Public REITs, now totalling $1.4 trillion in equity market capitalization, have historically been the primary way retail investors access diversified portfolios of professionally managed, income-producing real estate. Anyone can buy shares in a public REIT. But private, unlisted REITs have existed as well, and in the early 2010s, unlisted Net Asset Value (NAV) REITs appeared. Similar to their publicly traded cousins, they are professionally managed and they report to the SEC, but they do not trade on an exchange and are only available to accredited investors.

Today, NAV REITs hold $80 to $100 billion in equity market capitalization, representing “a major alternative to public REITs,” and that reputation may stem from their impressive performance: From 2016 to 2024, NAV REITS delivered significantly better risk-adjusted returns relative to REIT indexes, according to new research, the first to study this category.¹ Relative to the one-month treasury, NAV REITs provided excess returns of 5.0% annually with an average volatility of 3.7%, while public REITs delivered slightly higher returns (5.8%) but far greater volatility (18.1%).

Quick primer: Because NAV REITs are not traded, their stock prices are based purely on their own valuations of their real estate. Those valuations are performed - and the stock prices are determined - monthly. But given an incentive to show a rising stock price, how do NAV REITs determine the NAV fairly? Similar to the others in the group, Blackstone REIT (BREIT), the largest NAV REIT, uses “a comprehensive set of methodologies.” These include monthly internal valuations with third-party reviews and annual third-party appraisals of each asset.

We read a lot about it and the process felt reasonable to us, although BREIT acknowledges the obvious: “The calculated fair value of our assets may differ from their actual realizable value.”

The authors took a dim view of the high risk-adjusted returns in their observed findings. It had nothing to do with the NAV REITs’ valuations of their real estate; the authors did not take issue with the stock-price-setting process. Instead, the researchers suggest the NAV REITs’ strong risk-adjusted returns “suffer from smoothness.” Infrequent pricing updates and subtle changes to the valuation mean the stock price simply does not move much, and because risk is a function of price volatility, NAV REITs get too much credit in their Sharpe Ratios for being low-risk.

Critics that say illiquid assets have overly smooth returns often point to one hallmark of smoothing, autocorrelation, which just means one month’s return has a high predictive value in estimating next month’s return. NAV REITs exhibit high one-month autocorrelation; public REITs do not. The researchers wanted to address more fully the risk in NAV REITs, so they calculated “unsmooth” NAV REIT returns.

They assumed each monthly stock price was based in part on the price from the prior month, and used an analytical process to reverse that effect.

After all that “unsmoothing,” returns obviously did not change but NAV REITs’ volatility rose to 8.0%, still well below the 18.1% for public REITs, and autocorrelation dropped to near zero. This added credence to the finding that NAV REITs genuinely offer better risk-adjusted returns.

These findings still did not comport with the researchers’ intuitive sense that the true risk level in NAV REITs was much higher, something they candidly acknowledge was “a somewhat subjective view on our part.” They then applied a very aggressive unsmoothing to the data and came to findings more consistent with their intuition, but the process felt like the research equivalent of ultra-processed foods - you see the result but you’ll never know exactly how it was made.

Whether the headline findings are true, directionally true or fundamentally flawed, the core debate is about how risky NAV REITs are as an investment. Although their scrutinized returns have not implied significant risk, most experienced investors would instinctively argue that a publicly traded REIT stock will price at levels better reflecting an accurate risk of its underlying portfolio. That’s standard “market forces” orthodoxy, and one the researchers seem to believe it as well.

But ultimately, the research forces a provocative question: What if real estate assets really are that stable? Maybe public markets overstate the volatility of REITs’ portfolios. Maybe it’s not that NAV REITs are artificially calm, but that public REITs are artificially chaotic. It’s a subversive idea, but the data leaves the door open.

Who: Figure.AI

What: California-based manufacturer “designing robots for the real world.”

The Sparkle: We live in the future! Almost! Staying with last week’s robot theme, Figure makes humanoid robots that are as advanced as you’ve ever seen. They talk, they walk, they fold laundry, they make eggs (probably), etc. Their goal? “Building robots that learn and reason like humans,” which you might find inspirational or terrifying, but it’s undeniably real, as they just raised more than $1 billion in a Series C round and created a deep strategic partnership with Brookfield to explore applications in the built environment.

Astronomers may have found the universe’s first known triple black hole system. Then they watched it vanish. For a moment, three singularities—each a place where space and time collapse—shared a gravitational ballet. The whole system lasted just long enough to remind us: even the most powerful forces in the cosmos don’t last forever.

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