Abstracts for Vol. 7, No. 1 of the Journal of Real Estate Portfolio Management

The Relevance of a Real Estate Factor in Modeling Insurance Company Returns

Jarrod Johnston, and Jeff Madura

A popular topic in financial research has been the development and perfection of models
for pricing stocks. Yet, generalized models are not necessarily applicable to financial intermediaries because of their unique characteristics that distinguish them from other types of firms. A three-factor pricing model that incorporates a real estate factor along with stock market and interest rate factors is developed. Results of the analysis lend support to the application of the three-factor model to insurance companies. Insurance company returns are positively and significantly related to real estate market movements. The results also indicate that the precise estimate of exposure to each form of systematic risk varies by type of insurance company. The exposure levels to interest rate risk vary significantly across types of insurance companies.

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Price-Earnings Ratios, Dividend Yields and Real Estate Stock Prices

Raymond Y. C. Tse

Both dividend yields and past returns have predictive power for P/E ratios; hence they can be used as tools in forming a market timing and asset allocation strategy in stock markets. This study examines the extent to which changes in real estate returns, reflected in changes of property value and dividend yields, can have great effects on P/E ratios. The study is confined to four major real estate stocks in Hong Kong. It shows that a low dividend yield appears to be associated with a relatively high price-to-earning ratio. Variance of dividend yields tends to increase relative to the variance of earnings yield, with a rapid dividend adjustment at higher dividend payout ratios.

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What Will the Next Real Estate Cycle Look Like?

Glenn R. Mueller

Commercial real estate markets recovered and hit a strong growth phase in the late 1990s providing investor’s with strong income and appreciation growth. Following peak occupancy levels in 2000 and a decline in 2001 and the first half of 2002, many investors wonder what the new millennium will bring for the next real estate cycle. This research looks at the historic ‘‘physical’’ and ‘‘financial’’ real estate cycle of office markets and projects the potential future movements of both. The findings indicate that physical (demand/supply) cycles should be longer and less volatile than previous cycles, providing investors with moderate, but more stable, income returns than cycles of the last three decades. On the other hand, financial cycles (which affect prices) may be shorter and have more short-term volatility, due to real estate’s new access to the public capital markets in the 1990s. The growth of the public real estate capital markets may also bring more discipline to the industry and help stabilize future physical cycles.

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A Primer for Investors in the Korean MBS Market

Eddie Lam

The objective of this article is to serve as a primer for international investors who have
an interest in the Korean Mortgage Backed Securities (MBS) market. Among all Asian countries except Japan, the Korean bond market has been the largest during the last few decades. Due to strict government control, the market was closed to foreigners prior to the 1990s. In recent years the government has relaxed these restrictions and made substantial progress in improving market
efficiency. Some international investors have begun to realize the potential of the MBS market in Korea, and have invested in high quality MBS with attractive yields. This article will provide an introduction to the Korean MBS market and offer considerations for MBS investors, such as the mortgage market in Korea and the extent of government control..

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The Impact of E-commerce on the Real Estate Industry: Baen and Guttery Revisited

Waleed A. Muhanna, and James R. Wolf

One widely reported prediction is that the emergence of the web as an open medium for commerce threatens the role of the real estate agent as a market intermediary. In their 1997 article, for example, Baen and Guttery predicted that the increased use of the Internet and information technology would lead to a downsizing of the entire industry. However, recent Bureau of Labor Statistics data show that the real estate industry, like most of the economy in the United States,
experienced steady growth during the last few years. This article revisits the issue of disintermediation in the context of the real estate industry. It discusses—from a theoretical and conceptual perspective—several reasons why the predicted downsizing did not occur. The analysis suggests that the Internet, though clearly a very powerful tool with strategic implications, may not be as disruptive a technology as originally predicted.

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The Impact of E-commerce on Retail Real Estate in the U.K.

Tim Dixon, and Andrew Marston

This article summarizes the main research findings from the first of a series of annual surveys conducted for the British Council of Shopping Centres. The study examines the changing pattern of retailing in the United Kingdom and provides an overview of key research from previous studies in both the U.K. and the United States. The main findings are then presented, including an examination of the impact of e-commerce on sales and rental values and on the future space and
ownership/leasing requirements of U.K. retailers for 2000–2005. The impact on a shopping center in a case study town in the U.K. is also considered. The difficulties of isolating the impact of e-commerce from other forces for change in retailing are highlighted. In contrast to other viewpoints, the results show that e-commerce will not mean the death of conventional store-based U.K. retailing, although further benchmark research is needed.

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