REIT Property-Type Sector Integration

Equity real estate investment trust (REITs) grouped by property-type sectors have become more integrated over the 1989 to 1998 period as evidenced by increasing correlation over time. Specifically, six pairs of equity REITs grouped as having predominantly apartment, industrial, office and retail properties in their portfolios were examined for correlations of rolling sixty-month returns. Property-type-specific equity REIT portfolios showed a similar trend in rolling sixty-month return correlations, but at generally lower levels than randomly-generated property-type-neutral portfolios. When correlations of property-type-specific portfolios differed statistically from property-type-neutral sample portfolios, the average monthly return differences were not found to be statistically significant.

Performance Attributions: Pure Theory Meets Messy Reality

This article is the winner of The Best Research Paper Presented by a Practicing Real Estate Professional manuscript prize [sponsored by the American Real Estate Society Foundation (ARESF)] presented at the 2001 American Real Estate Society Annual Meeting. The popularity of performance attribution in the publicly-traded equities arena may soon spill over to real estate markets. With that in mind, this study analyzes the practical and statistical problem that may arise when real estate managers apply this technique to their portfolios. The study involves three data sets: a portfolio of publicly-traded REITs, a single-client separate account and a multi-client private REIT. The findings indicate that there is no clear distinction between stock selection and sector allocation in any of the data sets (i.e., the portfolio impact of the manager’s sector allocation and asset selection decisions are, on average, indistinguishable). Also, for the publicly-traded REIT portfolio (the only data set with sufficient sample size), the monthly returns attributed to stock selection versus sector allocation do not display significant serial persistence (i.e., the manager cannot consistently attribute the portfolio returns to either the stock selection or sector allocation decision).

Serial Persistence in Equity REIT Returns

Annual and monthly REIT returns display statistically significant serial persistence, although the two types of persistence behavior are qualitatively different. By contrast, quarterly REIT returns do not display serial persistence. This strongly suggests that linear multifactor market models cannot describe REIT investment behavior. Annual REIT returns fail to reflect corresponding persistence behavior in underlying real estate returns precisely when the REITs are large enough to attract institutional investor interest. Institutional investors move in and out of large-capitalization REITs in ways that negatively impact investment returns.

The Magnitude of Random Appraisal Error in Commercial Real Estate Valuation

Analysis of more than seven hundred pairs of simultaneous independent appraisals of institutional-grade commercial properties shows that the standard deviation of the random component of appraisal error is approximately 2%. Random appraisal error appears constant across both time and the institutional-grade investment universe, except during infrequent periods of real estate market gridlock. Most appraisal error is deterministic in nature, even though it usually appears random in routine cross-sectional analysis. Such appraisal error can be constrained and reduced by investment management control systems.

Systematic Behavior in Real Estate Investment Risk: Performance Persistence in NCREIF Returns

Serial dependence of total annual returns in the NCREIF database is shown to be statistically significant in the first and fourth quartiles of disaggregated data between 1978 and 1994. More precisely, superior performance is generally followed by continued superior performance, and inferior performance is generally followed by continued inferior performance. In contrast, there is virtually no evidence to support serial dependence in the second or third quartiles, whether combined or taken separately. The empirical rejection of serial independence among real estate returns calls into question the conclusions of research based upon models that incorporate the assumption of serial independence.

Heavy Metal Alloys: Unsigned Rock Bands and Joint Work

This note uses humorous illustrations culled from the history of popular heavy metal music to facilitate examination of the effectiveness of joint authorship analysis by modern federal courts. The note carefully considers a variety of common contributions made by band members in the absence of any written or verbal agreement about authorship, and concludes (1) that a more equitable regime would do away with the requirement that a co-author make an independently copyrightable contribution, and (2) that courts must take greater care not to transform will to control into intent to be a sole author

Heavy Metal Alloys: Unsigned Rock Bands and Joint Work

This note uses humorous illustrations culled from the history of popular heavy metal music to facilitate examination of the effectiveness of joint authorship analysis by modern federal courts. The note carefully considers a variety of common contributions made by band members in the absence of any written or verbal agreement about authorship, and concludes (1) that a more equitable regime would do away with the requirement that a co-author make an independently copyrightable contribution, and (2) that courts must take greater care not to transform will to control into intent to be a sole author

The Shape of Australian Real Estate Return Distributions and Comparisons to the United States

Investment risk models with variance provide a better description of distribution of individual property returns in the Property Council of Australia data base from 1985 to 1996 than normally distributed risk models. The shape of the distribution of Australian property returns is virtually indistinguishable from the shape of United States property returns in the NCREIF Property Index for the years 1980 to 1992. Australian real estate investment risk is heteroscedastic, like its US counterpart, but the characteristic exponent of the investment risk function is constant across time and property type. It follows that portfolio management and asset diversification techniques that rely upon finite-variance statistics are as ineffectual for the Australian real estate market as they have been found to be for the United States.

Does Monetary Policy Help Least Those Who Need It Most?

We estimate the impact of U.S. monetary policy on the cross-sectional distribution of state economic activity for a 35-year panel. Our results indicate that the effects of policy have a significant history dependence, in that relatively slow growth regions contract more following contractionarymonetary shocks. Moreover, policy is asymmetric, in that expansionary shocks have less of a beneficial impact upon relatively slow growth areas. As a result, we conclude that monetary policy on average widens the dispersion of growth rates among U.S. states, and those locations initially at the low end of the cross-sectional distribution benefit least from any given change inmonetary policy.Monetary policy, asymmetric effects, state dependence, regional business cycles