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Institutional Real Investments: Real Estate in a Multi-Asset Portfolio
KTH, School of Architecture and the Built Environment (ABE), Real Estate and Construction Management, Building and Real Estate Economics.ORCID iD: 0000-0002-1205-2129
2016 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

The purpose of this thesis is to analyze real estate investments from the vantage point of an institutional multi asset investor perspective, both in terms of the potential benefits real estate can bring as well as the challenges it can pose. The thesis consists of six papers and approaches the research question from three distinct perspectives.

The quantitative papers consists of paper 1 and 5. Paper 1 analyses the portfolio characteristics of domestic and international real estate in a mean variance framework over seven investor domiciles. It is found that the optimal allocation to real estate is in the range of 15-25 percent depending on domicile of the investor. The fifth paper expands the analysis in paper one by expanding the data. Furthermore, the analysis is extended to investigate how the structure of the real estate portfolio can support a diversification objectives best.

Papers 2, 3 and 4 are the market related papers. Paper 2 compares the suggested allocation weights with the allocation to real estate of institutions in four countries, and finds that the actual allocation is significantly lower and that all investor domiciles have a significant home bias. The third paper discusses changes in the institutional framework of real estate markets and the size of the investment universe. Paper 4 discusses various entry points to the real estate market, and how an investor can utilize these in order to adjust the characteristics of the real estate portfolio.

The sixth and last paper is qualitative, and investigates how institutions managing pension capital handle real estate. ​

Place, publisher, year, edition, pages
KTH Royal Institute of Technology, 2016. , 37 p.
Series
, TRITA-FOB-DT, 2016:5
Keyword [en]
Real Estate Investment, Asset Allocation, Alternative Assets, Multi-Asset Portfolio
National Category
Economics and Business
Research subject
Real Estate and Construction Management
Identifiers
URN: urn:nbn:se:kth:diva-196536ISBN: 978-91-85783-71-7OAI: oai:DiVA.org:kth-196536DiVA: diva2:1046783
Public defence
2016-12-09, Kollegiesalen, Brinellvägen 8, Stockholm, 13:00 (English)
Opponent
Supervisors
Note

QC 20161115

Available from: 2016-11-15 Created: 2016-11-15 Last updated: 2016-11-16Bibliographically approved
List of papers
1. International Evidence on Real Estate as a Portfolio Diversifier
Open this publication in new window or tab >>International Evidence on Real Estate as a Portfolio Diversifier
2004 (English)In: Journal of Real Estate Research, ISSN 0896-5803, Vol. 26, no 2, 161-206 p.Article in journal (Refereed) Published
Abstract [en]

This paper provides an international comparison of the benefits of including real estate assets in mixed-asset portfolios. Real estate returns are desmoothed using a variant of the Geltner (1993) approach, and Bayes-Stein estimators are used to increase the stability of portfolio weight estimations. Both unhedged and hedged analyses are conducted. Real estate is found to be an effective portfolio diversifier, and even more so when both domestic and international real estate assets are considered. The optimal allocation to real estate is 15% to 25%, and remains stable when the level of the standard deviation of real estate is altered. Real estate allocation between domestic and non-domestic assets, however, varies substantially across countries, depending on whether returns are hedged or not.

Place, publisher, year, edition, pages
American Real Estate Society, 2004
National Category
Economics and Business
Identifiers
urn:nbn:se:kth:diva-196018 (URN)2-s2.0-3543045061 (ScopusID)
Note

QC 20161115

Available from: 2016-11-10 Created: 2016-11-10 Last updated: 2016-11-15Bibliographically approved
2. Real Estate in the Institutional Portfolio: A Comparison of Suggested and Actual Weights
Open this publication in new window or tab >>Real Estate in the Institutional Portfolio: A Comparison of Suggested and Actual Weights
2003 (English)In: The Journal of Alternative Investments, ISSN 1520-3255, E-ISSN 2168-8435, Vol. 6, no 3, 53-59 p.Article in journal (Refereed) Published
Abstract [en]

The main objective of this study is to provide international evidence on the discrepancy between suggested and actual allocations to real estate in institutional portfolios, and also to discuss possible reasons for the discrepancy. We use data for the U.S., U.K., Sweden, and Switzerland to investigate the benefits of including real estate assets? both domestic and international? in institutional portfolios. The optimal allocation to real estate is found to be 15% to 20%, and is remarkably stable across countries. The suggested allocations to real estate in institutional portfolios are then compared with the actual institutional holdings in these four countries. The latter are found to be much less than the former, and some possible explanations for the discrepancy are given. The study also reports a substantial home bias in institutional real estate portfolios.

Keyword
Allokering till fastigheter
National Category
Economics and Business
Research subject
Real Estate and Construction Management
Identifiers
urn:nbn:se:kth:diva-196524 (URN)000224942300002 ()
Note

QC 20161115

Available from: 2016-11-15 Created: 2016-11-15 Last updated: 2016-11-15Bibliographically approved
3. Suggested Versus Actual Institutional Allocations to Real Estate in Europe: A Matter of Size?
Open this publication in new window or tab >>Suggested Versus Actual Institutional Allocations to Real Estate in Europe: A Matter of Size?
2005 (English)In: The Journal of Alternative Investments, ISSN 1520-3255, E-ISSN 2168-8435, Vol. 8, no 2, 62-70 p.Article in journal (Refereed) Published
Abstract [en]

The allocation to real estate by institutional investors has increased in recent years and as a result the gap between suggested and actual allocations has narrowed. The increased inflow of capital to the real estate market is suggested to be a function of two factors: An increased focus on absolute return target investments among institutional investors and an increased target allocation to real estate. This article argues that the increased target allocation is made possible mainly by the development of new investment vehicles, in particular private real estate funds, the growing integration of economic regions, and other factors such as the development of investment benchmarks. The flows needed for the actual allocation by European institutional investors to match the suggested allocation requires that at least 31% of the real estate equity universe be held by owner occupiers. The authors estimate that seven years would be needed to reach the target allocation, but it is unlikely that sufficient investment opportunities will arise unless the willingness of owner-occupiers to outsource their real estate assets increases.

