Core Real Estate Evergreens: Why the 2022-2024 Drawdown Matters

Open-ended real estate funds were marketed for two decades as the stable core of a diversified real assets allocation. The 2022-2024 period was the first genuine test of that positioning at scale. What happened during those 30 months reshapes how advisors should think about evergreen real estate — not because the asset class is broken, but because the structural tensions became impossible to ignore.

The setup going into 2022 was familiar. US non-traded REITs and European open-ended real estate vehicles had accumulated record AUM — collectively approaching $300bn across the largest dozen strategies — on the back of 15 years of post-GFC appreciation, stable distributions, and quarterly NAVs that drifted gently upward through every quarter.

Then rates normalized. And the gap between reported NAVs and transaction evidence widened dramatically.

The NAV-transaction gap

By Q3 2023, public REITs were down roughly 30% from their 2021 peaks. Private commercial real estate transactions — when they happened — were clearing at 15-25% below 2021 levels for most property types, 30-40% below for office. Meanwhile, the largest non-traded REITs were reporting NAV declines of just 5-9% cumulatively.

The explanation was technical: NAVs use appraisal-based valuation with trailing inputs, while public markets and transaction comps price in real-time. Over full cycles the two converge. Over shorter periods, the gap can be substantial — and during 2022-2024 it was the widest it had been since 2008.

The gating wave

Investors noticed. Quarterly redemption requests at several major non-traded REITs breached the 5% gating threshold repeatedly starting in late 2022. For roughly 18 months, some of the largest vehicles operated under near-continuous gating — meeting only a fraction of redemption requests each quarter, with the rest pushed forward to the next window.

This is the scenario the evergreen structure was designed to handle. Gates exist precisely to protect the fund from being forced to liquidate assets at stressed prices. The mechanism worked as intended.

It also demonstrated what "semi-liquid" actually means in stress.

What advisors should take from it

1. NAV reporting is a lagging indicator during stress. Investors exiting during 2022-2024 faced a structural choice: exit at reported NAV (but queue for gated redemptions, sometimes for 12+ months) or wait for NAV to catch up with market reality. Neither was costless.

2. Sector composition matters more than ever. Vehicles heavy in office have underperformed. Industrial, residential, and specialty property (data centers, life sciences, self-storage) have held up better. A generic "core real estate" label can hide materially different portfolios.

3. The leverage layer determines outcomes. Fund-level leverage of 30-45% on core real estate is common. In a declining market, this amplifies both the NAV move and the refinancing pressure. Vehicles with lower leverage or longer-dated debt came through better.

4. Liquidity buffer matters. Funds that entered 2022 with 10-15% cash/public real estate securities had meaningfully more flexibility. Those running tighter, or that hit stress with portfolio rotation already underway, were more constrained.

The recovery shape

Transaction activity is re-emerging. Core industrial and residential are trading at stabilized yields that reflect the new rate environment. Office remains fragmented and stressed. NAV marks across the largest evergreens have now caught up substantially with public market proxies.

For allocators, this is the first full-cycle data point on core real estate evergreens in the higher-rate era. The return profile going forward looks different from the 2015-2021 experience: yields closer to 5-7%, modest appreciation, meaningful sector dispersion, and structural reliance on the gating mechanism during stress.

The takeaway

Core real estate evergreens remain a legitimate building block for long-duration allocations. The 2022-2024 period did not disprove the strategy. It did clarify the terms: investors own exposure to real assets with smoothed reporting and conditional liquidity. In calm markets that trade-off is barely visible. In stress it becomes the central feature.

The advisors who came through the cycle well with client portfolios had already priced both characteristics into their recommendations. Those who had treated the vehicles as liquid core holdings faced harder conversations.