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The Allocation of Real Estate to Future Mixed-Asset Institutional Portfolios

This paper uses the mean-variance framework to investigate real estate's role in an institutional portfolio. Unlike previous research, however, the paper does not assume a value for future real estate returns. Instead, it is assumed that real estate is held in the portfolio, and the level of expected return that is needed to justify the allocation is determined. Gross returns in the 10%-12% range appear to be sufficient; however, such returns are considerably greater than the sector's recent performance. The impact of adding real estate to a benchmark portfolio is reexamined using the shortfall risk approach. Finally, several caveats about using the mean-variance technique with real estate are described.

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Article provided by American Real Estate Society in its journal Journal of Real Estate Research.

Volume (Year): 7 (1992)
Issue (Month): 4 ()
Pages: 423-432

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Handle: RePEc:jre:issued:v:7:n:4:1992:p:423-432
Contact details of provider: Postal: American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323
Web page: http://www.aresnet.org/Email:

Order Information: Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323
Web: http://pages.jh.edu/jrer/about/get.htm Email:


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  1. W. B. Brueggeman & A. H. Chen & T. G. Thihodeau, 1984. "Real Estate Investment Funds: Performance and Portfolio Considerations," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 12(3), pages 333-354.
  2. S. Michael Giliberto, 1988. "A Note on the use of Appraisal Data in Indexes of Performance Measurement," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 16(1), pages 77-83.
  3. David J. Hartzell & James R. Webb, 1988. "Real Estate Risk and Return Expectations: Recent Survey Results," Journal of Real Estate Research, American Real Estate Society, vol. 3(3), pages 31-37.
  4. David Geltner, 1989. "Estimating Real Estate's Systematic Risk from Aggregate Level Appraisal-Based Returns," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 17(4), pages 463-481.
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