Real Estate Investment Management Research Articles

INVESTMENT STYLES OF REIT PROPERTY PORTFOLIOS

Investment style, comprising generic-style and specific-style, is the real estate investment management approach adopted by REIT management in guiding the construction of their portfolios. These portfolios would have distinctive return and risk performance reflecting the stated risk and return underlying the investment vision. Using quantitative and qualitative approaches, this study identified the investment style of each M-REIT listed on Bursa Malaysia. Using the generic-style criteria and analysis, M-REITs are found to have pursued passive and value strategies aided by a top-down approach to their property portfolio management. Whilst results of the specific style analysis show that core portfolios have produced a lower risk-return ratio compared to value-added and opportunistic portfolios. These findings will benefit investors by guiding their investment decision making in constructing their investment portfolios and also in deciding ways to achieve diversification.

Pricing ESG Equity Ratings and Underlying Data in Listed Real Estate Securities

By analyzing the adoption of the European Public Real Estate Association’s (EPRA) Sustainability Best Practices Recommendations (sBPR), we examine and discuss the application of transparent environmental, social and governance (ESG) ratings and their interaction with public real estate performance across European markets. Due to increasing concerns about the environment and the impact of investment on society at large, public property companies have made significant progress in improving transparency and enhancing the protection of shareholder value by sharing and reporting ESG best practices. We explore and review the EPRA sBPR database, which is highly useful for investors who are already screening listed real estate companies. Hence, in this project, we carefully study the diffusion process of this new ESG metric as a tool to enhance informational transparency regarding public real estate investment management and assess the effects of this transparency and ESG performance for the real estate stock returns. We find evidence of a sustainability premium that investors are willing to pay to access companies with better sustainable ratings.

Obstacles to comprehensive real estate asset management

PurposeMotivated by behavioral theories of the firm, this study aims to consider the extent to which knowledge gaps, organizational inertia and conflicts of interest prevent large real estate investment management firms from approaching asset management in a comprehensive manner.Design/methodology/approachResults of 93 semi-structured interviews conducted with real estate practitioners working in the USA are thematically analyzed.FindingsAll of the aforementioned factors are found to influence real estate asset management practices and serve as potential obstacles to operational excellence.Research limitations/implicationsThe qualitative analysis is limited in the sense that it focuses exclusively on the perceptions of real estate practitioners in the USA who work for relatively large organizations. However, it offers compelling evidence that comprehensive asset management is difficult under the best of circumstances, and becomes even more so in the presence of knowledge gaps, organizational inertia and conflicts of interest.Practical implicationsThose working in asset management or with asset managers must be mindful of the obstacles discussed if they hope to encourage and facilitate process improvement.Originality/valueThe study contributes to a small but growing, body of research examining the challenges large real estate investment management firms face when trying to derive value from their asset management platforms.

Creating operational alpha? Operating models for real estate management

PurposeFocussing on the UK’s institutional real estate universe, this paper analyses variations in the operational management of real estate investment portfolios. For the main categories of institutional investors, the key tasks in real estate operational management, and the ways in which these tasks are typically bundled and categorised by investment managers are reviewed. Three broad operational management models are outlined. Case studies of real estate operational management models in practice are discussed.Design/methodology/approachThe research approach is primarily descriptive, drawing upon illustrative investor case studies.FindingsA range of operating models are identified for managing real estate investment portfolios. Specialists real estate investors tend to have highly vertically integrated operating models viewing most operational management functions as core operational capabilities. Multi-asset owners tend to have a vertically disintegrated operating model outsourcing fund, asset, property and facilities management. Investing institutions such as fund houses and specialist real estate investment advisors seem to have converged upon a common hybrid operating model with high margin, analytical functions such as fund and asset management being insourced and low margin, routine functions such as property and facilities management being outsourced.Originality/valueDespite the size of the global, institutional real estate investment universe (estimated by DTZ to be worth more than USD 13.6 trillion in 2015), the topic of how (and how effectively) these assets are managed by institutional investors has attracted very little attention from the real estate research community. This paper provides some initial analysis and insights into operational management models for real estate investment portfolios in the contemporary real estate investment management landscape.

