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ELEMENTS OF REAL ESTATE PORTFOLIO ANALYSIS

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Title: ELEMENTS OF REAL ESTATE PORTFOLIO ANALYSIS Last modified by: Samir K. Dutt Created Date: 1/25/1998 6:14:58 PM Document presentation format – PowerPoint PPT presentation

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Title: ELEMENTS OF REAL ESTATE PORTFOLIO ANALYSIS


1
ELEMENTS OF REAL ESTATE PORTFOLIO ANALYSIS
  • INDIVIDUAL REAL ESTATE INVESTMENTS VS. PORTFOLIO
    OF ASSETS
  • TRADE-OFF BETWEEN RISK AND RETURN AND INVESTOR
    OBJECTIVES
  • DIVERSIFICATION AND OPTIMAL PORTFOLIO CONSTRUCTION

2
MEASURING RISK AND RETURN
  • EXPECTED RETURN
  • VARIABILITY OF RETURNS

3
PORTFOLIO STRATEGIES Top-Down Analysis
  • OBJECTIVES -- RISK/REWARD
  • ASSET ALLOCATION
  • MARKETS
  • SUB-MARKETS
  • PROPERTY SELECTION
  • DEAL MAKING
  • ASSET MANAGEMENT
  • Note Property Investment is Bottom-up Analysis

4
PORTFOLIO ANALYSIS / EFFICIENT FRONTIER
Return
C
RB
B
A
RA,C
SDB
SDC
SDA
Risk
5
FACTORS AFFECTING VALUE RISK Micro-Analysis
VALUE OF THE INVESTMENT
BUSINESS-ASSET RISK
FINANCIAL STRUCTURE RISK
NOI
CASH FLOW
COLLATERAL
CAP RATES
6
WHAT AFFECTS THE CAP RATE?
  • INTEREST RATES
  • INFLATION EXPECTATIONS
  • MARKET CONDITIONS

7
WHAT AFFECTS PROSPECTIVE NOI?
  • 1. GROSS INCOME
  • LEASE ARRANGEMENTS
  • MARKET EXPOSURE
  • EFFICIENCY OF MANAGEMENT / MARKETING
  • 2. OPERATING EXPENSES
  • LEASE PASS-THROUGH PROVISIONS
  • EXPENSE-SERVICE CONTRACTS
  • VACANCY EXPOSURE
  • EFFICIENCY OF MANAGEMENT

8
DIVERSIFICATION ANALYSIS
  • GEOGRAPHY
  • PROPERTY-TYPE
  • LEASE STRUCTURES
  • FINANCIAL STRUCTURES
  • OWNERSHIP STRUCTURES

9
MSA ECONOMIC DIVERSIFICATION ANALYSIS
10
ISSUES IN PORTFOLIO ANALYSIS
  • 1. ALLOCATION PARADIGM
  • REAL ESTATE
  • OTHER ASSETS
  • 2. EX POST VS. EX ANTE ANALYSIS
  • 3. RE-BALANCING
  • 4. REAL ESTATE, INFLATION, AND OTHER ASSETS

11
SELECTED CROSS-CORRELATION OF ASSET RETURNS
1967-1986 (Webb and Rubens)
12
CORRELATION COEFFICIENTS BASED ON GEOGRAPHIC
DIVERSIFICATION
13
IMPACT OF ADDING APARTMENTS ON PORTFOLIO RISK/RET
URN RELATIONSHIP
14
RUSSELL-NCREIF PROPERTY INDEX AND ALTERNATIVE
INVESTMENTS (Jan. 1, 1979 - Dec. 31, 1989)
  • EXCEL GRAPH

15
SELECTED CROSS-CORRELATION OF ASSET RETURNS
1947-1982 (Ibbotson and Siegel)
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