Residential Real Estate as a Potential Investment Alternative for Institutional Investors? -An Empirical Examination
||Residential Real Estate as a Potential Investment Alternative for Institutional Investors? -An Empirical Examination
||Book of Abstracts: 2005 European Real Estate Society conference in association with the International Real Estate Society
||Due to restrictive capital markets, global economic stagnation and political unsteadiness, institutional investors have aligned their former proactive portfolio strategies to a more conservative asset allocation. As a consequence, institutional investors increasingly regard residential real estate as an attractive investment alternative. The deflection of the investment behaviour raises several questions that will be examined in this survey. Is residential property an alternative investment asset for institutional investors? How should investors allocate their investments in residential real estate? Compared to other asset classes, which strengths and weaknesses are unique for residential real estate investments? In order to analyse these questions, an empirical study of direct and indirect investment opportunities in the United States has been conducted. The historical NCREIF database held between 1984:1 and 2003:4 has been used. In the first step, the relative performance of unsecuritized residential properties in a real-estate-only portfolio is assessed. In the next step, the performance of securitized residential properties is examined by scrutinizing the historical returns of Equity REITs clustered by property types. Ultimately, both unsecuritized and securitized residential investments are included in a mixedasset portfolio to determine efficient frontiers for institutional investors. This empirical study attempts to reveal the implications of residential real estate investments, possibly enhancing portfolio returns by mitigating downside risks.
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