Correlation coefficients of dual hesitant fuzzy sets and their application in engineering management

Engineering management plays an important role in the socio-economic field, where complex and uncertain factors usually exist. Dual hesitant fuzzy sets (DHFSs) are powerful tools to denote the decision makers’ uncertain and hesitant preferences. Correlation measures and correlation coefficients are two important types of indices in decision making. This paper focuses on correlation measures and correlation coefficients for DHFSs and their application in engineering management. To do this, two dual hesitant fuzzy correlation coefficients are defined, and their properties are studied. Considering the situation where interactive characteristics among elements exist, two Shapley correlation coefficients are defined. When the weighting information is incompletely known, models for the optimal two-additive measures are built. Then, an algorithm to clustering analysis and decision making with incomplete weighting information and interactive characteristics are presented, respectively. Two corresponding examples about real estate investment and engineering cost management are offered to demonstrate the application of the approaches.

Sustaining Sustainability in Large Real Estate Investment Management Firms

Executive SummaryIn this exploratory paper, we examine real estate managerial decisions; specifically, who is responsible in large real estate investment management for sustaining sustainability at the firm and asset operational level. These decisions are distinct from the acquisition of sustainable buildings. We employ 93 semi-structured interviews conducted with professionals at direct lenders, executive search firms, life insurance companies, owner-operators, private equity funds, publicly-traded REITs, third-party real estate service firms, and tax credit syndicators. Results indicate five unique approaches to sustaining sustainability at the asset and firm level: corporate, property manager, asset manager, and consultant driven, as well as stand-alone strategies. Further, interviewees suggest that the value proposition of sustainability initiatives can be enhanced through management collaboration to leverage unique data streams.

Market heterogeneity, investment risk and portfolio allocation

PurposeThe purpose of this paper is to address the heterogeneity of real estate assets with regard to investment risk measurement, with Paris’ apartment market as a case study.Design/methodology/approachQuantile regression is used to handle the fact that willingness to pay for housing attributes may vary greatly over both space and asset value categories. The method is alternately applied on central and peripheral districts of Paris, or “arrondissements”, with hedonic indices built for nine deciles over a 17-year period (1990-2006). Portfolio allocation is subsequently analysed with deciles being the assets.FindingsThe findings suggest that during the slump, peripheral districts show better resilience and define the efficient frontier while also exhibiting a lower volatility. In addition, higher returns are observed for lower-priced apartments, both central and peripheral. During the recovery and boom stages of the cycle, the highest returns are experienced for the cheapest apartments in central locations, whereas upper-priced, centrally located units yield the lowest returns.Originality/valueThe originality of this research resides in the application of quantile regression in a real estate investment and risk management context. The methodology may raise individual investors’ and practitioners’ attention, especially index providers’.

What sells in a crisis? Determinants of sale probability over a cycle and through a crash

PurposeThe purpose of this paper is to understand what affects the liquidity of individual commercial real estate assets over the course of the economic cycle by exploring a range of variables and a number of time periods to identify key determinants of sale probability.Design/methodology/approachAnalyzing 12,000 UK commercial real estate transactions (2003 to 2013) the authors use an innovative sampling technique akin to a perpetual inventory approach to generate a sample of held assets for each 12 month interval. Next, the authors use probit models to test how market, owner and property factors affect sale probability in different market environments.FindingsThe types of properties that are most likely to sell changes between strong and weak markets. Office and retail assets were more likely to sell than industrial both overall and in better market conditions, but were less likely to sell than industrial properties during the downturn from mid-2007 to mid-2009. Assets located in the City of London more likely to sell in both strong and weak markets. The behavior of different groups of owners changed over time, and this indicates that the type of owner might have implications for the liquidity of individual assets over and above their physical and locational attributes.Practical implicationsVariation in sale probability over time and across assets has implications for real estate investment management both in terms of asset selection and the ability to rebalance portfolios over the course of the cycle. Results also suggest that sample selection may be an issue for commercial real estate price indices around the globe and imply that indices based on a limited group of owners/sellers might be susceptible to further biases when tracking market performance through time.Originality/valueThe study differs from the existing literature on sale probability as the authors analyzed samples of transactions drawn from all investor types, a significant advantage over studies based on data restricted to samples of domestic institutional investors. As well, information on country of origin for buyers and sellers allows us to explore the influence of foreign ownership on the probability of sale. Finally, the authors not only analyze all transactions together, but the authors also look at transactions in five distinct periods that correspond with different phases of the UK commercial real estate cycle. This paper considers the UK real estate market, but it is likely that many of the findings hold for other major commercial real estate markets.

