Assessing and Managing Risk in Institutional Real Estate Investing

In the current environment, investors are increasingly asking: does real estate offer enough return to warrant the risk? In particular, do investors really understand the increased risk they are taking on in the trend of recent years toward ever higher risk strategies in closed-end funds? To better...

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Bibliographic Details
Published in:The journal of real estate portfolio management 2008-10, Vol.14 (4), p.287-306
Main Authors: Kaiser, Ronald W., Clayton, Jim
Format: Article
Language:English
Subjects:
Business risks
Enterprise risk management
Estate management
Evaluation
Financial leverage
Financial portfolios
Institutional investments
Investment
Investment risk
Investors
Management
Portfolio management
Real estate
Real estate indices
Real estate markets
Risk
Risk management
Standard deviation
Stock exchanges
Studies
Volatility
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Summary:In the current environment, investors are increasingly asking: does real estate offer enough return to warrant the risk? In particular, do investors really understand the increased risk they are taking on in the trend of recent years toward ever higher risk strategies in closed-end funds? To better inform institutional investors in making this decision, this paper offers some new views. First, it classifies and evaluates risk by its impact on the various components of portfolio returns. Second, these risks are considered in the strategic contexts of core, value-added, and opportunistic investing. Examining the interplay of risks reveals a particularly high concentration of risks in the opportunity fund arena. Finally, to control risk, this paper offers some management choices available to institutional investors: time horizon, diversification methodologies, hedging approaches, and strategic choices to limit risks.
ISSN:1083-5547
2691-1205
DOI:10.1080/10835547.2008.12089814