A Different Look at Commercial Real Estate Returns
Rebel A. Cole
Driehaus College of Business at DePaul University
AREUEA, Vol. 18, No. 4, pp. 403-430, 1990
Commercial real estate makes up a relatively small percentage of most institutional portfolios, even though the existing literature has consistently reported attractive risk-return characteristics that would suggest much larger allocations. The discrepancy has been explained by a perceived lack of comparability between return series calculated for real estate and those calculated for other asset classes. Just as investors actively involved in the futures markets do not consider individual common stocks to be traded continuously, those active in the stock market do not consider real estate to be traded continuously. In both cases, adjustments to reported returns are necessary to achieve a degree of comparability. This study makes such adjustments, using sales data from the properties that help comprise the National Council of Real Estate Fiduciaries/Frank Russell Company (NCREIF/FRC) Index to generate a transaction-driven commercial real estate return series. Examination of the risk-return characteristics of this series shows that it is quite different from traditionally reported real estate return series and is far more consistent with risk-return characteristics that have been reported for other asset classes.
Keywords: commercial real estate, efficiency, hedonic, transaction index
JEL Classification: G12, G14, G22, G23, G31, G39working papers series
Date posted: February 26, 2008 ; Last revised: October 12, 2010
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo2 in 0.359 seconds