Commercial Real Estate Returns

Miles, Michael V.; McCue, Tom

doi:10.1111/1540-6229.00327

Cited by 85 publications

(35 citation statements)

References 17 publications

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“…17. Miles and McCue (1984), Hartzell, Hekman, and Miles (1986), Cole et al (1989), and Miles, Cole, and Guilkey (1990) all find that equity real estate is an excellent stock and/or bond portfolio diversifier. Benston (1985) found that, although direct real estate investments had higher standard deviations of returns than other assets, total asset portfolio standard deviations were lower for institutions with direct investment in excess of three percent of assets than they were for institutions with smaller amounts of direct investments.…”

Section: Discussionmentioning

confidence: 98%

Moral Hazard, portfolio allocation, and asset returns for thrift institutions

1992

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This article examines the earnings performance of nontraditional assets allowed to thrifts since the early 1980s. It uses the statistical cost accounting methodology developed by Hester and Zoellner to estimate average returns on thrift portfolio investments for the years ending June 30,1987 and June 30, 1988. Results show that average returns on land loans, service corporation investment, real estate investment, and commercial loans were significantly lower than returns on more traditional assets. The results are far more pronounced at capital deficient institutions, lending support to the hypothesis that they used nontraditional investments as a means of exploiting the deposit insurance system. Returns on nontraditional assets are significantly affected by geographic factors, even for well capitalized institutions. The article concludes with an evaluation of the reimposition of portfolio restrictions on thrifts by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989.

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Section: Discussionmentioning

confidence: 98%

Moral Hazard, portfolio allocation, and asset returns for thrift institutions

1992

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“…Generally, normality is rejected in terms of skewness and kurtosis both domestically and internationally for both the direct market (e.g. Young and Graff (1995), Miles and McCue (1984), Hartzell (1986)) and the indirect market Satchell (1997), Sieler, Webb andMyer (1999), Mei and Hu (2000)). Further, the direct market exhibits a high degree of autocorrelation, while the indirect market does not.…”

Section: Real Estate Risk-return and Diversification Propertiesmentioning

confidence: 99%

Benefits of Real Estate Investment

Georgiev

Gupta

Kunkel

2003

JPM

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Despite the recent focus on stocks and bonds, real estate remains a significant part of the institutional investment portfolio. This article reviews the existing literature and theory on commercial real estate as an investment vehicle and examines the investment benefits of real estate as a part of a diversified portfolio. The results suggest that direct real estate investment provides diversification benefits, while securitized real estate (REIT) investment does not. The conclusion is twofold: 1) real estate returns are determined by factors different from those driving the returns to other asset classes and hence may produce diversification benefits and 2) REIT investment is an inadequate substitute for direct investment in real estate.3

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confidence: 99%

“…Many studies have simply presented analyses of appraisal-based returns without correcting for the effect of smoothing (e.g., Brueggeman, Chen, and Thibodeau, 1984;Miles and McCue, 1984;Miles, 1986, 1987;Hartzell, Shulman, and Wurtzebach, 1987). Other studies have attempted to correct for appraisal smoothing by developing simulated returns series, either by applying cap rate time series to real estate income time series (e.g., Firstenburg, Ross, and Zisler, 1988;Wheaton and Torto, 1989;Liu, et al 1990), or by using so-called "transactions driven" indices of real estate returns based on hedonic models of real estate fundamental value (e.g., Hoag, 1980;Miles, Cole, and Guilkey, 1990).…”

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confidence: 99%

Smoothing in appraisal-based returns

Geltner

1991

J Real Estate Finan Econ

359

151

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This article presents a conceptual analysis of smoothing in the second moments of appraisal-based returns series in commercial real estate. The intent of the article is to lay the groundwork necessary for the more scientific use of appraisal-based returns time series for the purpose of inferring the true second moments. Formal smoothing models are presented together with their theoretical implications for smoothing in various second moments of interest to investment analysts. Empirical estimators for inferring true moments from appraisal-based data are described. Limited empirical findings from previous literature are also briefly discussed in the light of the theoretical findings of this study. The overall conclusion is that appraisal-based returns can be very useful in studying the risk characteristics of commercial real estate assets, provided that this type of data is corrected for smoothing as discussed in the article.The ever-growing quantity of appraisal-based time series of real estate returns represents an increasingly important database for the study of the risk and returns characteristics of investment grade commercial real estate. But while such data are a rich source of information, they are a source that must be used carefully. The differences must be recognized between appraisal-based returns and the true market returns which represent the fundamental economic opportunity costs to investors and which are more directly comparable to the returns studied for alternative investments such as stocks and bonds. These differences drastically affect the risk characteristics of the returns so that the direct unadjusted use of appraisal-based data can be quite misleading. The differences between appraisal-based and true returns bias not only the volatility but virtually all the statistics about the returns that are of interest to investment and portfolio analysts, including the mean of the return, the systematic risk or hedging ability measured by covariances with exogenous indices, and the intraportfolio covariance or "heterogeneity" among real estate assets.While the problems in appraisal-based returns data have been recognized in much of the past literature, attempts to deal effectively with these problems have been less than successful. Many studies have simply presented analyses of appraisal-based returns without correcting for the effect of smoothing (e.g., Brueggeman, Chen, and Thibodeau, 1984;Miles and McCue, 1984; Miles, 1986, 1987;Hartzell, Shulman, and Wurtzebach, 1987). Other studies have attempted to correct for appraisal smoothing by developing simulated returns series, either by applying cap rate time series to real estate income time series (e.g.

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Commercial Real Estate Returns

Cited by 85 publications

References 17 publications

Moral Hazard, portfolio allocation, and asset returns for thrift institutions

Moral Hazard, portfolio allocation, and asset returns for thrift institutions

Benefits of Real Estate Investment

Smoothing in appraisal-based returns

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