What a difference a year makes! After two years of negative returns, the NCREIF Property Index (NPI) produced a total return of 13.1 percent in 2010, primarily based on strong income yields and rising values in the third and fourth quarters. Appreciation totaled 6.1 percent during the year, recovering one-fifth of the losses experienced during the Great Recession. Renewed capital flows to real estate in the form of both equity and debt, aided in particular by foreign investors and public REITs, helped stabilize markets and eventually increase property values.
Investors in core properties had access to public market cash and cheap debt thanks in part to Federal Reserve accommodative policy and lending by government-sponsored enterprises (GSEs). Inexpensive debt propped up leveraged returns in prime apartment and office markets, driving down going-in capitalization rates from their 2009 highs. Spot market activity in retail, suburban office and industrial properties also netted compression, but movements were less dramatic than in the apartment and office CBD sectors. This value support helped mitigate some looming distress and maturing debt issues.
Source : RREEF