Keyword
Allokering till fastigheter, institutionella förändringar, investeringsslag
National Category
Economics and Business
Research subject
Real Estate and Construction Management
Identifiers
urn:nbn:se:kth:diva-196527 (URN)10.3905/jai.2005.591578 (DOI)
Note

QC 20161115

Available from: 2016-11-15 Created: 2016-11-15 Last updated: 2016-11-15Bibliographically approved
4. Real estate portfolio strategy and product innovation in Europe
Open this publication in new window or tab >>Real estate portfolio strategy and product innovation in Europe
2008 (Swedish)In: Journal of Property Investment & Finance, ISSN 1463-578X, E-ISSN 1470-2002, Vol. 26, no 2, 162-176 p.Article in journal (Refereed) Published
Abstract [en]

Purpose – This paper aims to review major changes on real estate markets in Europe and to analyse the impacts of such changes.Design/methodology/approach – The paper provides an overview of the various equity real estate investment vehicles available to investors, with particular focus on the pros and cons of each type of vehicle. The paper also includes an analysis of the impacts of product innovation on real estate markets and on portfolio strategy.Findings – The changes on real estate markets have led to considerable amounts of capital being allocated to the asset class. Portfolio strategies should be substantially more flexible.Research limitations/implications – As many of the new products have been created in bullish real estate markets, it is important to assess the impacts of a market downturn on portfolio performance.Practical implications – A good understanding of available products with their pros and cons is necessary for a sound investment strategy.Originality/value – The paper is one of the very few papers that discuss the major institutional changes that have occurred on European real estate markets.

Place, publisher, year, edition, pages
Emerald Group Publishing Limited, 2008
Keyword
Real estate, Portfolio investment, Investments, Assets management
National Category
Economics and Business
Research subject
Real Estate and Construction Management
Identifiers
urn:nbn:se:kth:diva-196528 (URN)10.1108/14635780810857908 (DOI)2-s2.0-40749086761 (ScopusID)
Note

QC 20161115

Available from: 2016-11-15 Created: 2016-11-15 Last updated: 2016-11-15Bibliographically approved
5. Real estate portfolio construction for a multi-asset portfolio
Open this publication in new window or tab >>Real estate portfolio construction for a multi-asset portfolio
2015 (English)In: Journal of Property Investment & Finance, ISSN 1463-578X, E-ISSN 1470-2002, Vol. 33, no 6, 548-573 p.Article in journal (Refereed) Published
Abstract [en]

Purpose – The purpose of this paper is to explore how tenant end demand dependence and investment market segmentation, as estimated through sector type, impacts real estate portfolio strategy in the context of the multi-asset portfolio. Design/methodology/approach – The analysis is performed for six investor domeciles, for domestic and international investments over several cycles. The analysis is performed in a mean variance framework. Findings – The findings are consistent with the hypothesis that an investor benefits from investing in real estate assets where end demand is dependent on local factors rather than global factors. Practical implications – The efficiency of the overall multi-asset portfolio benefits from a deeper understanding of how the real estate portfolio is constructed. Locally dependent real estate, i.e. real estate that is dependent on local economic factors, tends to better support the overall portfolio than do real estate that is dependent upon global factors. Originality/value – The paper contributes to the broader knowledge through extending earlier studies using similar methodology by extending the data series to cover the impact of the latest global financial crises, as well through extending the knowledge how the real estate portfolio should be constructed to better support the overall objectives of the multi-asset portfolio.

Place, publisher, year, edition, pages
Emerald Group Publishing Limited, 2015
Keyword
Asset allocation, Globally dependent real estate, Locally dependent real estate, Real estate, Real estate portfolio construction, Sector strategy
National Category
Economics and Business Construction Management
Identifiers
urn:nbn:se:kth:diva-181256 (URN)10.1108/JPIF-02-2015-0013 (DOI)000373190400006 ()2-s2.0-84942326622 (ScopusID)
Note

QC 20160210

Available from: 2016-02-10 Created: 2016-01-29 Last updated: 2016-11-17Bibliographically approved
6. How do Institutional Pension Managers Consider Real Estate: a perspective from Sweden and Finland
Open this publication in new window or tab >>How do Institutional Pension Managers Consider Real Estate: a perspective from Sweden and Finland
(English)Manuscript (preprint) (Other academic)
Abstract [en]

The asset allocation decision for a pension portfolio needs to consider several, sometimes conflicting, aspects. Most pension managers use models and processes that are developed for the traditional asset classes for analyzing this problem. This paper investigates how real estate is included in this process, for what purpose and how the real estate portfolio is constructed. Seven individuals responsible for the asset allocation process were interviewed, and their responses were analyzed with regards to organizational options and their real estate strategy. It was found that real estate is held for three different purposes, risk diversification, inflation hedging/liability matching and return enhancement and that the allocation has increased over time. The allocation strategy has evolved at least in part in conjuncture with the organizational structure set in place to overcome real estate market frictions. It is concluded that the organizational capabilities of the pension fund of handling real estate is an important consideration for the ensuing real estate portfolio.

Keyword
Asset allocation, real estate, alternative investments
National Category
Economics and Business
Research subject
Real Estate and Construction Management
Identifiers
urn:nbn:se:kth:diva-196534 (URN)
Note

QC 20161115

Available from: 2016-11-15 Created: 2016-11-15 Last updated: 2016-11-15Bibliographically approved

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