Listed REITs have turned the corner while private real estate still lags

At Principal Asset Management, the $55 billion private equity real estate book gets the attention, but the $20 billion listed REIT sleeve sets the clock—and Rich Hill says the gap between them is the whole investment argument. Hill, global head of real estate strategy and research, oversees a $107 billion global real estate portfolio split into four quadrants, and he likens the four to his children. "I love my four kids for different reasons, but they also frustrate me for different reasons," he said in an interview published by Commercial Observer. The current frustration is the gap between what the public market prices and what private appraisals show.

His core claim is that listed REITs lead at cycle turns, down and up: they troughed in October 2023 and have returned about 60 percent since on a total-return basis, while private real estate troughs 12 to 18 months later. By his count, private valuations have now risen for eight consecutive quarters, about two years. But the REIT market, he argues, has already shifted from recovery into expansion—the move that happens when valuations exceed their prior cycle highs—and that public turn is one that not many people are following.

Hill puts the full commercial real estate cycle at 16 to 18 years, with recoveries lasting around two years, expansions around 12, and downturns about a year and a half. If the public market has just crossed from recovery into expansion, the private market—with its 12-to-18-month lag—is likely still in the recovery, making the present moment the very early innings of the cycle. "The markets are finally telling you, for the first time in a while, that predictable earnings and income-driven total returns are a lot more in vogue," Hill said. Listed REITs, he added, are rallying broadly even as technology and AI stocks pull back, an echo of the late 1990s and early 2000s, when real estate was out of favor.

For allocators, the lag is the decision, and the eight-quarter private valuation streak looks like confirmation but is, in Hill's framework, the trailing edge of a move the public market already made. An allocator who waits for private appraisals to confirm the transition from recovery to expansion will be buying late in the recovery, well after the public market has already moved. The public tape leads because private valuations move on lagged appraisals.

The call Morgan Stanley made in August—which this publication reported—was that the four-year repricing is done and the base is forming. Hill's version runs longer: the base is not a static bottom but the beginning of a 12-year expansion. The refinancing wall that has dominated commercial real estate capital discussions is still real, but the cycle math suggests patient capital has a longer runway than the distress narrative implies.

The credit quadrants—$20 billion in private commercial real estate debt and the remaining $12 billion in CMBS—are where the lag matters most: if the lead-lag relationship holds, they should see the same recovery-to-expansion shift, only later. Lending into a recovery is a different discipline from lending into an expansion; the transition changes underwriting standards, spread pricing, and loan-to-value appetite.

None of this is certain, and Hill himself notes no two cycles are the same. The falsifiable bet in his framework is that the private recovery has longer to run than the pessimists assume, and that the next downturn will arrive as an expansion-phase problem rather than a recovery-phase one. The metric to watch is whether listed REITs hold above their prior cycle highs. If they do, the expansion case holds and the private market's eight-quarter streak is the base of a longer run. If they don't, the lead-lag relationship cuts the other way, and the lag that shielded allocators on the way down will leave them late on the way up.