Abstract
Actual cash flows from commercial properties over 1977–2004 underlie this simulation of the performance of real estate portfolios. The methodology relaxes implicit rebalancing and mark-to-market assumptions in time series analysis and uses the distribution of the internal rate of return to compare commercial property investment to portfolios of stocks and bonds over the same period. This approach allows consideration of the impact of the timing of capital flows on the IRR for real estate portfolios and provides insight into the benefits of diversification by property sector versus location. Cross-sectional variation in IRRs helps indicate the number of properties necessary to reduce the risk of achieving the IRR benchmark for properties in the NCREIF Property Index.
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