Returns and Information Transmission Dynamics in Public and Private Real Estate Markets

This paper examines U.S. public and private commercial real estate returns at the aggregate level and by the four major property types over the 1994–2012 time period. Returns are carefully adjusted for differences between public and private markets in financial leverage, property type focus and management fees. Unconditionally, we find that passive portfolios of unlevered core real estate investment trusts (REITs) outperformed their private market benchmark by 49 basis points (annualized) over the 1994–2012 sample period. Our baseline vector autoregression results suggest that REIT returns do not embed additional commercial real‐estate‐specific information useful in predicting private market returns. These results strongly suggest that equity REIT returns react to fundamental (latent) asset pricing information more quickly than private market returns given their greater liquidity and price revelation. REITs therefore serve as a fundamental information transmission channel to private market returns when asset pricing variables are omitted.     

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.     

Real Estate Returns and Inflation

The ability of assets to protect an investor from purchasing power risk due to inflation has received a good deal of attention in the literature recently. The focus of much of this research has been on the properties of common stocks as inflation hedges. Bodie [1976] finds that the real return on equity is negatively related to both anticipated and unanticipated inflation; a similar result is obtained by Fama and Schwert [1977] . Bernard and Frecka [1983] examine individual common stock returns and find that the majority exhibit this negative relationship. This paper uses similar logic to examine the ability of a well-diversified portfolio of real estate to hedge against anticipated and unanticipated inflation.     

Market Microstructure and Real Estate Returns

This paper examines the Real Estate Investment Trust (REIT) market microstruc-ture and its relationship to stock returns. When compared with the general stock market, REIT stocks tend to have a lower level of institutional investor participation and are followed by fewer security analysts. In addition, REIT stocks that have a higher percentage of institutional investors or are followed by more security analysts tend to perform better than other REIT stocks. Our results seem to confirm Jensen's ( 1993 , p. 868) proposition that ownership structure (that is, who owns the firm's securities) affects the value of the firm. Our findings also have implications about the well documented phenomenon that the financial performance of Commingled Real Estate Funds (CREFs) is better than that of REITs.     

Historic Returns and Institutional Real Estate Portfolios

This study employs a sample of equity REIT portfolios from 1972–78 to investigate various aspects of real estate returns. Return estimates are derived for the unlevered cash yields by property size, type and location. Based on these data, the effects of certain kinds of diversification on risk-adjusted returns are examined. Finally, historic REIT portfolios are compared to current commingled fund portfolios and suggestions made concerning the benefits of restructuring.     

Continental Factors in International Real Estate Returns

This paper examines the extent to which real estate returns are driven by continental factors. This subject is relevant for determining the country allocation of international real estate portfolios. If returns are driven by a continental factor, investors should look for diversification opportunities outside their own continent. This paper finds strong continental factors in North America and especially in the United States. For the Asia–Pacific region, real estate returns are not driven by a continental factor. The results suggest that, for European, North American and Asia—Pacific real estate portfolio managers, the Asia—Pacific region provides attractive international diversification opportunities.     

Public Real Estate Limited Partnership Returns: A Preliminary Comparison with Other Investments

Real Estate Limited Partnership (RELP) securities have attracted substantial investor interest, but limited research study. This paper, utilizing a very recent database of actual RELP secondary market transactions, provides preliminary evidence regarding the relative performance of RELP securities, as well as the interrelationships between RELP returns and the returns of Treasury bills and bonds and common stock. Results suggest that RELP returns are negatively correlated with common stock returns, but are positively correlated with the rate of inflation. RELP returns do not consistently exceed the rate of inflation nor do they exceed common stock returns. RELP returns also failed to outperform a broadly-based income property index.     

Real Estate Returns and Risk with Heterogeneous Investors

This article develops a theoretical framework and formulates a unified risk metric that integrates both real estate price risk and uncertainty of time on market (TOM). We demonstrate that real estate sellers with different degrees of financial distress face not only different marketing period risks, but also receive different return distributions upon successful sales. The major findings of this article can be summarized as follows. First, we show that real estate return and risk, which account for both price and TOM risk, are investor specific, varying over investors with different financial circumstances and holding periods. Second, the traditional valuation of real estate return and risk, which is based solely on the return distribution of a successful sale without considering the uncertainty of TOM and the investor's financial circumstances, underestimates real estate risk and exaggerates real estate return. Third, our empirical applications in both residential and commercial real estate markets show that the Sharpe ratio estimated by the traditional approach is seriously overstated—to the largest extent for investors with high financial distress. In addition, we find that, given the typical 5‐ to 7‐year holding period for real estate, the Sharpe ratios estimated by integrating both price and TOM risk are much in line with the performance of financial assets. These findings can help to explain the apparent “risk‐premium puzzle” in real estate.     

Global Financial Integration and Real Estate Security Returns

Have globalization and increasing economic and financial integration affected the rates of return of publicly traded real estate companies around the world? Using a set of multifactor models for annual data for 946 firms from 16 countries over the sample period, 1995–2002, we estimate the impact of a country's economic openness on returns of publicly traded real estate firms, controlling for the effects of global capital markets, domestic macroeconomic conditions and firm‐specific variables. We find that a country's real estate security excess (risk‐adjusted) returns are negatively related to its openness. The results are robust across different multifactor model specifications and are a testament to increasing global financial integration and its interplay with the real estate sector.     

