An AltView on Private Real Estate
Private RE Valuations seem high, but never mind. LFG!!!!!
We haven’t written enough about private real estate—too distracted by other stuff.
That’s unfortunate because:
1. It’s a big market.
Source: Franklin Templeton
2. And Returns have lagged. Over the long term, private real estate has trailed liquid, lower-cost, publicly traded REITs. We wrote about it:
Still, confoundingly, private RE remains a default option for many institutions—until you pause and reflect.
Higher fees reduce returns—and pay for seriously good propaganda.
And if you’re a consultant who recommended private real estate, you’re strongly incentivized to accept that propaganda—especially when your clients can’t sell the funds anyway.
How realistic is it for your firm to admit defeat, punt, and just buy public REITs?
C’mon. Simple, liquid, and low cost is for LOSERS!
Like the Norwegians. Or the Finns. What could they possibly know about investing?
Also: “public REITs guy”—does that sound like a full-time job?
It Rhymes with Private Credit
Public-market prices for some alternative-investment products are flashing a discomfiting truth—as seen in the WSJ, NYT, and noted by AltView friend Mark Higgins.
For most institutional dollars in private credit or private real estate, these headlines matter little: they can’t exit anyway given the fund structure.
Some can exploit the gap by buying similar assets in fully liquid structures—see Blackstone’s private BCRED versus tradable private BDCs.
You don’t need to know the full scope of any “private credit crisis.” The question is simpler: would you rather own cheaper credits in a liquid vehicle, or very similar credits that are more expensive and potentially locked up?
Party like its 2007, or 2021
This isn’t the first time. It feels like everyone should know that. Do they?
Similar arbitrage-y opportunities have shown up in real estate funds, too. A notable example was Blackstone’s BREIT (2022), though there are earlier ones: TIAA’s retail real estate account imposed restrictions after GFC outflows. And Starwood, of course.
Warmer, Fuzzier Vibes?
Each Real Estate property is unique.
Sometimes people understand this too well. Once you’re in a fund, you’ll repeatedly hear about the unique attributes of “your” properties, and you may get captured by the story (see: high-fee propaganda, above). It’s an appeal to emotion that fails with private debt.
An indoctrinated institutional RE investor might confidently muse:
It may be true that publicly traded REITs have outperformed. But we are in a differentiated portfolio blah blah blah. Ours will perform better.
And if not, it’s less risky.
And if it’s not less risky, well, we value our partnership….
Is my “differentiated” private real estate portfolio really that special? It’s a question every investor should ask—especially if you’re in a vehicle that might let you out so you can buy something meaningfully cheaper.
For anyone who wants to put numbers on it, AltView has gathered some—with help from an anonymous friend.
You might even call it evidence.
Private Real Estate Valuation 101
Business valuation outside real estate usually speaks in multiples—most basically, the price/earnings ratio.
If a stock is $50 and earns $2.50 per share, its P/E is 50/2.50 = 20×.
In real estate, the analogue is the capitalization rate, or cap rate: the unlevered yield of a property, calculated as:
Net Operating Income (NOI)/Asset Value
Using the stock example: $2.50/$50 = 5%—a 5% cap rate.
The cap rate is the expected unlevered yield of a real estate asset—so lower cap rates imply higher valuations.
Cap Rates: A Historical comparison for Public and Private Apartments
NCREIF’s Property Index (NPI) tracks private (not publicly traded) apartments.
We can compare those to publicly-traded apartment REITs tracked by NAREIT:
1. NPI: Private Assets vs.
2. NAREIT: Public Assets
For public assets, we annualize trailing-quarter NOI and divide by the equity market valuation (i.e., an annualized current income return).
For this comparison, we use:
1. NPI/Private Markets: $241 billion in apartments owned as of Q4 2025. This was accessed via the NPI database.
2. NAREIT/Public Markets: $113 billion in publicly traded REITS owned February 2026, per NAREIT’s REITWatch publication.
The chart also includes Baa bond yields (moderately risky bonds) from the FRED database.
Remember: lower cap rates= higher real estate valuations.
Baa bond yields and implied cap rates for publicly traded apartment REITs move closely together.
You can see it in the GFC—when both spiked—and again in 2022, when both rose in tandem.
One anomaly: implied apartment cap rates fell well below Baa yields in 2006–07—now widely viewed as the peak of the CRE bubble.
Private-market (NPI) apartment cap rates roughly tracked REIT implied cap rates from 2000 into early 2007, and again from 2010–2019.
