What's A Realty Fund Worth? That Depends On The Math

At some real estate funds, the familiar term 'net asset value' can mean different things

- Jonathan Weil

• Some investors say the practice of using the NAV label on a non GAAP financial measure might cause confusion

The term "net asset value," or NAV, is so commonplace for anyone buying a mutual fund, investors hardly give it a second thought. It has a standard definition. The number is audited annually. There is rarely a reason to question it.

But in a corner of the market that has grown rapidly—real-estate funds—the NAV label, while ubiquitous, doesn’t have the same meaning. In most cases the funds, known as nontraded real-estate-investment trusts, have broad leeway to define their NAV measurements however they want.

This raises issues of comparability between NAV measures at different funds. It also can lead investors to question whether values at some funds realistically reflect the performance of their underlying assets. Both have become a concern for investors since rising interest rates began hurting many commercial real-estate values.

Shares of publicly traded REITs, which typically don’t report NAV, have plunged; the MSCI US REIT Index is down 25% since the end of 2021. Yet NAVs have shown little volatility at some of the biggest nontraded REITs focusing on commercial real estate. The NAV per share at Blackstone Real Estate Income Trust, known as Breit and the biggest of these kinds of funds, is up 2% since the end of 2021, and Starwood Real Estate Income Trust’s is down 5%.

Investors in some cases have rushed to sell shares, prompting several funds to curb redemptions. Blackstone, for example, said last week that November repurchase requests for Breit were $1.8 billion and that it fulfilled $1.2 billion of these.