NCREIF Transaction Based Index (NTBI)

The NTBI is an equal-weighted transaction and appraisal index while the NPI is a value weighted index calculated using appraised values.  Neither one is right or wrong.  They are two different methods of creating indices to track the real estate market. 

A value weighted index treats the NPI as a complete population or portfolio of all properties in the “universe” held by members whereas an equal weighted index views the properties in the NPI as a sample from a broader population of commercial real estate since only a small portion of properties in the NPI transact each quarter and are included in the NTBI.  Not all properties that transacted in the NPI are included in the NTBI.  They must be in the NPI a minimum of four quarters and the square footage must match for the current and two prior quarters (no additional capital expenditures to enhance the building).

FAQs

The NPI is a value weighted index composed of a capital appreciation return and an income return. It is calculated using appraised values. The NTBI is an equal-weighted transaction and appraisal index. Neither one is right or wrong. They are two different methods of creating indices to track the real estate market. A value weighted index treats the NPI as a population or portfolio of all properties held by members whereas an equal weighted index views the properties in the NPI as a sample from a broader population of commercial real estate.The NPI includes hotels. There is no NTBI for the hotel property type, given the smaller population of properties and transactions in the NCREIF database. This may change in the future, but the current index series only includes apartment, industrial, office and retail property type indexes.

We use the equal-weighted version in the NTBI because we view the NTBI as a statistical estimation, based on a sample of properties (the ones that sold) inferring from that sample the change in value in the market represented by the entire NCREIF population of properties. We view each sold property as an equally-valid representative of that population. Hence, it makes sense for us to use the equal-weighted version of the NPI for comparison purposes. Also, the equal-weighted NPI tends to have less volatility (in effect it is more diversified, less dominated by a few large properties). Over time there should be no material difference in the trends, but there may be quarterly fluctuations that cause divergence depending on which properties transact.

The NTBI is not intended to be a benchmark. Only a small subset of properties in the NPI sells each quarter and thus do not represent the larger commercial real estate universe. Therefore, using the NTBI as a benchmarking index would not be appropriate. Furthermore, managers typically calculate the returns on their own funds using appraised values so they should compare these returns with an appraisal based index.