수익위험 특성에 따른 상업용부동산수익률지수의 작성에 관한 연구*

The investment performance index is essential to the asset allocation and performance evaluation of institutional investors such as pension funds and insurance companies. The return index, which reflects the risk-return characteristics of investment, is one of the most frequently applied benchmarks of investment performance. This study attempted to develop a return index of commercial real estate based on a data set of the Ministry of Land, Infrastructure and Transport. With a sample of 386 office or retail buildings in total, k-means clustering and logistic regression analysis based on risk-return profile were carried out for group classification and the analysis of its determinants. The results of the analysis showed that as for the determinants of physical characteristics, real estate location, GFA, parking ratio, and vacancy rate were significant, and that as for the determinants of financial characteristics, assessed real asset price and income to total return ratio were significant. Also it was found that the return indices of the groups classified reflect well the characteristics of the groups, and can be used for the design of an efficient portfolio for commercial real estate investment, investment diversification and risk management.

Real Estate Indices and Unsmoothing Techniques

Real estate indices are an increasingly important aspect of real estate investment management. The uses of these indices include the estimation of risks and returns for assisting the asset allocation decision-making process, as well as the specification of benchmarks for performance attribution. Performance attribution provides valuable information both for bottom-up investment management (e.g., in the selection of properties or managers) and for top-down investment management (in the determination of allocation to various categories of real estate investments). The two main approaches to indexation are appraisal-based and transaction-based, each of which has its own potential problems. The chapter compares these approaches and reviews many of the most popular real estate indices, which vary in terms of methodology used. The prevalence of a variety of indexation methodologies highlights the fact that all methodologies have nontrivial problems and that real estate analysts should be aware of the challenges associated with each methodology. The first part of this chapter discusses un-smoothing of a price index or return series — the process of removing the effects of smoothing from a data series. It begins by introducing smoothed pricing and the principles of un-smoothing. The chapter also explains transaction noise, which arises when real estate transaction prices contain errors that make those prices less reliable when compared to prices of more liquid assets. For example, the reported transaction prices result from a negotiation process between buyers and sellers and therefore represent one set of possible values from a range of prices that would have been acceptable to both buyers and sellers. Transaction noise is another important technical issue when dealing with real estate indices. Property values are noisy (in the sense that they reflect random error) because empirical real estate values are imprecise indicators of true value. Finally, the chapter discusses the performance of various appraisal-based and transaction-based real estate indices.

Theory of valuing building life-cycle investments

The physical adaptability of buildings is very important in today's fast-changing business environment. The actors who invest in long-term adaptability are positioned better to the changes during the life cycle of a building. This conceptual paper argues that the current dominating real estate (property) investment analysis theories do not accommodate enough building design-related information (i.e. physical asset characteristics), which results in long-term loss of competitiveness and unsustainable use of built environment resources. It is demonstrated that physical asset characteristics can create valuable real options that should be acknowledged in real estate investment analysis and management. The real estate investment literature has not so far been able to produce a widely accepted financial model for justifying life-cycle investments. A theory is proposed here that can be used to value life-cycle investments in buildings. This new theory combines of real options valuation, investment analysis and building component life-cycle design. These themes are used to formulate a conceptual framework for valuing life-cycle investments. The framework is intuitive and transparent, and it can be easily added to current spreadsheet investment analysis tools.

Intermediated investment management in private markets: Evidence from pension fund investments in real estate

We evaluate the economics of financial intermediation in alternative assets by investigating the allocation and performance of pension fund investments in real estate, the most significant alternative asset class for institutional investors. We document substantial heterogeneity in real estate investment cost and performance, determined by two main factors: mandate size and investment approach. Larger pension funds are more likely to invest in real estate internally, have lower costs, and higher net returns. Smaller pension funds invest primarily in direct real estate through external managers and fund-of-funds, and disregard listed property companies. Overall, we find that delegating real estate investment management to financial intermediaries increases costs and disproportionally reduces returns.

