In this article we compare public and private real estate equities. In so doing, we control for three of the main differences between these investment alternatives: property-type mix, leverage and appraisal smoothing. With these two restated indices, we then run tests to determine in a statistical sense whether the restated means and volatilities of the two series were different from one another. The clear answer is that they were not. The results of the statistical tests combined with the fact that the average difference between the two (restated) return series has substantially narrowed (to approximately 60 basis points) in the more recent (1993)(1994)(1995)(1996)(1997)(1998)(1999)(2000)(2001) period jointly suggest a seamless real estate market in which public-and private-market vehicles display a long-run synchronicity. This has important implications for portfolio management. First, public-and private-market vehicles ought to be viewed as offering investors a risk/return continuum of real estate investment opportunities. Second, while the "platform" did not matter in terms of observed return characteristics, the platform may matter with regard to liquidity, governance, transparency, control, executive compensation and so forth; an apparent clientele effect hints at these issues being valued differently by large and small investors.Returns on publicly traded real estate investment trusts (REITs) have typically exceeded the returns on private real estate equities by approximately 5% per annum. For example, when returns are observed over the 21-year period ended in 2001, REIT returns (as proxied by the National Association of Real Estate Investment Trusts, or NAREIT, Index) averaged 13.5%, while private real estate returns (as proxied by the NCREIF Property Index, or NPI) have averaged just 8.4%. This performance difference of approximately 500 basis points raises the question: Is this differential attributable to some underlying structural reason (e.g., optimal contracting issues, the efficiency of public markets, etc.) or is it just happenstance? In short, does the "platform" (i.e., the format of the legal entity used to hold the assets) matter? This article attempts to examine rigorously this question.

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