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Live With Property Specific And Managerial Risks

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  • Willem G. Keeris

Abstract

For real estate investments it is most common to adhere to the general theory of risk categories and risk reduction as used in the financial market. A distinction is made between the systematic or market risk and non-systematic risk; namely the property specific risk. Through diversification, by increasing the number of properties in the portfolio the specific risk can be decreased. Theoretically, this should ultimately decrease the specific risk to nil. For real state investments this is not a realistic story. The sketched picture of reducing the total risk to solely market risk is simply not possible. It is improper to set a false image in the investment market about such an important question. In this paper an alternative approach is provided whereby three risk components are distinguished, both the previous mentioned risks, and that of the involved management. The case is made that real estate investment are so specific that it needs an alternative approach and not one that is based on unrealistic theoretical rules from other asset classes.

Suggested Citation

  • Willem G. Keeris, 2006. "Live With Property Specific And Managerial Risks," ERES eres2006_233, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2006_233
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    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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