An Investigation of Real Estate Investment Decision-Making Practices

Abstract

This survey investigation reports on the investment decision-making processes used by equity investors in real estate. The survey covers the entire investment decision making process, from setting strategy to auditing operating performance. Respondents identify the most important stages of the process as searching for investment opportunities. forecasting expected returns, and evaluating forecasted returns. Most believe that individual project factors are more important than strategic and portfolio factors, and that returns should be measured on a before-tax cash flow basis and evaluated using discounted cash flow measures. Respondents are more concerned with project than portfolio risk and are unlikely to make a quantitative risk assessment or risk adjustment. When compared with the results of earlier studies, this investigation suggests that real estate investment decision making practices have not evolved much over the past decade.

Decision-making in the management of property investment by Australian superannuation funds

“…The surveys used questions similar to those in Wiley's (1976) survey, as well as additional questions on areas such as how institutional investors invested in real estate, the composition of their portfolios and the level of international investments. The majority of surveys have been undertaken in the United States (Farragher, 1982;Farragher and Kleiman, 1996;Farragher and Savage, 2008;Louargand, 1992;Page, 1983;Webb, 1984;Webb and McIntosh, 1986;Worzala and Bajtelsmit, 1997). Only a few surveys have been undertaken in Australia (Boyd et al, 1995;Newell, 2008;Newell et al, 1993;Reddy, 2012;Reddy et al, 2014 andKish, 2000).…”

Decision-making in property Investment by Property Fund Managers

“…Farragher and Kleiman (1996) surveyed institutional investors in the United States and included questions on the entire decision making process with respect to qualitative and quantitative risk assessment. The survey was repeated by Farragher and Savage (2008) a decade later and found very little difference to most of the responses made to the earlier survey. The only major difference was that in the Farragher and Kleiman's (1996) survey 70% of the respondents used qualitative risk assessment while in Farragher and Savage (2008) survey it had decreased to 70%.…”

“…The survey was repeated by Farragher and Savage (2008) a decade later and found very little difference to most of the responses made to the earlier survey. The only major difference was that in the Farragher and Kleiman's (1996) survey 70% of the respondents used qualitative risk assessment while in Farragher and Savage (2008) survey it had decreased to 70%. Surveys on property investment by institutional investors in Australia have been undertaken by Newell, Stevenson and Rowland (1993), Boyd, MacGillivray and Schwartz (1995), Rowland and Kish (2000), Newell (2008) and Reddy (2012).…”

Property investment decision-making behaviour amidst market disruptions: an institutional perspective

“…These models posit that the investment choices are well defined in a logical sequence for effective decisions to be made (Roberts and Henneberry, 2007). Ranging from a three-stage to ten-stage sequential model, scholars have viewed rational decision-making as a phase-based procedure that drives informed investment decisions, with minimal consideration of individual differences and their subjective behavioural attributes (Hargitay and Yu, 1993; Farragher and Savage, 2008). Excerpts from the various rational models have however been consolidated by Roberts and Henneberry (2007), to include;Investment goal settingFormulation of a decision-making criteriaSearch for suitable property assetsAnalysis of the market structurePrediction of outcomes (return/risk/demand/supply)Implementation of decision benchmark.Trade-off between propertiesDetailed property screeningSelection of investment PreferencePost-Investment Appraisal…”