James R. Webb

Real Estate Investment Acquisition Rules for Life Insurance Companies and Pension Funds: A Survey

Real estate comprises the major wealth of the United States as well as the world. Life insurance companies and pension funds are rapidly becoming major investors in real estate due to their large portfolios and annual cash inflows. Aggregate inflows of life insurance companies and pension funds are estimated to be about 150 billion dollars per year. Increasing amounts of these funds are believed to be going into real estate investments. This study surveys life insurance companies and pension managers on all facets of their real estate investments. The survey covers real estate portfolio size and type, portfolio composition, investment by property type, international investments, before-tax analysis, after-tax analysis, diversification strategies, computer usage, holding period assumptions and criteria for obtaining mortgages, equity positions and construction loans. The results of this study are then compared and contrasted with previous studies. Copyright American Real Estate and Urban Economics Association.

Stationarity and Cointegration in Systems with Real Estate and Financial Assets

This study examines the properties of wealth indices for investments in several asset classes (real estate, stocks, bonds, and Treasury bills), for several types of real estate (office, retail, research and development office, and warehouse), and by region (East, Midwest, South, and West). The series representing the value of investments in real estate and financial assets are not stationary; therefore, ordinary statistical procedures cannot be applied. Since many of the properties that are included in the real estate series have outside appraisals on an annual basis, especially in the fourth quarter, the real estate series may show seasonal influences. Hence, the appropriate test for cointegration is the Johansens test, which is formulated in such a way as to allow for deterministic seasonality by the inclusion of seasonal dummy variables. The finding of cointegration implies that there is a long-run relationship between the series in the cointegrated system. When the CPI (or a proxy for inflation) is included in the three systems, the number of common factors increase to two, implying that inflation plays an important role in creating a linkage between these time series. These findings also have implications for developing portfolios comprising financial assets and real estate. The findings also have implications for developing a model to forecast real estate prices.

Statistical Properties of Returns: Financial Assets versus Commercial Real Estate

This study examines the distribution of commercial real estate returns by region (east, midwest, south, and west), by property type (office, retail, R&D office, and warehouse) and in the aggregate, and compares their distributions to those of financial assets. Nominal and real returns are examined for quarterly, semiannual, and annual periods. The quarterly nominal returns on the financial assets are mostly normal with very little indication of autocorrelation. In contrast, non-normality and autocorrelation are present in most of the nominal quarterly real estate series. The non-normality is greatly reduced when semiannual or annual returns are considered or when the quarterly series are corrected for autocorrelation. The non-normality is also lower for real returns than it is for nominal returns.

Technical efficiency and economies of scale: A non-parametric analysis of REIT operating efficiency

Abstract This study measures technical efficiency and economies of scale for real estate investment trusts (REITs) by employing data envelopment analysis (DEA), a linear-programming technique. Using data from the National Association of Real Estate Investment Trusts (NAREITs) for the years 1992–1996, we find that REITs are technically inefficient, and the inefficiencies are a result of both poor input utilization and failure to operate at constant returns to scale. With respect to scale inefficiency, most REITs are operating at increasing returns to scale, suggesting that REITs could improve performance through expansion. Moreover, we employ regression analysis to determine what characteristics influence the efficiency measures obtained. The results show that internal REIT management is positively related to all measures of efficiency. Increasing leverage is negatively related to REIT input utilization. Finally, increasing REIT diversification across property types enhances scale efficiency (SE) but reduces input usage efficiency.

