Real Estate Investment Funds: Performance and Portfolio Considerations

This paper presents the results of a study dealing with a number of issues regarding real estate investment. Utilizing a data set consisting of returns from two of the oldest, continuously operating commingled real estate funds (CREFs), questions relative to investment performance, inflation hedging attributes and diversification benefits are addressed. The methodology used in exploring these issues are variants of the traditional capital asset pricing model (CAPM), extended to consider uncertain inflation (CAPMUI) and an arbitrage pricing model in which real estate performance is judged relative to a more inclusive market index representing larger numbers of substitute investments. Finally, issues relative to portfolio performance are considered by constructing portfolios containing all possible combinations of real estate, stocks and bonds to assess the potential for diversification benefits and portfolio performance.     

The Role of Real Estate in the Portfolio Allocation Process

This study explores the role of direct real estate investment in a portfolio context incorporating the real estate imperfections of indivisible assets and no short sales. Mean-variance efficient portfolios are calculated using Treasury-bills, bond and equity indices together with cash flows and appraised values from a set of twenty-two properties having an aggregate appraised value of $336 million. Real estate diversification benefits are shown to be the greatest with smaller properties and are most advantageous at higher target levels of return. The study suggests that a 9% allocation to real estate is optimal, rather than the 20% figure suggested in other studies.     

Capital Asset Pricing and Real Estate Valuation*

This paper examines the Capital Asset Pricing Model with respect to its implications for real estate investment analysis and appraisal. The derivation of the CAPM, and theoretical problems with it, are discussed, along with its empirical validation. The similarities and differences between real estate and securities markets are evaluated. Alternative models to the CAPM are presented, followed by the conclusions.     

The Composition of the Market Portfolio and Real Estate Investment Performance

This study investigates whether the composition of the market portfolio leads to different inferences on real estate performance. As a point of departure, this paper first explores whether the omission of assets in a market proxy leads to a biased measurement of investment performance. The study finds that ranking investment performance is not meaningless even though investment performance is inaccurately measured. Furthermore, the composition of the market proxy does not necessarily lead to different inferences on real estate investment performance although superior real estate investment performance arises from the omitted asset phenomenon and also from smoothing bias in general.     

Real Estate Valuation Models: Lender and Equity Investor Criteria

The use of valuation models that focus on lender criteria has been growing in the appraisal field. In the rush to build lender criteria into real estate valuation models, equity investor criteria, expectations, and requirements occasionally have been ignored. The specific criteria considered in this paper are the loan-to-value ratio and the debt coverage ratio for lenders and the equity dividend rate for equity investors. Each of these three criteria may be a binding constraint on value.
Graphical analysis provides a framework within which major real estate valuation models (i.e., Ellwood, McLaughlin, Gettel, Lusht-Zerbst, and Steele) are compared. A new valuation model (i.e., the Cannaday-Colwell model) is developed which utilizes the equity dividend rate.
The three definitional models (i.e., McLaughlin, Gettel, and Steele) are found to be relevant only by mere coincidence. Each of these models simultaneously considers two of the three key criteria, completely eliminating the possibility of consideration of anything else; i.e., the models become tautological.
It is shown that the discounted cash flow based models (i.e., Ellwood, Lusht-Zerbst, and Cannaday-Colwell) each tell one-third of the story. One of these models will be relevant depending upon whether the binding constraint is the maximum loan-to-value ratio, the minimum debt coverage ratio, or the minimum equity dividend rate. The relevant model is the one that yields the lowest value estimate of the three.     

On the Portfolio Properties of Real Estate in Good Times and Bad Times1

Motivated by the theoretical results on strategic asset allocation, we examine the gains in portfolio performance when investors diversify into different asset classes, with particular focus on the timeliness of such gains. Although the various asset classes we analyze yield significant gains in portfolio performance, even in the presence of short‐sales constraints, the timeliness of the gains differs considerably across the asset classes. Our key result is that real estate and commodities and precious metals are the two asset classes that deliver portfolio gains when consumption growth is low and/or volatile, that is, when investors really care for such benefits. Our analysis highlights an important metric by which to judge the attractiveness of an asset class in a portfolio context, namely the timeliness of the gains in portfolio performance. Further, our results on the performance of real estate in both good times and bad times suggest that the typical institutional allocation to real estate may underweight the role of the asset class in a diversified portfolio context.     

Commercial Real Estate Valuation, Development and Occupancy Under Leasing Uncertainty

A model of commercial property valuation is developed where individual property owners are price takers and tenants randomly arrive and depart. Spot lease and tenant reservation prices are stochastic and correlated and can divert from but eventually revert back to market equilibrium. Within this framework we examine built property values and vacancy rates for varying parameter sets representing differing markets and economic conditions. We also examine how potential and existing vacancies, spot lease prices and tenant reservation prices feed back into development decisions. We demonstrate how preleasing acts as a hedge to the developer against the risk of leasing uncertainty.     

Real Estate Valuation Under Rent Control: The Case of Santa Monica

This is a study on the impact of rent control in the city of Santa Monica on rents and apartment house values. Findings include that rent control has significantly lowered rents for tenants, lowered the real values of apartment buildings and that the gross rent multipliers of buildings sold subsequent to the passage of rent control failed to decline. This last finding is a result of, according to the author, optimism on the part of buyers that the controls will be modified or eliminated in the future.     

