 |
 |
 Volume 3, Number 2, 1997 of the Journal of Real Estate Portfolio Management
All articles listed here are available for download in portable document format. |
Issues in Measuring Performance of Commingled Real Estate Funds F. C. Neil Myer, James R. Webb and Ling T. He This study analyzes the performance of non-securitized real estate investments in relation to two phenomena--the effect of asset management fees and the persistence of the returns. This is done using data from the Townsend Real Estate Universe on CREFs. Cumulative returns and Jensen's alpha are used for seventy-two CREFS. The NCREIF Index is used as the benchmark return. The results indicate that performance rankings are not effected by asset management fees and that the choice of a risk-adjusted performance measure (Jensen's alpha) or a non-risk-adjusted performance measure (the cumulative return) have a significant impact.   Return to the top of this web page |
International Real Estate: A Review of Strategic Investment Issues Elaine Worzala and Graeme Newell This study compares and contrasts the results of two surveys of investors interested in international real estate (European and Southeast Asian). The results provide information on how fund managers currently view international real estate. Furthermore, comments by the respondents highlight the perceptions of the additional risks and problems incurred with international (versus domestic) real estate investment. Since U.S. pension fund investment in international real estate is expected to grow, these results provide valuable insights for investors formulating international real estate investment strategies. Return to the top of this web page |
The Components of Property Fund Performance Stephen Lee The evaluation of investment fund performance has been one of the main developments of modern portfolio theory. Most studies employ the technique developed by Jensen (1968) that compares a particular fund's returns to a benchmark portfolio of equal risk. However, such studies implicitly assume that the risk level of the portfolio is stationary through the evaluation period, something that would seem unlikely in an actively managed portfolio. Fama (1972) and Treynor and Black (1973) have suggested that such active management can be separated into the distinct components (1) selectivity (the ability to select undervalued assets), and (2) timing (the ability to adjust security holdings in anticipation of general market movements). The application of simple regression techniques to calculate the Jensen index of performance will, therefore, be biased and any tests of significance distorted (Fama, 1972; Jensen, 1972). Recognizing this, a number of researchers have developed models of performance that permit identification and separation of timing and selectivity skills. The simplest and most widely used is the approach developed by Henriksson and Merton (1981). This study analyzes the performance of thirty-seven properly funds over the the period 1987 to 1995 in order to test for the presence of timing and/or selection skills on the part of the fund managers. The results indicate that very few funds appear to engage in timing activities and those that do were generally unsuccessful, while the results for selection skill are much more encouraging. Return to the top of this web page |
Higher Real Estate Risk and Mixed-Asset Portfolio Performance Brigitte J. Ziobrowski and Alan J. Ziobrowski It has been more than a decade since researchers first raised the spectre of smoothing for appraisal-based real estate return series, suggesting that real estate risk had been grossly underestimated. Since that time, a number of studies have presented evidence which argued that, even with significant additional risk, real estate still offered investors substantial diversification benefits. Unlike earlier studies, which constructed only a few isolated optimal portfolios and measured the effect of higher real estate risk on portfolio composition, this study constructs full efficient frontiers and directly measures the impact of higher real estate risk on mean-variance performance at all levels of investor risk preference. The results indicate that additional real estate risk of a
magnitude consistent with rational appraiser behavior can have a negative impact on
mixed-asset portfolio performance. For investors with a low-risk tolerance the higher
levels of real estate risk can eliminate all real estate diversification benefits. |
Intrametropolitan Spatial Diversification Joseph S. Rabianski and Ping Cheng This study investigates the possibility of intrametropolitan geographic diversification. Four metropolitan areas, Atlanta, Boston, Chicago, and Dallas were selected for investigation. The vacancy rates of both office and industrial space in all submarkets of the four metropolitan areas are used as a proxy for asset performance. An ANOVA technique is employed to test the homogeneity of asset performance and identify the homogeneous groups of submarkets within each metropolitan area. The correlation coefficients of these homogeneous groups are then calculated to see whether low or negative correlations of asset performance exist among these groups. The results indicate that the asset performance within metropolitan are highly heterogeneous, and low or negative correlations exist among most submarkets or groups of submarkets. The findings imply that (1) portfolio risk can be reduced by diversification across submarkets within metropolitan areas, and (2) viewing metropolitan areas as homogeneous real estate markets may result in misdirected investment strategy, and the location impact imposed by submarkets should be recognized and properly analyzed. Return to the top of this web page |
Reducing the Dispersion of Returns in U.K. Real Estate Portfolios Gerald R. Brown Although real estate represents a substantial proportion of the U.K. investment market, research in this area is extremely limited. This is particularly true of the performance and construction of portfolios. This paper deals with one of the major issues that confronts both investor and advisor; namely, how effective is the diversification of a real estate portfolio as more properties are included. The analysis is undertaken at an empirical level and draws on similar research developed in the stock market. The main findings are that the low correlation between returns on individual properties enable high levels of risk reduction to be achieved. This correlation structure does, however, impose a penalty, making it extremely difficult to construct highly diversified portfolios. The problem is exacerbated by the indivisibility of real estate assets. Return to the top of this web page |
Raise the Bar -- The Message of Real Estate Steven Laposa No abstract or executive summary. Return to the top of this web page |
|