The Sensitivity of Bank Stock Returns to Real Estate

According to the Federal Reserve Board, banking firms have recently been shifting significantly larger portions of their loan portfolios into real estate. This increase in real estate lending has caused concern about the continuing economic health of banks on the part of state and federal regulators, since changes in real estate returns, evidenced by changes in property value, can potentially have a significant impact on bank default risk and profit-ability. However, concerned parties do not seem to have explicitly considered the relationship between mortgage default risk and the specific characteristics of real estate investments.This study examines the sensitivities of stock returns for different bank groups, based on the percentage of total loans in real estate and the percentage of loans in five different mortgage categories (construction and development loans, farmland loans, one- to four-family residential loans, multifamily residential loans, and nonresidential and nonfarm loans), to changes in real estate market returns. This is done by developing and using a three-index model.The results of this study indicate that bank stocks, overall, are very sensitive to changes in real estae returns. Banks, with a larger portion of their total loans invested in all types of real estate loans, except farmland loans, are most sensitive to changes in real estate returns.

Farmland as an Inflation Hedge

As inflation declined in the late 1980s from the double-digit rates of previous years, investor concerns of rising price levels diminished. However, viewed from the longer historical perspective of post-WWI performance, inflation has been at significant levels since the late 1960s. A major concern of investors is that their wealth portfolio provide positive real rates of return. During periods of inflation, some investiments increase in value more quickly than others, while some decrease in value.

The Impacts of Tiananmen Square Events on Hong Kong Real Estate and Non-real Estate Wealth

Based on the unique characteristics of real estate, the hypothesis of significant additional political sensitivity of real estate has been developed and tested in this study. By classifying six major kinds of events that took place preceding and during the Tiananmen Square demonstrations and performing the multivariate test, this study finds evidence that Hong Kong real estate, overall, is more sensitive than other Hong Kong industries to major political events in China.

Nonlinear Return Dependence in Major Real Estate Markets

Summary The major contribution of this paper is to recognize the possible presence of nonlinear return dependence in six major real estate markets (the US, UK, Japan, Australia, Hong Kong and Singapore) as well the resulting implications on return predictability and market interdependence. We employ the Brock, Derchert & Scheinkman (BDS) test and a nonlinear logistic model to analyse the temporal variation of securitized and hedged market returns in these markets using unconditional and conditional risk‐return specifications. Our results do not imply conclusively the existence of deterministic nonlinear return behaviour in these markets but are consistent with its existence in some cases. Further evidence of varying levels of market co‐movement among the major real estate markets as well as with the Morgan Stanley Capital International (MSCI) world stock market is documented for these series after accounting for the deterministic nonlinearities in self returns. The analyses also suggest a need to account for nonlinear behaviour in forecasting models in order to obtain potentially more accurate real estate return forecasts. Finally, global investors need to be more cautious in formulating their portfolio diversification strategies since gains from diversification may diminish in the long run if real estate markets are in fact nonlinear in an international environment.

The Effect of Unbundling Asset Returns on Restricted Mixed-Asset Portfolios

Research on mixed-asset portfolios has attracted increased attention in recent years (Brueggeman et al., 1984; Friedman, 1971; Hartzell and Webb, 1988; Webb et al., 1988; Webb and Rubens 1986, 1988). A mixed- asset portfolio is simply a portfolio that contains different types of assets, both financial (such as bonds and equities) and real (such as real estate). Many institutional investors (for example, life insurance companies, pension funds, and bank trust departments) cannot invest in all types of assets, due to various state and federal laws, as well as ERISA. Hence, their portfolios are “restricted.

Strategic management and operations of real estate valuation service providers in Hong Kong

Purpose – The paper aims to contribute to the understanding of the current valuation practices and services offered across Asia, in particular the valuation techniques and methodology used by practising valuers in Hong Kong.Design/methodology/approach – In order to gain professional opinions and an in‐depth understanding of Hong Kong valuation service providers, the methods and concepts used, and the extent of involvement with Chinese clients and businesses, the paper reports the findings of interviews with major real estate valuation firms and a survey of individual valuers involved in the appraisal of properties in Hong Kong and China.Findings – The results show that there are significant differences between the strategic management and the operational level across several facets of the valuation process in Hong Kong and China. The paper contributes to an understanding of behavioural influences within valuation.Research limitations/implications – The main limitation is the restriction of the survey on H...