Real Estate in a Mixed‐Asset Portfolio: The Role of the Investment Horizon

In this article, three oft‐mentioned special characteristics of the real estate asset market—high transaction costs, marketing period risk and return predictability—are addressed in analyzing the role of U.K. commercial real estate investments in a mixed‐asset portfolio. Due to favorable horizon effects in risk and return, the allocation to real estate in a portfolio with stocks, bonds and cash increases strongly with the investment horizon. Examining the relative importance of return predictability, transaction costs and marketing period risk for the optimal allocation to real estate, the article finds that the consideration of return predictability is very important, except for short‐term horizons. Accounting for transaction costs is crucial for short‐ and medium‐term investors. Marketing period risk appears to be negligible. Traditional mean‐variance analysis—that is, ignoring return predictability, transaction costs and marketing period risk—can be very misleading.     

An Approach to Industrial Real Estate Market Segmentation and Valuation Using the Arbitrage Pricing Paradigm

This paper investigates whether a segmented market exists for industrial real estate with respect to risk and return characteristics. Given the existence of industrial market segmentation, the next issue examined is whether a submarket perspective or an integrated real estate market orientation provides better rate of return estimates for individual industrial properties using an Arbitrage Pricing Theory (APT) framework. The results support the existence of regional markets for industrial real estate. A submarket orientation rather than an integrated perspective is also found more appropriate in predicting returns on industrial real estate.     

Demand Uncertainty,Development Timing and Leasehold Land Valuation: Empirical Testing of Real Options in Residential Real Estate Development

This article develops and tests a long‐dated American call option pricing model for valuing development land under leasehold. We analyze and test option values in ten detailed Hong Kong cases involving purchase, holding, converting and developing land. We also test for optimal exercise of long‐dated American calls using processes based on the optimal trigger ratio feature of the perpetual American call option model. Generally, the empirical results confirm presence of a positive and nontrivial option premium (mean +5.274%) in the cases, and that developers appear to delay exercise to the point predicted by the real options model.     

房产

城市别墅全享价值,五期临河珍藏火热公开 距离徐家汇仅约20分钟车程的银都名墅,以近7成的土地面积建造江南园林景观。是一座城市中的森林公园。银都名墅专门挑选30年以上的成年桦树.种植在中国居住文化里象徵阖家兴旺的竹林。     

Geographic Portfolio Allocations,Property Selection and Performance Attribution in Public and Private Real Estate Markets

This article examines the effects of geographic portfolio concentrations on the return performance of U.S. public real estate investment trusts versus private commercial real estate over the 1996–2013 time period. Adjusting private market returns for differences in geographic concentrations with public markets, we find that core private market performance falls. Using return performance attribution analysis, we find that the geographic allocation effect constitutes only a small portion of the total return difference between listed and private market returns, whereas individual property selection within geographic locations explains, in part, the documented outperformance of listed versus private real estate market returns.     

Adjustments in the Real Estate Market

AREUEA is pleased to acknowledge the support of the National Association of REALTORS in the preparation of this issue. We are particularly grateful to John Tuccillo, Senior Vice President and Chief Economist at NAR, for recognizing the importance of this research area and encouraging these studies. The editors would also like to acknowledge the continuing support of their colleagues at The Ohio State University and of the Homer Hoyt Institute.     

实物期权在房地产投资决策中应用研究

房地产项目投资具有不可逆性、高度不确定性和管理的灵活性,运用传统的净现值法不能挖掘出项目投资的这些性质所带来的价值,而应用实物期权方法进行房地产投资决策研究,不仅考虑到了房地产投资的不确定性,还体现了投资决策者的柔性管理和战略投资的价值.文章分析了传统净现值法的一些不足,介绍了实物期权的基本理论,并采用了B-S期权定价模型对房地产投资决策过程中蕴含的增长期权进行了案例分析,使得房地产投资决策更加科学合理.     

Gains From Diversifying Into Real Estate: Three Decades of Portfolio Returns Based on the Dynamic Investment Model

This paper compares the investment policies and returns for portfolios of stocks and bonds with and without up to three categories of real estate. Both domestic and global settings are examined, with and without the possibility of leverage. The portfolios were generated via the dynamic investment model based on the empirical probability assessment approach applied to past (joint) realizations of returns, both with and without correction for "smoothing" in the real estate data series. Our principal findings are: (1) the gains from adding real estate, on a semi-passive (equal-weighted) basis, to portfolios of either U.S. or global financial assets were relatively modest; in contrast, (2) the gains from adding real estate to the universe of U.S. financial assets under an active strategy were rather large (in some cases highly statistically significant), especially for the very risk-averse strategies; (3) the gains from adding U.S. real estate to a universe of global financial assets under an active strategy were mixed, although generally favorable for the highly risk-averse strategies; (4) correcting for second-moment smoothing in the real estate returns series had a relatively small impact for the more risk-tolerant strategies; and (5) there was some evidence that desmoothing resulted in improved probability estimates.     

Optimal Real Estate Portfolios

In recent years, increasing attention has been paid the problem of analyzing, evaluating and selecting real estate investments within the context of a portfolio. Most approaches simply attempt to adapt existing theory and models from the well-developed literature of securities investments. Most adaptations or extensions to real estate are not without serious problems, however, because of several fundamental difficulties relating to optimization technology inadequacies and a general lack of reliable and consistent market data.
This article deals with the major problems of utilizing some of the classic securities investment models for real estate. Further, a risk-return model is advanced which overcomes most of the fundamental problems outlined earlier in the article.     

Commercial Real Estate Returns

In the commercial real estate market, which is perceived to be relatively inefficient, investors have comparative advantages; hence there are significant costs to diversification. This paper presents for the first time a series of market (or quasi-market) returns for a large data base. This data base is believed to be the most complete commercial real estate data base yet constructed. The paper empirically evaluates the benefits of diversification along various dimensions within the commercial real estate opportunity set. The analysis confirms certain aspects of prior work concerning inflation protection and diversification opportunities while concluding that even investment grade real estate investments are heterogeneous assets.