The Contribution Risk of REITs in the Blended Public and Private Real Estate Portfolio

Lee, S. (2014). The Contribution Risk of REITs in the Blended Public and Private Real Estate Portfolio. Real Estate Finance, 30(5), pp. 50-55.

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Abstract

In a recent study NAREIT concluded that the best mix for a blended public and private real estate portfolio is to have an allocation of about 30% in REITs and 70% in private real estate funds, as opposed to 100% in either. Portfolio weights however do not indicate how much risk an individual investment contributes to the overall portfolio. This is due to the fact that individual risks are not additive in a portfolio, but a combination the risks and correlations between the investments. In addition, portfolio weights do not show you whether the investment’s returns are sufficient to compensate for the risk it contributes to the portfolio. Yet nothing is known about the contribution risk of REITs to the blended public and private real estate portfolio and whether its required return is sufficient to justify its risk contribution. This paper therefore analyses the performance of REITs in the blended public and private real estate portfolio suggested by NAREIT, over the period from 1989 to 2012, to see whether its required return is sufficient to justify its contribution to risk.

Item Type: Article
Uncontrolled Keywords: Risk Contribution, Required Return, Blended Real Estate Portfolio
Subjects: H Social Sciences > HG Finance
Divisions: Cass Business School > Faculty of Finance
URI: http://openaccess.city.ac.uk/id/eprint/17160

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