Diversification Categories in Investment Real Estate

This paper continues previous work evaluating the benefits of diversification and analyzes the various dimensions within the commercial real estate opportunity set. The database is large and extends through the 1982 downturn in property values. Due to the low levels of systematic risk, current distinctions by region and property type make little sense in a world of costly diversification. More exacting categories combining property type, SMSA growth rate and lease maturity offer promise for more efficient diversification within the real estate portfolio.     

Inflation and Real Estate Investment Value

It is demonstrated that the inflation rate must be reflected in the anticipated benefit flows used in investment value models. When flows are left unadjusted, a biased value estimate results. It is also shown that the actual effects of the inflation rate on investment value will depend on the relationships of original cost, the debt/equity ratio, and the level of depreciation expense. Inflation has a fundamentally negative impact on value traceable to capital gains and depreciation effects. This can be offset by the use of debt financing.     

Research on Real Estate Investment

AREUEA is pleased to acknowledge the financial support of the National Council of Real Estate Investment Fiduciaries (NCREIF) whose members are listed on the preceding page. We also thank Mike Miles for his role in maintaining an excellent relationship between NCREIF and AREUEA over the years. Finally, the editors acknowledge the continuing financial support of their colleges at The Ohio State University and of the Homer Hoyt Institute.     

房地产投资风险管理

对房地产投资开发过程中所存在的各种风险进行了分析,运用数学和概率统计的知识,分析了衡量房地产投资风险大小的几种方法,并提出了针对各种潜在风险的规避与控制措施。     

Appraisal-Based Real Estate Returns under Alternative Market Regimes

In this article we use Monte Carlo simulation to study the statistical properties of real estate returns. We set up a model where transactions prices are noisy signals of true prices. We then consider a number of appraisal rules, derived from Bayesian and non-Bayesian theory, to estimate the current true price and rate of return. The class of exponential smoothing and Kalman filter rules perform well at both the disaggregate (returns on an individual property) and aggregate (returns on a real property portfolio) levels. A special case of exponential smoothing (α= 1.0) places all weight on current market data. Since this case eliminates smoothing, our results suggest that appraisers should place all weight on current data (no weight on past data) provided that they want to estimate returns rather than values. However, these results should be used with caution if sales prices are very noisy.     

Commercial Real Estate Returns: An Anatomy of Smoothing in Asset and Index Returns

In this article, we investigate the commonly used autoregressive filter method of adjusting appraisal‐based real estate returns to correct for the perceived biases induced in the appraisal process. Many articles have been written on appraisal smoothing but remarkably few have considered the relationship between smoothing at the individual property level and the amount of persistence in the aggregate appraisal‐based index. To investigate this issue we analyze a large sample of appraisal data at the individual property level from the Investment Property Databank. We find that commonly used unsmoothing estimates at the index level overstate the extent of smoothing that takes place at the individual property level. There is also strong support for an ARFIMA representation of appraisal returns at the index level and an ARMA model at the individual property level.     

A Different Look at Commercial Real Estate Returns

Commercial real estate makes up a relatively small percentage of most institutional portfolios, even though the existing literature has consistently reported attractive risk-return characteristics that would suggest much larger allocations. This discrepancy has been explained by a perceived lack of comparability between return series calculated for real estate and those calculated for other asset classes. Just as investors actively involved in the futures markets do not consider individual common stocks to be traded continuously, those active in the stock market do not consider real estate to be traded continuously. In both cases, adjustments to reported returns are necessary to achieve a degree of comparability. This study makes such adjustments, using sales data from properties that help comprise the National Council of Real Estate Investment Fiduciaries / Frank Russell Company (NCREIF/FRC) Index to generate a "transaction-driven" commercial real estate return series. Examination of the risk-return characteristics of this series shows that it is quite different from traditionally reported real estate return series and far more consistent with risk-return characteristics that have been reported for other asset classes.     

Currency Swaps and International Real Estate Investment

This paper examines the efficacy of currency swaps as a hedging mechanism for the exchange rate risk associated with foreign investment in real estate. Earlier studies have concentrated on short-term hedging instruments such as options and forward contracts. Currency swaps are better suited for use on investments with long-term holding periods such as real estate. The findings indicate that, although hedging United States real estate investments with currency swaps suppresses most of the risk induced by currency instability, the improvements are insufficient to produce diversification gains for foreign investors in the context of mean-variance portfolio performance.     

房地产信托火爆的背后

一边是房地产信托的火爆,一边是监管层对其风险的关注,如何控制风险,是投资人必须谨慎对待的事项。11月7日,银监会发布的通知给火热的房地产信托市场提了一个醒,通知警示信托公司不得违规操作,放大行业风险。而在此之前,这一市场确实火爆得异乎寻常。     

对我国发展房地产投资信托的思考

我国房地产正出于飞速发展时期，巨大的投资需要造成了庞大的融资需求，而近来房地产信贷门槛的提高导致房地产融资成本提高。房地产行业迫切需要银行外的融资渠道，以解决开发和经营的资金问题。从房地产投资信托定义和基本原则入手，将房地产投资信托与其他融资方式进行比较，分析其优势，探讨其运营模式，并提出相关建议。