Real Estate Financial and Investment Analysis 1 ELEMENTS OF REAL ESTATE PORTFOLIO ANALYSIS INDIVIDUAL REAL ESTATE INVESTMENTS VS. PORTFOLIO OF ASSETS TRADE-OFF.

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Presentation transcript:

Real Estate Financial and Investment Analysis 1 ELEMENTS OF REAL ESTATE PORTFOLIO ANALYSIS INDIVIDUAL REAL ESTATE INVESTMENTS VS. PORTFOLIO OF ASSETS TRADE-OFF BETWEEN RISK AND RETURN AND INVESTOR OBJECTIVES DIVERSIFICATION AND OPTIMAL PORTFOLIO CONSTRUCTION

Real Estate Financial and Investment Analysis 2 MEASURING RISK AND RETURN EXPECTED RETURN VARIABILITY OF RETURNS

Real Estate Financial and Investment Analysis 3 PORTFOLIO STRATEGIES Top-Down Analysis OBJECTIVES -- RISK/REWARD ASSET ALLOCATION MARKETS SUB-MARKETS PROPERTY SELECTION DEAL MAKING ASSET MANAGEMENT Note: Property Investment is Bottom-up Analysis

Real Estate Financial and Investment Analysis 4 PORTFOLIO ANALYSIS / EFFICIENT FRONTIER Return RBRB SD B R A,C SD C SD A Risk BA C

Real Estate Financial and Investment Analysis 5 FACTORS AFFECTING VALUE RISK: Micro-Analysis VALUE OF THE INVESTMENT BUSINESS-ASSET RISK CAP RATES NOICASH FLOWCOLLATERAL FINANCIAL STRUCTURE RISK

Real Estate Financial and Investment Analysis 6 WHAT AFFECTS THE CAP RATE? INTEREST RATES INFLATION EXPECTATIONS MARKET CONDITIONS

Real Estate Financial and Investment Analysis 7 WHAT AFFECTS PROSPECTIVE NOI? 1. GROSS INCOME LEASE ARRANGEMENTS MARKET EXPOSURE EFFICIENCY OF MANAGEMENT / MARKETING 2. OPERATING EXPENSES LEASE PASS-THROUGH PROVISIONS EXPENSE-SERVICE CONTRACTS VACANCY EXPOSURE EFFICIENCY OF MANAGEMENT

Real Estate Financial and Investment Analysis 8 DIVERSIFICATION ANALYSIS GEOGRAPHY PROPERTY-TYPE LEASE STRUCTURES FINANCIAL STRUCTURES OWNERSHIP STRUCTURES

Real Estate Financial and Investment Analysis 9 MSA ECONOMIC DIVERSIFICATION ANALYSIS

Real Estate Financial and Investment Analysis 10 ISSUES IN PORTFOLIO ANALYSIS 1. ALLOCATION PARADIGM REAL ESTATE OTHER ASSETS 2. EX POST VS. EX ANTE ANALYSIS 3. RE-BALANCING 4. REAL ESTATE, INFLATION, AND OTHER ASSETS

Real Estate Financial and Investment Analysis 11 SELECTED CROSS-CORRELATION OF ASSET RETURNS: (Webb and Rubens)

Real Estate Financial and Investment Analysis 12 CORRELATION COEFFICIENTS BASED ON GEOGRAPHIC DIVERSIFICATION

Real Estate Financial and Investment Analysis 13 IMPACT OF ADDING APARTMENTS ON PORTFOLIO: RISK/RETURN RELATIONSHIP

Real Estate Financial and Investment Analysis 14 RUSSELL-NCREIF PROPERTY INDEX AND ALTERNATIVE INVESTMENTS: (Jan. 1, Dec. 31, 1989) EXCEL GRAPH

Real Estate Financial and Investment Analysis 15 SELECTED CROSS-CORRELATION OF ASSET RETURNS: (Ibbotson and Siegel)