Transactions-Based Index (TBI)
2009 Quarter 3
Results for the 3rd quarter of 2009 show a 4.4% increase in prices compared to the previous quarter for properties sold from the NCREIF database, placing the price index 36.5% below its 2007Q2 peak. The demand-side index rose by 11.8% (second highest in index history), to 41.9% below its 2007Q2 peak. The supply-side of the market recorded a continued modest drop of of -2.5%, taking that index to 31.8% below its 1Q08 peak. Transaction observations underlying the TBI increased for the second quarter in a row, from 0.6% to 1.0% of the NCREIF population of properties. (See further commentary and FAQs by clicking on the "Download all charts & data" link below.)
Please note that the TBI is a statistical methodology that produces estimates of price movements and total returns based on transactions of properties sold from the NCREIF Index database. The TBI is provided free on a best-efforts as-is basis as a service to the academic real estate research community and is not audited and may not be free of errors or omissions.
MIT makes no warranty or claim regarding the usefulness or implications of the index. It should also be noted that TBI results for the 1st, 2nd, and 3rd quarters of any year are considered preliminary and subject to revision until the calendar year is completed with the 4th quarter results.
Transactions Indexes Based on NCREIF Database
| 2009 Q3 |  Download all charts and data (ZIP, 56K) |
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| Price Index (Variable Liquidity) | Total Return Index (Variable Liquidity) | Supply and Demand Indexes | |||
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| Apartment |  View Chart |
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| Industrial |  View Chart |
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| Office |  View Chart |
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| Retail |  View Chart |
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What is TBI? | TBI Data and NCREIF | TBI Details and usage | Transactions Indexes
What is the TBI?
The MIT/CRE CREDL Initiative has developed a Transactions-Based Index (TBI) of Institutional Commercial Property Investment Performance. The purpose of this index is to measure market movements and returns on investment based on transaction prices of properties sold from the NCREIF Index database. This is a new type of index that offers advantages for some purposes over the median-price or appraisal-based indexes previously available for commercial real estate in the U.S. Median price indexes are not true price-change indexes because the properties that transact in one period are different from those that transacted in the previous period. Appraisal-based indexes are based on appraisal estimates rather than actual prices of actual transactions.
The type of transactions-based index being provided by MIT/CRE can often provide a more up-to-date or precise picture of movements in the real estate market than these other types of indexes, and is being provided for research purposes by the MIT Center for Real Estate as a service to the industry and academic research communities. However, it should be noted that transactions-based indexes are statistical products that can contain estimation error. MIT makes no warranty or claim regarding the usefulness or implications of the index.
TBI Data and NCREIF
The TBI is based on data received by MIT on a quarterly basis from the National Council of Real Estate Investment Fiduciaries. NCREIF is a not-for-profit industry association dedicated to improving knowledge about institutional real estate investment performance. The NCREIF Property Index (NPI) is produced quarterly by NCREIF and is available on the NCREIF website.
TBI Details and Usage
Using econometric techniques, the TBI estimates quarterly market price changes based on the verifiable sales prices of all and only properties sold from the NPI database each quarter. The TBI controls for differences in the properties that are sold each period, for transaction sample selection bias, and for estimation error noise. The details of the index methodology are described in Fisher, Geltner & Pollakowski (pdf, 692K). The TBI is a hedonic price index based on a "representative property" that mirrors the average characteristics of the NCREIF properties. The price and sales models that underlie the TBI use as a composite hedonic variable the quarterly-updated self-reported (appraised) values of the properties as reported into the NCREIF Property Index. These valuations are used to control for cross-sectional differences in properties, but they also play a role in the longitudinal price changes tracked by the index. The TBI price index represents movements in transaction prices in closed deals in the market. Such prices represent the "equilibrium" in the market at the time, in that they reflect agreement between parties from both the demand and supply sides of the market. However, such prices reflect variable liquidity over time, in particular, it may be more difficult to sell as many properties as quickly at the transaction prices in a down market when trading volume is low, than in an up market when trading volume is high. The TBI methodology also allows production of indexes that track movements on the demand side and supply side of the market separately, based on the methodology of Fisher, Gatzlaff, Geltner & Haurin (REE 2003) (pdf, 1,014K). The demand side index can be interpreted as a "constant-liquidity index." The TBI price index (with variable liquidity) is reported here in both price-change and total returns, while the demand and supply side indexes are reported only for price-changes.
TBI returns are comparable to NPI equal-weighted cash-flow based returns, with appreciation including capital expenditures. All indexes are updated quarterly, with postings generally within six weeks or less of the end of the quarter. Please note that starting in 2009 the TBI returns are frozen by construction as of the end of the previous calendar year. Returns within the current year may exhibit backward adjustments reflecting the new data each quarter.
