREIF Index should be used as a guide and not something to copy for setting up a real estate portfolio.
PREA managers said that it felt good to combine their conference with NCREIF. There were a record number of attendees this year as a PREA-only conference attracts around 600. The two organisations have been talking about a potential merger, but nothing has happened yet.

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