Modern Real Estate Portfolio Management (MREPM): Applications in Modern and Post-Modern Real Estate Portfolio Theory (MREPT/PMREPT)

Modern Real Estate Portfolio Management (MREPM): Applications in Modern and Post-Modern Real Estate Portfolio Theory (MREPT/PMREPT)

A Global Perspective on Pension Fund Investmentsin Real Estate

Real estate is the third-largest asset class for institutional investors, but research into the performance of pension fund investments in real estate is scant. This article employs a unique set of data, the CEM database, to study the real estate investment approach, cost, and performance for a global panel of almost a thousand pension funds. The results show that smaller pension funds invest primarily in direct real estate, through external managers and fund-offunds, and are likely to disregard listed property companies in their real estate allocation. Larger pension funds are more likely to invest in real estate internally, exhibit lower costs, and achieve higher net returns. Internal real estate investment management is associated with lower costs and disproportionally higher returns. Finally, we document that U.S. pension plans’ real estate investments significantly underperform both their benchmarks and their foreign peers. <b>TOPICS:</b>Real estate, pension funds, equity portfolio management

The Changing Face of Real Estate Investment Management

The Changing Face of Real Estate Investment Management

Value Added from Money Managers in Private Markets? An Examination of Pension Fund Investments in Real Estate

We evaluate the economics of financial intermediation in alternative assets by investigating the allocation and performance of pension fund investments in real estate, the most significant alternative asset class for institutional investors. We document substantial heterogeneity in real estate investment cost and performance, determined by two main factors: mandate size and investment approach. Larger pension funds are more likely to invest in real estate internally, have lower costs, and higher net returns. Smaller pension funds invest primarily in direct real estate through external managers and fund-of-funds, and disregard listed property companies. Overall, we find that delegating real estate investment management to financial intermediaries increases costs and disproportionally reduces returns.

The Changing Face of Real Estate InvestmentManagement

The real estate investment management industry has been undergoing a process of change over the last two decades. The market is far more transparent than it once was due to the availability of far more, and more detailed, market information. Combined with the increasing integration of real estate with the broader capital markets, this has led to a market that reacts more quickly to events, exhibits more volatility, and in which the nature of risk has changed. These ongoing changes in the market, combined with the lessons of the financial crisis, have resulted in risk management becoming a topic of primary importance in real estate investment. Changes in the nature of real estate risk and the increased emphasis on risk management have the potential to create substantial changes in the real estate investment management industry going forward. The greatest challenge for the industry will be cultural—an understanding of risk, its sources, and its management will need to become central to investment decision making.

Can Securitization Work? Economic, Structural,and Policy Considerations

The real estate investment management industry has been undergoing a process of change over the last two decades. The market is far more transparent than it once was due to the availability of far more, and more detailed, market information. Combined with the increasing integration of real estate with the broader capital markets, this has led to a market that reacts more quickly to events, exhibits more volatility, and in which the nature of risk has changed. These ongoing changes in the market, combined with the lessons of the financial crisis, have resulted in risk management becoming a topic of primary importance in real estate investment. Changes in the nature of real estate risk and the increased emphasis on risk management have the potential to create substantial changes in the real estate investment management industry going forward. The greatest challenge for the industry will be cultural—an understanding of risk, its sources, and its management will need to become central to investment decision making.

The Changing Face of Real Estate Investment Management

The Changing Face of Real Estate Investment Management

A Novel Assessment Algorithm Based on Grey AHP

In order to find a more effective method for real estate investment evaluation, the grey AHP is applied and hierarchical assessment system is presented. First, the grey-relevant method is employed to evaluate the profit of the investment. During quantifying the qualitative indexes, set-valued statistic analysis is introduced, which reduces the uncertainty of the real estate investment assessment. A case shows that the method is feasible and valid. This study has significance in theory and practice for the real estate investment management.