Moody’s recently conducted a conference call to summarize the changes to their Commercial Property Price Index (CPPI).
The major enhancements to the index include:
- Two stage annual-to-monthly frequency conversion: more signal, less noise, no lag.
- Segmentation of the six major “gateway” markets versus rest of US for each property type.
- “Building block” indices equal-weighted while roll-up composite indices are value weighted.
- CBD and suburban office sectors treated as effectively two different property types.
- Prior sale threshold of $2.5 million is inflation adjusted to remove any bias.
- Results not “frozen” and constantly revised based upon all available and most current data.
- All indices monthly, faster reporting cycle.
Minor tweaks include:
- Distressed sales to third parties included, foreclosures by lenders not valid
- Pairing of non-sequential sales of same property allowed, provided all other filters are passed and no overlap with other pairings
- Flip filter reduced to 12 months from 18 month holding period
- Extreme returns filter is set to exclude any paired observation in which the annualized return exceeds +/- 50%
What will remain the same?
- Real Capital Analytics continues to be source of data
- Only valid, arms-length sales included
- A series of filters are employed to ensure that the prior and current sales are comparable, do not represent a material change in use or size, each transaction is reflective of market pricing
So, what do these changes look like when compared to the prior index and its methodology?
They’ve also better formalized their Major Market Index, which was previously called the Six City Index.
All-in-all, fabulous improvements to a fabulous index.