But when Baa yields and REIT implied cap rates jumped in 2007 and 2022, NPI cap rates barely moved. The same pattern showed up in 2020: COVID widened the gap versus Baa yields, yet NPI cap rates were essentially unchanged.
During the GFC, it took 13 quarters for public/private cap-rate parity to return. This time it’s 16 quarters and counting, with a gap around 2%. That sounds small, but it creates large valuation differences, as we’ll show.
All NPI Apartments Cap Rate Parity
NPI tracks ~2,300 privately owned U.S. apartments worth $241B. They generated $10.5B of annualized NOI in Q4 2025, implying a 4.4% cap rate.
By comparison, the implied cap rate for apartments in publicly traded REITs was 6.2%.
If you marked NPI-tracked (private) properties to the public-market implied cap rate, asset values would drop ~30%.
Leverage makes it worse: with 50% debt, a 30% asset markdown becomes ~60% on equity.
Connecting the Cap Rate dots
These valuation gaps imply private real estate portfolios are meaningfully “better” than what public REITs own. In aggregate, that’s hard to believe.
Consider two apartment portfolio sales from publicly traded REITs to private owners.
Example 1: AvalonBay sold a 1,248-unit Washington, DC-area apartment portfolio to Foulger Pratt for $477M.
CRE Daily reported the price implied a 5.9% cap rate. That figure is forward-looking; if you assume 3% year-1 NOI growth, the prior quarter’s annualized NOI implies ~5.8%.
Washington DC Cap Rate Parity
In Washington, DC, NPI tracked 41 apartments worth $5.5B, generating $57.1M of NOI in Q4 2025—an implied 4.2% cap rate.
Marked to the AvalonBay/Foulger Pratt cap rate (5.9%), those assets would drop ~27%.
With 50% leverage, the equity markdown would be ~55%.
The transaction price suggests NPI appraised values are too high.
Chicago Portfolio Transaction
Example 2: AIMCO sold its entire 1,495-unit Chicago apartment portfolio to privately held LaTerra for $455M.
NOI in Q4 2025 was $7.763M. Annualized and divided by the purchase price, that implies a 6.8% cap rate.
How does the AIMCO-La Terra transaction cap rate (6.8%) compare with NPI cap rates?
NPI tracked 82 Chicago apartments worth $11.2B, generating $141.5M of NOI in Q4 2025—an implied 5.1% cap rate.
If one marked the NPI tracked properties were market to the AIMCO-La Terra cap rate, the value of the assets would drop by 26%.
As in the DC example, the use of leverage adds to the pain; 50% levered equity gets you double the decline in value (51%).
But yeah, lets keep going with the private stuff
Not Rounding Errors
As with private debt, the difference between public and private Real Estate investment valuations is stark.
If NPI tracked properties in the US were marked down to the implied cap-rate levels of publicly traded REITs, the value decline (unlevered) would be 30.0%.
Last time we checked, we are not in a financial crisis. Slow distributions/illiquidity have an easy explanation: the seller’s valuation methodology may not reflect reality. And not in a good way if you own a share of that asset.
Of course for levered funds, recognition of this causes other problems, making it less likely in the first place.
Other resources:
CFA blog on Real Estate:
https://blogs.cfainstitute.org/investor/2019/12/12/private-real-estate-fund-categories-a-risk-return-assessment/
NAREIT data:
NCREIF query tool:
https://user.ncreif.org/data-products/ncreif-query-tool/
The difference is convexity. Public markets recognise it and price it. The book value of equity “NAV” ignores it.
The 2% Baa spread is a huge red flag. Thank you for pointing this out.
The premiums paid for multifamily assets in the private market seem to defy all logic. During COVID, prices went parabolic, but most buyers at least had positive leverage (the cap rate exceeded the borrowing rate). Today's buyers, in many cases, are borrowing money at rates ABOVE their cap rates. This is nonsensical and will inevitably lead to pain. People don't realize that real estate has all the characteristics of long duration fixed income with the negative drag of deferred capital expenditures.
The only caveat to this this...and it is a significant one!... is the comparable cost of new construction. Future supply of new multifamily housing is going to be severely restricted due to the 50% surge in post-pandemic construction costs. Today's acquirers of multifamily (provided the asset doesn't have serious deferred maintenance) are wagering that they have a long runway to raise rents as supply becomes constrained. New development today rarely makes sense. The rents required to justify a new development are 30+% above most A-quality assets.