Open ended funds: changes and opportunities—what are we learning in this market correction?

Friday, October 2, 2020 | By Jason Kale, Director, Real Assets

Open ended funds: changes and opportunities—what are we learning in this market correction?

In the last decade, the popularity of open-ended funds has grown. We have seen many of our real assets clients launch such funds in recent years. One of the attributes investors appreciate is the diversity of property types. However, in recent years, we’ve seen the Internet of Things have an impact on various property types. The transition to online shopping, for example, has had an obvious effect on the retail sector. Shopping malls, power centers and mixed-use locations are all losing tenants to e-commerce, and this shift to e-commerce is creating its own opportunities. The demand for storage and industrial space is growing. The COVID-19 pandemic has accelerated this shift. The National Council of Real Estate Investment Fiduciaries (NCREIF) recently released some data from this past quarter. That data revealed:

  • Industrial sector now has the lowest discount rate and second-lowest cap rate
  • Discount rates for retail have been trending higher since 2018 (see chart)
  • Market rent growth in retail is lagging the other sectors by 25-50 bps
  • This quarter returns went negative for all property types except industrial
  • The QTD, YTD, 1-Year and 3-Year NFI-ODCE returns are trialing the NPI returns (see chart)

What are we learning? In this volatile time, industrial assets can be a stalwart source of income to your investors and buffer your portfolio returns.  

Retail discount rates are much higher than industrial rates.

Graph shows discount rates based on valuations of ODCE Properties from Altus

Returns are slightly more negative for the ODCE.

Graph shows NPI versus ODCE

Source – NCREIF.

To learn more about investment strategies to take advantage of the opportunities in the market, including core, core plus, debt and agriculture, download our "The Impact of COVID-19 on Open End Funds" whitepaper.

Alternative Investments, Fund Administration, Real Estate & Property Management

Theme picker