The 4% rule: Does real estate make a difference?

Alternative assets represent an increasing share of pension fund assets, and real estate is a cornerstone of that allocation. This article investigates the trends in pension fund real estate investments over the past 3 decades, both in private and in public real estate, focusing on the performance of the asset class for the ultimate asset owners. The development of pension fund allocations to real estate differs across regions, with allocations increasing in Canada, stationary in the US, and shrinking in Europe. Slightly more than 10% of the real estate exposure is through publicly listed vehicles. Within the real estate portfolio, the authors observe a continuing increase in the use of external fund managers. Investment costs are stationary, with pension funds in the US structurally paying more to their external private real estate managers than their peers in Canada and Europe. Costs relating to public real estate are more equal across regions. In terms of performance, the authors observe rather stable total returns for both private and listed real estate over the past 3 decades, contrasting volatile performance of private equity and infrastructure. Intermediated investment management for private real estate is costly, leading to disproportionately lower net returns. <b>Key Findings</b> ▪ Current pension fund allocation to real estate is 8.3%, on average, with a 90/10 split between private real estate and public real estate. ▪ Pension funds deploy a wide range of real estate allocation strategies, with intermediation growing in popularity over the past decades. ▪ Real estate has provided stable returns over the past decades, with gross returns similar to stocks, and net returns in between bonds and stocks.

Three Decades of Global Institutional Investment in Real Estate

Executive Summary. The purpose of this study is to determine whether or not private real estate portfolios can be diversified or rebalanced using public real estate (equity real estate investment trust stocks). An examination of resulting efficient frontiers and their corresponding optimal portfolio weights across various levels of expected return reveals that the ability of public real estate to rebalance private real estate only portfolios, using either long or short positions, is very much in doubt. The results found in a mixed-asset setting are more promising, but not convincing. Hence, if institutional investors wish to continue to hold public real estate, they should do so for reasons other than rebalancing or diversifying their private real estate portfolios.

In the summer of 2013, Whitney DeSoto had just been hired as managing director for real assets at the Overton Pension Fund (OPF). Her task was to provide recommendations to the board of trustees to introduce real estate into the fund's portfolio, which to date had been invested solely in stocks and bonds. Combining her knowledge of modern portfolio theory with her institutional expertise in real estate, DeSoto needed to decide what fraction of the fund should optimally be invested in real assets. She then faced the task of deciding whether to invest in public or private real estate. If she thought private real estate belonged in the portfolio, she would need to identify the best investment strategy, the best vehicle, and ultimately the specific investments to recommend. Apply modern portfolio theory to the investment decision of an institutional investor allocating its assets between stocks, bonds, and real estate Understand the limits of portfolio theory in a real estate context Analyze the benefits/costs of investments in both public and private real estate Understand the various vehicles in which one can invest in private real estate Argue for a set of investments that offer individual benefits/costs relative to a theoretically ideal investment

Building for a better hospital. Value-adding management &amp; design of healthcare real estate

Real estate is one of the basic assets of functioning of the territorial community. However, due to improper activity or inaction of local self-government bodies, it remains only a nominal asset of the administrative-territorial unit and does not contribute to increasing the financial capacity of the territorial community. The article is aimed at identifying and suggesting possible ways to transform real estate into a source of increasing the financial capacity of the territorial community. In the course of the study, the extant obstacles were highlighted, including corruption schemes that cause local budgets to lose revenues from rent and alienation of communal property. It is noted the need to intensify the activities of local self-government bodies in the direction of inventory of all communal real estate, to establish its market value and increase the transparency of operations for the provision of communal real estate for rent. The possibility of development of municipal rental housing in large cities is considered. Special attention is paid to the real estate, which is privately owned as a quasi-asset of the territorial community, which ensures revenues to the local budget in the form of the tax on a real estate other than the land plot. The analysis of changes in the situation of the real estate market in 2020-2021, which indirectly affect the filling of local budgets with proceeds from the tax on a real estate other than the land plot, was carried out. The possible ways to increase the financial capacity of territorial communities by strengthening the role of communal and private real estate within the assets of the territorial community are identified, suggested, and substantiated.

