How active is your real estate fund manager?

Using a holdings-based measure of active management termed the ‘Segment Active Share’, the paper documents that commercial real estate portfolios that are more active – i.e., have segment weights which are least like those of the index – have outperformed. Employing proprietary IPD data for 256 U.K. real estate funds over 2002-2011, we find that funds with high Segment Active Share on average outperformed the real estate market by 1.9% per year. These funds do not seem to take increased risk and their outperformance cannot be explained by fund size alone, though on average they are smaller funds.This paper was sponsored by Aberdeen Asset Management PLC and was independently written by the authors.This is the accepted manuscript of a paper published in the Journal of Alternative Investments (Cremers M, Lizieri C, Journal of Alternative Investments, 2015, 18, 22-36, doi:10.3905/jai.2015.18.1.022). The final version is available at http://dx.doi.org/10.3905/jai.2015.18.1.02

Asymmetric adjustment in the City of London office market

Earlier estimates of the City of London office market are extended by considering a longer time series of data, covering two cycles, and by explicitly modeling of asymmetric space market responses to employment and supply shocks. A long run structural model linking real rental levels, office-based employment and the supply of office space is estimated and then rental adjustment processes are modeled using an error correction model framework. Rental adjustment is seen to be asymmetric, depending both on the direction of the supply and demand shocks and on the state of the space market at the time of the shock. Vacancy adjustment does not display asymmetries. There is also a supply adjustment equation. Two three-equation systems, one with symmetric rental adjustment and the other with asymmetric adjustment, are subjected to positive and negative shocks to employment. These illustrate differences in the two systems

Risk measures for direct real estate investments with non-normal or unknown return distributions

The volatility of returns is probably the most widely used risk measure for real estate. This is rather surprising since a number of studies have cast doubts on the view that volatility can capture the manifold risks attached to properties and corresponds to the risk attitude of investors. A central issue in this discussion is the statistical properties of real estate returns—in contrast to neoclassical capital market theory they are mostly non-normal and often unknown, which render many statistical measures useless. Based on a literature review and an analysis of data from Germany we provide evidence that volatility alone is inappropriate for measuring the risk of direct real estate. We use a unique data sample by IPD, which includes the total returns of 939 properties across different usage types (56% office, 20% retail, 8% others and 16% residential properties) from 1996 to 2009, the German IPD Index, and the German Property Index. The analysis of the distributional characteristics shows that German real estate returns in this period were not normally distributed and that a logistic distribution would have been a better fit. This is in line with most of the current literature on this subject and leads to the question which indicators are more appropriate to measure real estate risks. We suggest that a combination of quantitative and qualitative risk measures more adequately captures real estate risks and conforms better with investor attitudes to risk. Furthermore, we present criteria for the purpose of risk classification

Futures trading, spot price volatility and market efficiency: evidence from European real estate securities futures

In 2007 futures contracts were introduced based upon the listed real estate market in Europe. Following their launch they have received increasing attention from property investors, however, few studies have considered the impact their introduction has had. This study considers two key elements. Firstly, a traditional Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model, the approach of Bessembinder & Seguin (1992) and the Gray’s (1996) Markov-switching-GARCH model are used to examine the impact of futures trading on the European real estate securities market. The results show that futures trading did not destabilize the underlying listed market. Importantly, the results also reveal that the introduction of a futures market has improved the speed and quality of information flowing to the spot market. Secondly, we assess the hedging effectiveness of the contracts using two alternative strategies (naïve and Ordinary Least Squares models). The empirical results also show that the contracts are effective hedging instruments, leading to a reduction in risk of 64 %

The inflation hedging characteristics of US and UK investments: a multi-factor error correction approach

Investment returns, Real estate, Inflation hedging, Error correction model,

The Spatial Dimensions of the Investment preformance of UK Commercial Property.

In this paper, cluser analytic techniques are used to examine dimentions of diversification in UK commercial real estate markets.REAL ESTATE

Homogenenous Commercial Property Market Groupings and Portfolio Construction in the UK.

Property portfolios are traditionally constructed by diversifying across geographical areas, property types or a combination of both. In the UK it is normal practice to use regions rather than towns or local markets areas as the geographical divisions. In this paper cluster analysis is used to construct homogeneous groups from 157 UK local markets using commercial property returns. The results show strong property type dimensions and only very broad geographical dimensions in the clusters. These clusters are found, generally, to have temporal stability with changes in cluster membership explained by the changing economic geography of the UK. The cluster-derived groupings are used to derive efficient investment frontiers and are compared to frontiers based on conventional heuristic groupings. It is shown that strategies based on parsimonious cluster-based groupings, appropriate for smaller investors, generate results that are comparable to those of conventional groupings and capture the main drivers of property performance.PROPERTY ; GEOGRAPHY