 |
 |
 Volume 5, Number 2, 1999 of the Journal of Real Estate Portfolio Management
All articles listed here are available for download in portable document format. |
Property Size and Risk: Why Bigger is Not Always Better Barry Ziering and Willard McIntosh This study investigates the relationship between property size and risk-return profile. Conventional wisdom has suggested that large (or trophy) properties are more stable due to a number of factors. For example, these properties are likely to have, among other things, a greater proportion of credit tenants, the location advantage of being in highly populated urban centers, and a premium associated with their trophy status. We analyzed the performance of four property size classes -- below $20 million; $20 - 40 million; $40 - $100 million -- across the 1981 - 1998 period and within the four imbedded phases of the real estate cycle. Results indicate that property size is a powerful moderator of risk/return across the spectrum of size, and that the largest category of property ($100 million and over), while providing investors with the highest average return, also exhibits the greatest volatility.   Return to the top of this web page |
Serial Persistence in Disaggregated Australian Real Estate Returns Richard A. Graff, Adrian Harrington, and Michael S. Young Serial persistence of total annual returns for all properties in teh Property Council of Australia database is shown to be statistically significant in all quartiles of disaggregated returns between 1985 and 1997. More precisely, performance in a particular quartile is generally followed by continued performance in the same quartile. However, when grouped by property type, persistence differences emerge. Office and Retail properties show statistically significant persistence in the extreme (combined first and fourth) quartiles and moderate (combined second and third) quartiles but Industrial properties show serial independence in both the extreme and moderate quartiles. when Office properties are grouped by CBD and non-CBD locations, serial persistence exists in all quartiles for CBD Office properties but not for non-CBD properties. The empirical evidence of serial persistence among real estate returns in the Property Council of Australia database challenges the conclusions of research based upon models that incorporate the assumption of serial independence. Return to the top of this web page |
The Role of International Real Estate in Global Mixed-Asset Investment Portfolios Adrian Chua Many studies have advocated the inclusion of real estate in mixed-asset investment porfolios. However, the majority of past studies have focused on the role of domestic real estate in domestic mixed-asset portfolios. This study goes further by considering whether the inclusion of international real estate would enhance the risk-return characteristics of an internationally diversified investment portfolio that already invests in bonds, cash, equities and gold. The study also corrects for the higher taxes, transaction costs and asset management fees incurred when investing in real estate vis-a-vis the other asset classes, as well as the impact of appraisal smoothing on reported real estate returns. Using mean-variance portfolio optimization, the study concludes that, even after these corrections, international real estate does have a viable role to play in global mixed-asset investment portfolios. Return to the top of this web page |
Mixed-Asset Portfolio Composition with Long-Term Holding Periods and Uncertainty Alan J. Ziobrowski, Royce W. Caines, and Brigitte J. Ziobrowski A bootstrap analysis is used to estimate confidence intervals for the optimum level of real estate investment in mixed-asset portfolios over a five-year holding period. The data used in the study extends from 1973 to 1994. Lengthening the holding period to five years provides much narrower confidence intervals in comparison to those generated in earlier studies that examined shorter holding periods of one year or less. The optimum amount of real estate in mixed-asset portfolios was remarkably stable at all levels of investors held their portfolios for five years. Furthermore, the estimates of optimum real estate composition produced by the bootstrap are highly consistent with the behavior of pension fund managers. This suggests that the markets are efficient and fund managers are exactly where they should be in terms of real estate investment. Return to the top of this web page |
The Return Distributions of Property Shares in Emerging Markets Kevin W. Lu and Jianping P. Mei We empirically examined the return process of the emerging equity markets, and that of property indices in particular. We found that the emerging market property indices are more volatile than both the respective market indices and the real estate investment trust indices in the United States. In terms of predictability, contrary to the traditional wisdom we did not find overwhelming evidence for autocorrelation in the majority number of these indices. We found certain diversification benefits to invest in the emerging market property indices, but we also found the unfavorable asymmetry in the correlation between emerging property indices and the U.S. NAREIT Index (i.e. correlations were higher during time of market volatility). Return to the top of this web page |
International Real Estate Securities: A Test of Capital Markets Integration Jacques N. Gordon and Todd A. Canter The investigation into the cross-sectional and time-series differences in correlation coefficients between property stocks are broader equity indices in fourteen countries yields several interesting findings. First, the study found that correlation coefficients in many countries have not been stable over time, and in several of these countries there is a discernable trend toward integration or segmentation of the property sector with the broader equity market. Second, the study explored three hypotheses (Relative Weight, Global and Investment Structure) that would account for these differences and trends. While further quantitative work will be needed, the preliminary findings support two of the three original hypotheses. It appears that both a Global and Investment Structure hypothesis explain a great deal of the variation that is observed in market integration/segmentation across countries. More rigorous statistical tets will be needed to confirm these preliminary observations. |
Are EREITs Real Estate? Michael J. Seiler, James R. Webb, and F.C. Neil Myer This study examines the return properties of securitized real estate investment trusts (EREITs) and unsecuritized real estate for four property types: apartment, industrial, office, and retail. Return properties studied include central tendency, normality, autocorrelation, the lead-lag relationship and risk-adjusted performance.The results indicate that private real estate returns display significant levels of autocorrelation, even after lower order effects have been removed. Moreover, both types of real estate exhibit levels of skewness and kurtosis inconsisten with a normal distribution. Converning risk-adjusted performance, the choice of performance measure does matter, while choice of benchmark makes little difference. Finally, returns on private and public real estate behave differently from one another and should be treated as separate and distinct asset classes from a real estate portfolio manager's perspective. Return to the top of this web page |
Changing Leases into Investment-Grade Bonds: Financial Alchemy and Cost Reduction in Real Estate Finance Richard A. Graff Ownership of economic benefits from current leases of real property can be separated from ownership of economic benefits from future leases. The ownership interests can be securitized into assets that are independent of each other for investment purposes. Ownership of benefits from current leases can be regarded as a fixed-income asset. In the case of single-tenant property with a bondable-net lease and investment-grade tenant, the fixed-income asset is ratable based on the tenant credit rating and lease default provisions. In the case of general properties and leases, the fixed-income assets are ratable provided additional financial structure is superimposed. The fixed-income assets can be sold as corporate bond-equivalents in the private placement market to create low-cost leverage for real estate investments. Return to the top of this web page |
Research I'd Like to Read Bernard Winograd No abstract or executive summary. Return to the top of this web page |
|