Risk and return in institutional commercial real estate : a fresh look with new data

Commercial Real Estate is a large asset class, increasingly owned by professional investment managers. Investment managers need a thorough understanding of the risk return relationship and tools to adequate implement sound investing, portfolio management and risk management strategies. Equilibrium asset pricing models are tools that identify and quantify the risk factors priced by the capital market and establish risk adjusted LONG RUN expected returns. This thesis creates portfolios of properties by property type, geographic location and asset size. Total return indices are created for each portfolio to test single factor and multifactor asset pricing models cross sectionally within the commercial real estate asset class. Historical total return data is used from three sources including: NCREIF; the stock market-based FTSE NAREIT Pure-Property Index Series; and a novel "synthetic" total return index created by the researcher from the repeat sale transaction-based Moody's/RCA CPPI Indices. The asset pricing model test results for the NCREIF and PureProperty indices show that a substantial amount of the variation in LONG RUN total return can be explained by a portfolio's beta with respect to a market index and property specific variables such as property type, location and asset size. The asset pricing model test results for the RCA indices were poor and failed to explain the cross-section of commercial real estate returns. Thus, it appears that certain parts of the commercial real estate market may be operating without a systematic relationship of risk and return.

Department dc:contributor.department

Massachusetts Institute of Technology. Center for Real Estate. Program in Real Estate Development.

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2012

Author dc:creator

• Jones, Ryan Hunter

Advisor dc:contributor.advisor

• David M. Geltner.

• Center for Real Estate. Program in Real Estate Development.

Statement dc:rights

• M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/1721.1/77123

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/77123