This paper provides an international comparison of the benefits of including real estate assets in mixed-asset portfolios. Real estate returns are desmoothed using a variant of the Geltner (1993) approach, and Bayes-Stein estimators are used to increase the stability of portfolio weight estimations. Both unhedged and hedged analyses are conducted. Real estate is found to be an effective portfolio diversifier, and even more so when both domestic and international real estate assets are considered. The optimal allocation to real estate is 15% to 25%, and remains stable when the level of the standard deviation of real estate is altered. Real estate allocation between domestic and nondomestic assets, however, varies substantially across countries, depending on whether returns are hedged or not.This article is the winner of the International Real Estate Investment/Portfolio Management Manuscript Prize (sponsored by LaSalle Investment Management) presented at the 2003 American Real Estate Society Annual Meeting.

HUD Community Planning Software (HUDCPS), also referred to as HUD 2020 (coproduced by U.S. Department of Housing and Urban Development (HUD, Washington, DC) and Caliper Corporation (Newton, MA), telephone 800-998-9999 (request product sales), website (http://www.caliper.com/gishud.htm or http://www.hud.gov/cpd/2020soft.html) is a full-featured desktop GIS software program based on Caliper's Maptitude version 3.0 GIS software with a customized user interface and automated thematic mapping using data from HUD. HUDCPS runs under Windows 3.11, Windows 95, and Windows NT 3.5 and 4.0. HUDCPS requires an 80486 or Pentium-based computer equipped with a minimum of 12MB of RAM and a CD-ROM drive. Price is $249 with choice of HUD data from one of four (eastern, southern, central, and western) regions of the United States or $299 for HUD data from all four U.S. Census regions. It includes U.S. national TIGER/Line data sets (census tracts and block groups, streets, highways, landmarks, water areas) and attribute data (housing and population data from the 1990 U.S. Census).

This study examines whether property transaction affects the price discovery process in real estate markets. Prior literature shows that price discovery generally first takes place in the securitized public real estate investment trust (REIT) market. We conjecture that property transaction provides novel information to the direct real estate market and can change the dynamics between public and private real estate returns. We employ a unique dataset of property transactions to construct "transaction windows¨ and specifically examine the causality between public and private real estate markets around these periods. We form firm-level pairs of public and private price series, and estimate the normalized common factor loadings per Gonzalo and Granger (1995) by using a vector error-correction model. Our findings show that a significant proportion of price discovery happens in the private market instead of the public REIT market. Our results are robust to investments of different property types and different lengths of transaction windows. Overall, the findings in this study imply that property acquisition and disposition provide crucial information to the private real estate market and induce a reverse causality between the public and private markets.

Purpose– The purpose of this paper is to examine weekly dynamic conditional correlations (DCC) and vector autoregressive (VAR)-based volatility spillover effects within the three Greater China (GC) public property markets, as well as across the GC property markets, three Asian emerging markets and two developed markets of the USA and Japan over the period from January 1999 through December 2013.Design/methodology/approach– First, the author employ the DCC methodology proposed by Engle (2002) to examine the time-varying nature in return co-movements among the public property markets. Second, the author appeal to the generalized VAR methodology, variance decomposition and the generalized spillover index of Diebold and Yilmaz (2012) to investigate the volatility spillover effects across the real estate markets. Finally, the spillover framework is able to combine with recent developments in time series econometrics to provide a comprehensive analysis of the dynamic volatility co-movements regionally and globally. The author also examine whether there are volatility spillover regimes, as well as explore the relationship between the volatility spillover cycles and the correlation spillover cycles.Findings– Results indicate moderate return co-movements and volatility spillover effects within and across the GC region. Cross-market volatility spillovers are bidirectional with the highest spillovers occur during the global financial crisis (GFC) period. Comparatively, the Chinese public property market's volatility is more exogenous and less influenced by other markets. The volatility spillover effects are subject to regime switching with two structural breaks detected for the five sub-groups of markets examined. There is evidence of significant dependence between the volatility spillover cycles across stock and public real estate, due to the presence of unobserved common shocks.Research limitations/implications– Because international investors incorporate into their portfolio allocation not only the long-term price relationship but also the short-term market volatility interaction and return correlation structure, the results of this study can shed more light on the extent to which investors can benefit from regional and international diversification in the long run and short-term within and across the GC securitized property sector, with Asian emerging market and global developed markets of Japan and USA. Although it is beyond the scope of this paper, it would be interesting to examine how the two co-movement measures (volatility spillovers and correlation spillovers) can be combined in optimal covariance forecasting in global investing that includes stock and public real estate markets.Originality/value– This is one of very few papers that comprehensively analyze the dynamic return correlations and conditional volatility spillover effects among the three GC public property markets, as well as with their selected emerging and developed partners over the last decade and during the GFC period, which is the main contribution of the study. The specific contribution is to characterize and measure cross-public real estate market volatility transmission in asset pricing through estimates of several conditional “volatility spillover” indices. In this case, a volatility spillover index is defined as share of total return variability in one public real estate market attributable to volatility surprises in another public real estate market.

