Understanding the NFI-ODCE Index in a Changing Market

The NFI-ODCE Index (“Index”) has long been a critical benchmark for tracking
the performance of core real estate investments. Composed of high-quality,
income-producing properties across the industrial, residential, retail, and
office sectors, the Index provides valuable insights into market trends and
investor sentiment. However, the last few years have presented
unprecedented challenges, with the Index experiencing seven consecutive
quarters of negative returns. Despite this, there are emerging signs that core
real estate may be on the path to recovery, making it an important time for
investors to reassess their strategies.

Learning from Past Downturns

The recent downturn in the NFI-ODCE Index is significant, marking the first
extended period of negative returns since the 2008-09 Global Financial Crisis.
Historically, downturns like these have been rare—happening only once every
14 years, on average. And when they do occur, they’re often a signal that the
worst is behind us.

Recent data provides cautious optimism that we may be nearing the end of
this downturn. For the first time since the rate hiking cycle began in 2022,
several funds within the NFI-ODCE Index posted positive total returns in the
second quarter of 2024. While it is premature to declare that the market has
fully bottomed out, these developments suggest that market dynamics are
beginning to shift in a more favorable direction.

Drivers of the Recovery

A closer look at the four major property sectors within the NFI-ODCE Index
reveals that each is performing differently, but together, they are shaping the
path to recovery:

• Industrial: The industrial sector—especially warehouses and
  distribution centers—has been a consistent performer, driven by strong
  tenant demand. Occupancy rates remain high, exceeding 98%, and the
  sector represents the largest allocation in the Index at over 34%. While
  there are some concerns about potential oversupply in some markets,
  the long-term outlook for Class A industrial assets remains positive.
• Residential: With the U.S. facing a housing shortage of approximately
  5.5 million units, the residential sector continues to benefit from an
  ongoing supply-demand imbalance. While new construction may
  temporarily weigh on rent growth, the sector is viewed as a defensive
  investment in the current environment. Occupancy levels are stable,
  and the sector is attracting significant capital, making it a strong bet for
  the foreseeable future.
• Retail: After a period of significant revaluation, retail has started to
  stabilize. While we may not see substantial rent growth in the short
  term, properties that are well-located—particularly grocery-anchored
  centers—have proven resilient. Retail now represents 11% of the Index,
  down from more than 20% in 2017, reflecting the broader consumer
  shift toward e-commerce. However, well-positioned retail assets are still
  holding strong.
• Office: Office properties remain the most challenged, largely due to the
  ongoing trend of remote and hybrid work. But, the Index’s exposure to
  office properties has dropped sharply—it now represents 17%, down
  from 39% in 2014. High-quality office spaces, especially those with
  modern amenities or geared toward life sciences and medical use, are
  better suited to weather the headwinds in this sector.

Interest Rates and the Path Forward

One of the key factors influencing the NFI-ODCE Index’s performance has
been the historically high interest rate environment. However, many
managers within the Index have been strategic—opting for long-term fixed-
rate debt and maintaining strong capital reserves. This conservative approach
has allowed them to hold onto assets through this challenging period
without significant income erosion or forced sales.

With interest rates showing signs of stabilizing, core real estate is well-
positioned to recover. Fundamentals across sectors, particularly industrial
and residential, remain strong, and portfolio managers have proven resilient.

For investors, this may present an opportunity to reallocate to core real
estate, especially as market conditions begin to normalize.

Conclusion: A Time to Reassess Core Real Estate

The NFI-ODCE Index has faced its share of challenges in recent years, but
there are encouraging signals that the worst may be behind us. With key
sectors like industrial and residential showing strength and interest rates
beginning to moderate, the path to recovery for core real estate is becoming
clearer. For investors looking to build long-term value, now could be the time
to reassess their real estate allocations and position themselves to capture
the potential upside as the market continues to recover.

Important Disclosures

This information is educational in nature and does not constitute a financial promotion, investment advice or an inducement or incitement to participate in any product, offering or investment. Accordant is not adopting, making a recommendation for or endorsing any investment strategy or particular security or property mentioned in this article. All opinions are subject to change without notice, and you should always obtain current information and perform due diligence before participating in any investment. All investing is subject to risk, including the possible loss of principal. Accordant Investments, LLC (“Accordant”) cannot guarantee that the information herein is accurate, complete or timely. Past Performance does not guarantee future results.

Accordant has not made any representation or warranty, express or implied, with respect to the fairness, correctness, accuracy, reasonableness or completeness of any of the information contained herein (including but not limited to information obtained from third parties), and they expressly disclaim any responsibility or liability, therefore Accordant does not have any responsibility to update or correct any of the information provided in this article. 

All real estate investments have the potential for value loss during the life of the investment and the sponsor can make no assurances that any investment will achieve its objectives, goals, generate positive returns, or avoid losses.

Investors should carefully consider the investment objectives, risks, charges, and expenses of the Accordant ODCE Index Fund. This and other important information about the Fund is contained in the prospectus, which can be obtained online by visiting www.Accordantinvestments.com The prospectus should be read carefully before investing.

Past Performance is No Guarantee of Future Results.

Investing in the Fund involves risks, including the risk that you may receive little or no return on your investment or that you may lose part or all of your investment. The Fund’s investment objective is to employ an indexing investment approach that seeks to track the NCREIF Fund Index – Open End Diversified Core Equity (the “NFI-ODCE Index”) on a net-of-fee basis while minimizing tracking error. There can be no assurance that the actual allocations will be effective in achieving the Fund’s investment objective or delivering positive returns. It is not possible to invest in an index. You cannot invest directly in an index and unmanaged indices do not reflect fees, expenses, or sales charges.

The ability of the Fund to achieve its investment objective depends, in part, on the ability of the Adviser to allocate effectively the Fund’s assets across the various asset classes in which it invests and to select investments in each such asset class. There can be no assurance that the actual allocations will be effective in achieving the Fund’s investment objective or delivering positive returns. Limited liquidity is provided to shareholders only through the Fund’s quarterly repurchase offers for no less than 5% of the Fund’s shares outstanding at net asset value. There is no guarantee that shareholders will be able to sell all of the shares they desire in a quarterly repurchase offer. The first repurchase offer following the Conversion is expected to occur in February 2024. 

Additional risks related to an investment in the Fund are set forth in the “Risk Factors” section of the prospectus, which include, but are not limited to the following: convertible securities risk, correlation risk, credit risk, fixed income risk, leverage risk, and risk of competition between underlying funds.

Investors should consult with their selling agents about the sales load and any additional fees or charges their selling agents might impose on each class of shares.

The Accordant ODCE Index Fund is distributed by ALPS Distributors, Inc (“ALPS”). Accordant Investments LLC is not affiliated with ALPS.