Investing in private real estate can benefit accredited investors in several ways.
From financial benefits like passive income and portfolio diversification to the opportunity to make a tangible impact on America’s affordable housing crisis, real estate investment funds like DLP Capital-sponsored funds provide compelling alternatives to traditional asset classes like stocks and bonds.
But private real estate also comes with unfamiliar terms that, while confusing, are worth understanding.
While the concept of net asset value (NAV) may sound like complex accounting jargon, understanding NAV can help you benchmark fund performance and track changes in the value of your holdings over time.
What is Net Asset Value in private real estate?
In private real estate, net asset value (NAV) measures the value of an investment fund.1 Think of it as the net worth of the fund at a specific point in time.
Unlike publicly-traded real estate investment trusts (REITs), whose share prices fluctuate daily based on market supply and demand, many private real estate funds, known as NAV REITs, calculate their NAVs monthly or quarterly.2 These calculations are typically based on periodic third-party appraisals and internal valuation models of the actual properties in the fund’s portfolio.
A private real estate fund can calculate its NAV by:
- Summing Total Assets: The fund manager totals the current market value of the fund’s assets, which includes its real estate holdings plus any cash on hand.
- Subtracting Total Liabilities: The fund subtracts all outstanding liabilities, including property-level debt and accrued expenses.
- Arriving at NAV: Subtracting liabilities from total assets gives you the fund’s total net worth, or Net Asset Value. Dividing that number by the number of outstanding investor units yields the per-unit price—or per-share Net Asset Value.
For example, consider a private real estate fund with assets worth $5 billion, liabilities worth $1 billion, and 100 million shares.
Accredited investors who pay close attention to their fund’s NAV can track changes over time, measure performance, and make informed decisions about when to buy, sell, or hold.
Why does NAV matter for private real estate investors?
NAV calculations can help accredited investors make sense of how much they’re paying, how their investments are performing, and how much volatility they’re experiencing over time.
NAV sets your price
When you invest in a fund, you usually buy in at the current NAV. When you redeem (or “sell”) your units later on, you typically do so at the current NAV.
This is why investors generally aim to invest in funds whose NAV they believe will grow over time. The change in NAV during your holding period, combined with distributions you received, represents your total return.
NAV tracks performance
Changes in a fund’s NAV, combined with distributions, are the most direct way to measure a fund's performance. When you invest, you do so anticipating that your fund manager will increase the value of the underlying assets, either by renovating properties, increasing rents, or making smart acquisitions.
A rising NAV over time signals that the fund’s investment strategy is working. It shows you, in clear dollars and cents, how much your holdings are worth—both then and now.
NAV is a measure of stability
Private real estate is often valued for its relative lack of volatility compared to the stock market. The NAV reflects this. Because it’s based on periodic, third-party appraisals—rather than daily market trading—it tends to move more slowly and predictably.
If you’re looking for steadier returns, funds with limited volatility whose NAVs gradually rise over time can help accredited investors balance out their public market holdings.