Traditionally performance of real estate portfolios is either measured by internal rates of return or to costs per square meter (or per FTE). An increasing number of corporations have during the last couple of years been focusing on introducing performance metrics based on shareholder value. Although the popularity of value based management changed the corporate metrics the contribution of real estate is still measured by cost reductions or capital minimisation. It is seldom that corporations proactively benefit from other, non‐financial, effects resulting out of professional real estate management. The objective of this paper is to highlight the value of managing corporate real estate and its contribution to the performance of a corporation both in a financial and non‐financial manner.

Executive Summary. Real estate accounts for a significant proportion of the corporate assets of publicly listed companies. The real estate exposure of publicly traded companies in land scare economies such as Hong Kong and Singapore is particularly high. This study explores the real estate exposure of listed companies in Singapore where non-real estate companies are classified by their real estate asset intensity. A six-factor Arbitrage Pricing Theory (APT) model, capturing changes in real estate prices, industrial production, expected inflation, unanticipated inflation, risk premium and term structure, shows that real estate exposure is priced. In addition, the real estate risk premium is found to vary across companies with different real estate asset intensity. A close linkage is also established between real estate exposure and various industries. Other than the real estate-intensive industries such as real estate, hotel and construction, conglomerates and financial companies also have a high exposure to real estate. Interestingly, our analysis shows that real estate exposure, which is computationally tedious to determine, can be proxied by real estate asset intensity, a simple accounting measure. The implications for portfolio management in a land-scare market are examined.

Executive Summary. Real estate constitutes a good laboratory to investigate the similarity of public and private asset returns and risks. We find evidence of a one-to-one long-term relation between public and private real estate performance. Also, the return volatilities do not differ significantly between the public and private markets regardless of investment horizon. The findings have important implications for portfolio management: (1) public and private real estate are close substitutes in a portfolio with a several-year investment horizon and (2) public real estate-related ETFs and derivatives are useful to hedge risks associated with direct real estate holdings or lenders' mortgage inventory.

Acknowledgments About the Editors About the Contributors PART 1 FOUNDATIONS OF PUBLIC REAL ESTATE 1. Public Real Estate Markets and Investments: An Overview H. Kent Baker and Peter Chinloy 2. Diversification Benefits of Real Estate Brad Case 3. International Real Estate Markets K. W. Chau, S. K. Wong, and C. Y. Yiu 4. Strategy: Seeking Alpha Opportunities and Managing Risks in Global Markets Stephen E. Roulac PART 2 PUBLIC DEBT MARKETS AND INVESTMENTS 5. Mortgage Markets: The United States Eric S. Belsky 6. Mortgage Markets: International Kyung-Hwan Kim and Man Cho 7. Development of the Market for Mortgage-Backed Securities Stephen A. Buser and John J. McConnell 8. Prepayment and Default Risk Stephen L. Buschbom, James B. Kau, and Donald C. Keenan 9. Commercial Mortgages and Commercial Mortgage-Backed Securities Xudong An and Kerry D. Vandell 10. The Subprime Mortgage Crisis Anthony B. Sanders PART 3 PUBLIC EQUITY MARKETS AND INVESTMENTS 11. REITs: Structure and Performance Walter I. Boudry and Jarl G. Kallberg 12. REITs: International Dimensions Ehsan Nikbakht, Garrett Smith, and Andrew Spieler 13. REITs: Capital Structure Zhonghua Wu 14. Real Estate Operating Companies Peter Zabierek Answers to Discussion Questions Index

The parlous state of the public budget has led the public sector to take optimisation measures. The broad range of real estate assets and their management offers enormous scope for such intervention. The challenges of real estate management in the public sector include insufficient data transparency, a lack of real estate objectives and strategies, inefficient organisation and inadequate performance-related management methods and incentive systems. For more than 10 years, optimisation measures have been pursued at a national, federal state and local level towards professional Public Real Estate Management. Yet despite these efforts and many successes, there is still further re-structuring and building work to be done. This article describes the situation and requirements of Public Real Estate Management.