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Center for Real Estate announces new commercial property index

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Real Capital Analytics (RCA) and the MIT Center for Real Estate are launching a set of pioneering indexes for tracking commercial investment property prices in the United States, the center director and RCA president said in a joint announcement today.

The Center for Real Estate (MIT/CRE) developed the new suite of 29 indexes to support derivatives trading such as index return swaps. The indexes are based on comprehensive data on commercial property transactions prices from the New York-based RCA.

In making the announcement, MIT/CRE director David Geltner said, "The development of an active futures market, which does not currently exist for commercial property, would greatly increase the efficiency of the real estate industry. It will address such long-standing problems with real estate investment as high transactions costs, lack of liquidity, inability to sell 'short' and difficulty comparing investment returns with securities such as stocks and bonds."

The new indexes will be published on the web sites of MIT/CRE and RCA and will be available free of charge as an information service to the academic and industry research communities.

Henry Pollakowski, co-director of the MIT/CRE's Commercial Real Estate Data Laboratory, said the new indexes achieve a number of firsts. "We have developed the first true monthly national index that does not involve a moving average across past months; the first "primary markets" (top 10 metropolitan areas) quarterly indexes for each of the four major property types--office, apartment, industrial, retail; and the suite of 29 basic indexes includes the first annual indexes for specific property types in specific metropolitan areas, such as office buildings in New York."

Pollakowski also noted that the new MIT/CRE indexes are the "first regularly produced commercial property -indexes based on repeat sales of individual -properties."

In addition, the suite of 29 indexes includes quarterly indexes for the four property types at the national level and annual regional indexes for each of the property types.

The RCA database that makes the index possible is one of the nation's most extensively and intensively documented databases of commercial property prices, including on a timely basis the vast majority of commercial property sales of more than $2.5 million. The MIT Center for Real Estate developed the methodology for producing the indexes from the sales data.

A version of this article appeared in MIT Tech Talk on December 20, 2006 (download PDF).

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