The simple difference is (and advantage, in the current environment) they are not listed.

The past three months have not been a good time to be listed, as a wave of risk-aversion and debt-phobia swept global markets. And when the LPT market loses nearly 30 per cent in three months, there is something about holding an unlisted asset that warms the cockles of an investor's heart.

Put simply, unlisted property can't fall by anything like that amount in that period -- because it is valued far less often than units in LPTs, which are revalued all day, every trading day.

The unit prices for unlisted property trusts are based on the value of the underlying assets -- the net tangible assets (NTA) figure, or the value of the trust's underlying property portfolio -- arising from a professional valuation.

This is usually conducted annually, but some unlisted trusts do it every two or even three years, with directors' estimated revaluations done in the intervening years.

LPT units also supposedly relate to the trust's NTA, but in practice, being listed they are prone to market sentiment, which can make the NTA immaterial.

Since Centro Properties Group's failure in December 2007 to refinance $3.9 billion debt, market sentiment towards LPTs has been one-way, in the wrong direction for investors.

"Since the market peaked in November, we've seen some LPTs have their unit prices slashed by 50 per cent in a day. That can't happen to an unlisted trust, which is much less volatile in price. The unlisted trust is still prone to underlying changes to the valuation of the property portfolio, but these will take a lot longer to manifest in the unit price," says Dug Higgins, associate director at property research firm PIR Independent Research Group.

It is not just the lesser volatility that makes unlisted trusts attractive. Data from research house Lonsec shows unlisted property has beaten all other asset classes in total pre-tax returns over the rolling 10-year period to February 2008 -- with significantly lower volatility.

As expected, its listed counterpart showed three times the volatility over this period. "Unlisted property has been fairly consistent over the last 10 to 15 years -- it's returned about 10-11 per cent pre-tax," says Kevin Prosser, head of property research at Lonsec.

"But you have to bear in mind that the last five or six years have been pretty favourable, which has dragged that average up a bit."

Martin Hession, head of property at Australian Unity, says the slump in LPT prices -- compared to the double-digit returns from direct property -- proves that "LPTs are not property".

He predicts that investors will switch the bulk of their property allocation to unlisted trusts to counter the volatility of the LPT sector. "Investors have to understand that when their financial planner puts 15 per cent of the asset allocation into LPTs, they are opting for the same volatility as Australian equities. To avoid this volatility, financial planners should be looking at using unlisted trusts, which is a more 'pure' property investment.

"If you want a 'pure' property exposure, where your total return is income plus unrealised capital growth -- the underlying performance of the actual property assets, based on rental growth -- and you want to be sure that's all your getting, you really have to use the unlisted trusts," Hession says.

Against this, unlisted trusts offer limited liquidity. "Most of the managers have some capability of offering a little bit of liquidity -- by the manager buying back units, or using inflows to deal with people who want to exit, for example," says Ken Atchison, director of property investment consultancy Atchison Consultants.

"It's limited liquidity, and while we would like to see the vehicles able to provide at least a partial exit route, I would argue that you really shouldn't expect full liquidity from an unlisted property investment -- not if you're using property as it is meant to be used. This should be considered seriously long-term investment."

While returns from unlisted property have been running strongly, Louis Christopher, head of property research at research firm Adviser Edge, says that "return compression" is definitely on its way. "Up to now, returns, whether industrial, office, retail, have been running at an annualised 16-20 per cent, with some managers generating 20 per cent-plus returns over the past three or four years.

"But in the kind of environment we have now, capitalisation rates, which have been pushed lower and lower, are going to start rising again -- meaning that property values will fall. The real return that we will see for the next 12-24 months could come down to just the distribution return. Depending on the fund manager, that's running at 5.5-8 per cent net. Of course, this will pan out on a case-by-case basis, and some managers will perform better in this environment than others. In fact, this is going to be a great litmus test as to which managers did buy well in the last few years, versus those who overpaid for their assets," Christopher says.

Atchison says the market expects sales to occur at higher capitalisation rates -- that is, at lower prices -- over the next six months, in certain sectors of the market. "Some of these property owners will be distressed in the sense that they can't refinance, for instance, and there will be distressed sales at higher cap rates. But we don't expect these to be fire sales, because there are enough buyers out there to guarantee competitive tension."

He says the great attraction of the unlisted trusts remains the secure and growing rental streams, without the questionable stapling pricing -- provided that the trust is not geared to a level that puts the distributions at risk.

Prosser agrees investors shouldn't expect "much in the way of positive capital returns" over the next year or so. "Distributions will still be there, for most Australian trusts, but if you're investing now, it's going to be hard to get north of 7-8 per cent in the unlisted space."

If a trust has full buildings and is paying strong distributions, Prosser says, investors have to look at it as a yield situation.

"It's all about tenant quality, lease length and security of income flows. If you've got good long-term tenants who aren't going away, there's nothing wrong with that. A lot of leases have increases built in and if the economy stays reasonably solid, there's no reason for that to change."