"Your marks are bullsh*t"
Q: The 25 core funds that make up the ODCE* index have $280 billion of real estate. But how do they value that $280 billion?
A: Appraisals
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Q: How aggressive are those appraisals?
A: As of 1Q 2026, the average ODCE cap rates were:
Industrial: 4.0%
Multifamily: 4.3%
Office: 6.0%
Retail: 5.5%
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Q: What are "market" cap rates?
Industrial: 5.4%
Multifamily: 5.2%
Office: 7.5%
Retail: 6.8%
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Q: That seems like a big difference. Has there always been this disconnect?
A: No. ODCE cap rates have historically trended 219 bps wide of the 10-year, but over the last 3.5 years, the spread has compressed to only 26 bps.
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Q: Wow. What's the historical spread of AAA bonds over the 10-year?
A: 171 bps historically and 94 bps over the last 3.5 years.
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Q: So core funds trade more aggressively than AAA bonds.
A: They don't TRADE more aggressively. They're VALUED more aggressively.
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Q: Are investors buying in at those values?
A: Investors are, on balance, selling. Or at least they're trying to sell. 11% of ODCE investors are waiting in a queue to exit. 48% of the total queue is in 6 funds with queues of 20%+.
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Q: What about closed-end funds?
A: Closed-end funds raised right before the rate hikes (2018-2020) have reduced their IRR projections by less than 1%, which implies they still expect to sell very near their original expectations.
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Q: Is anyone buying into these funds?
A: Yeah, lots of people.
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Q: They're buying in at above-market values?
A: You asked if they were buying. You didn't ask at what price.
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Q: Okay, so at what price are investors buying into real estate funds' carrying values?
A: 30% below those fund carrying values.
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Q: Is that a normal discount?
A: No, it's 76% steeper than pre-COVID levels.
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Q: So in sum, the real estate industry is burying its head in the sand?
A: [crickets]
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PS - Valuation is the most important skill in commercial real estate. To navigate these trends, you must be able to generate your own thesis on value, which is why we cover it extensively in our FastTrack course. DM to explore joining our Fall cohort if you want to sharpen your skills.
Sources: StepStone, Jefferies, NCREIF, NAREIT, Green Street, CoStar, CBRE, Cushman & Wakefield.
* ODCE stands for open-end, diversified, core, equity, and is a key LP benchmark.
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