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A Different Look at Commercial Real Estate Returns

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  • Mike Miles
  • Rebel Cole
  • David Guilkey

Abstract

Commercial real estate makes up a relatively small percentage of most institutional portfolios, even though the existing literature has consistently reported attractive risk-return characteristics that would suggest much larger allocations. This discrepancy has been explained by a perceived lack of comparability between return series calculated for real estate and those calculated for other asset classes. Just as investors actively involved in the futures markets do not consider individual common stocks to be traded continuously, those active in the stock market do not consider real estate to be traded continuously. In both cases, adjustments to reported returns are necessary to achieve a degree of comparability. This study makes such adjustments, using sales data from properties that help comprise the National Council of Real Estate Investment Fiduciaries / Frank Russell Company (NCREIF/FRC) Index to generate a "transaction-driven" commercial real estate return series. Examination of the risk-return characteristics of this series shows that it is quite different from traditionally reported real estate return series and far more consistent with risk-return characteristics that have been reported for other asset classes. Copyright American Real Estate and Urban Economics Association.

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Bibliographic Info

Article provided by American Real Estate and Urban Economics Association in its journal Real Estate Economics.

Volume (Year): 18 (1990)
Issue (Month): 4 ()
Pages: 403-430

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Handle: RePEc:bla:reesec:v:18:y:1990:i:4:p:403-430

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Citations

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Cited by:
  1. Dirk P.M. De Wit, 1993. "Smoothing Bias in In-House Appraisal-Based Returns of Open-End Real Estate Funds," Journal of Real Estate Research, American Real Estate Society, vol. 8(2), pages 157-170.
  2. Stanley D. Smith & Larry R. Woodward, 1996. "The Effect of the Tax Reform Act of 1986 and Regional Economies on Apartment Values," Journal of Real Estate Research, American Real Estate Society, vol. 11(3), pages 259-276.
  3. Anita CEH CASNI & Maruska VIZEK, 2014. "Interactions between Real Estate and Equity Markets: an Investigation of Linkages in Developed and Emerging Countries," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 64(2), pages 100-119, March.
  4. Stanley D. Smith & Larry R. Woodward & Craig T. Schulman, 2000. "The Effect of the Tax Reform Act of 1986 and Overbuilt Markets on Commercial Office Property Values," Journal of Real Estate Research, American Real Estate Society, vol. 19(3), pages 301-320.
  5. Tsangyao Chang & Yu-Chen Wei & Yang-Cheng Lu, 2007. "An Empirical Note on Testing the Cointegration Relationship Between the Real Estate and Stock Markets in Taiwan," Economics Bulletin, AccessEcon, vol. 3(45), pages 1-11.
  6. Walter Boudry & N. Coulson & Jarl Kallberg & Crocker Liu, 2013. "On Indexing Commercial Real Estate Properties and Portfolios," The Journal of Real Estate Finance and Economics, Springer, vol. 47(4), pages 617-639, November.
  7. Shaun K. Roache & Alexander P. Attie, 2009. "Inflation Hedging for Long-Term Investors," IMF Working Papers 09/90, International Monetary Fund.
  8. Oikarinen, Elias, 2006. "Price Linkages between Stock, Bond and Housing Markets - Evidence from Finnish Data," Discussion Papers 1004, The Research Institute of the Finnish Economy.
  9. Barry Ziering & Elaine M. Worzala, 1997. "The Real Estate Research Interests of the Plan Sponsor Community: Survey Results," Journal of Real Estate Research, American Real Estate Society, vol. 13(2), pages 115-144.
  10. Okunev, John & Wilson, Patrick & Zurbruegg, Ralf, 2002. "Relationships between Australian Real Estate and Stock Market Prices--A Case of Market Inefficiency," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 21(3), pages 181-92, April.
  11. Cannon, Susanne & Col, Rebel A., 2011. "How accurate are commercial-real-estate appraisals? evidence from 25 years of NCREIF sales data," MPRA Paper 32589, University Library of Munich, Germany.
  12. Wilson, Patrick James & Okunev, John & Webb, James J, 1998. "Step Interventions and Market Integration: Tests in the U.S., U.K., and Australian Property Markets," The Journal of Real Estate Finance and Economics, Springer, vol. 16(1), pages 91-123, January.
  13. Susanne, Cannon & Rebel, Cole, 2011. "How Accurate Are Commercial Real Estate Appraisals? Evidence from 25 Years of NCREIF Sales Data," MPRA Paper 52621, University Library of Munich, Germany, revised 25 May 2011.
  14. Yuming Li & Ko Wang, 1995. "The Predictability of REIT Returns and Market Segmentatio," Journal of Real Estate Research, American Real Estate Society, vol. 10(4), pages 471-482.
  15. repec:ebl:ecbull:v:3:y:2007:i:45:p:1-11 is not listed on IDEAS
  16. Chih-Wei SU & Hsu-Ling CHANG & Chun JIANG, 2013. "Does Wealth or Credit Effect Exist in China?," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 104-114, October.
  17. David M. Geltner & Richard A. Graff & Michael S. Young, 1994. "Random Disaggregate Appraisal Error in Commercial Property: Evidence from the Russell-NCREIF Database," Journal of Real Estate Research, American Real Estate Society, vol. 9(4), pages 403-420.
  18. Kevin Chiang, 2009. "Discovering REIT Price Discovery: A New Data Setting," The Journal of Real Estate Finance and Economics, Springer, vol. 39(1), pages 74-91, July.
  19. Kim Hiang Liow & Felix Schindler, 2014. "An Assessment of the Relationship between Public Real Estate and Stock Markets at the Local, Regional, and Global Levels," International Real Estate Review, Asian Real Estate Society, vol. 17(2), pages 157-202.

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