Real estate stock selection and attribute preferences

Abstract

The majority of studies that explore property portfolio construction and management strategies utilise highly aggregated ex-post data, but stock selection is known to be a significant determinant of portfolio performance. Thus, here we look at stock selection, focusing on the choices faced by investors, necessitating the collection and analysis of primary data, carried out utilising conjoint analysis. This represents a new step in property research, with the data collection undertaken using a simulation exercise. This enables fund managers to make hypothetical purchase decisions, viewing properties comprising a realistic bundle of attributes and making complex contemporaneous trade-offs between attributes, subject to their stated market and economic forecasts and sector specialism. In total 51 fund managers were surveyed, producing 918 purchase decisions for analysis, with additional data collected regarding fund and personal characteristics. The results reveal that 'fixed' property characteristics (location and obsolescence) are dominant in the decision-making process, over and above 'manageable' tenant and lease characteristics which can be explicitly included within models of probabilities of income variation. This reveals investors are making ex-ante risk judgements and are considering post acquisition risk management strategies. The study also reveals that behavioural factors affect acquisition decisions. 3 1.

Refining the real estate pricing model

“…7 This conforms with a priori expectations, as previous studies show that specific risks contribute a large proportion of the investment risk attached to an asset and that default and void risks are primarily driven by the characteristics of the tenants, lease terms and property, as set out in the model by Jackson and Orr (2011).…”

“…Jackson and Orr (2011) provide a review of studies of these stock-specific factors underpinning variation in return and risk levels, finding general consensus of the categories provided by Baum and Crosby. Drawing on these studies (for example, Wofford and Preddy, 1978;Dixon et al, 1999;IPD, 2000;Devaney and Lizieri, 2005;Blundell et al, 2005;Adair and Hutchison, 2005;Byrne and Lee, 2006), Jackson and Orr set out a conceptual model unravelling the chain of causal effects linking tenant, lease, location, building risk to asset returns and risk ( Figure 1).…”

Diversification of portfolio risk: reconciling theory and observed weightings

“…Rahman and Havard (1997) find that benchmarking tends not to be common amongst the less risk averse property investment companies 'who devise their strategic allocations entirely in accordance with their own perceptions of where the greatest performance will be achieved' (np). Similarly, Jackson and Orr (2011) find that, in their analysis of the investment decision-making process, a quarter of their sample of fund managers do not base their return objective on a benchmark. Further research might focus on a need for strategies to recognise a return to property fundamentals, such as the importance of the local economy within the national and global context at a more macro level; and, at a micro level, the performance opportunities opened up by stock selection and asset management with emphasis placed on investment attributes such as tenant and leasing profiles, as well as physical characteristics, and the pricing thereof.…”

Does public investment spur the land market? New evidence from transport improvement in Beijing

“…8 It is important to note that this paper does not provide a unified framework for linking sorting with institutional roles (Gibbs and Pryce 2012). 9 Recall that our analysis does not attempt to account for the impact of financial changes on the real estate markets (Deng and Liu 2009;Jackson and Orr 2011).…”