Using clustering methods for a practicable real estate portfolio allocation process

Purpose The purpose of this paper is to address the heterogeneity of real estate assets with regard to investment risk measurement, with Paris’ apartment market as a case study. Design/methodology/approach Quantile regression is used to handle the fact that willingness to pay for housing attributes may vary greatly over both space and asset value categories. The method is alternately applied on central and peripheral districts of Paris, or “arrondissements”, with hedonic indices built for nine deciles over a 17-year period (1990-2006). Portfolio allocation is subsequently analysed with deciles being the assets. Findings The findings suggest that during the slump, peripheral districts show better resilience and define the efficient frontier while also exhibiting a lower volatility. In addition, higher returns are observed for lower-priced apartments, both central and peripheral. During the recovery and boom stages of the cycle, the highest returns are experienced for the cheapest apartments in central locations, whereas upper-priced, centrally located units yield the lowest returns. Originality/value The originality of this research resides in the application of quantile regression in a real estate investment and risk management context. The methodology may raise individual investors’ and practitioners’ attention, especially index providers’.

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How do institutional pension managers consider real estate

Journal of Property Investment and Finance ◽

10.1108/jpif-05-2016-0033 ◽

2017 ◽

Vol 35 (1) ◽

pp. 26-43 ◽

Cited By ~ 2

Author(s):

Jon R.G.M. Lekander

Keyword(s):

Real Estate ◽

Asset Allocation ◽

Pension Funds ◽

Real Estate Market ◽

Organizational Capabilities ◽

Future Research ◽

Allocation Decision ◽

Content Type ◽

The Real Estate ◽

Allocation Process

Purpose The asset allocation decision for a pension portfolio needs to consider several, sometimes conflicting, aspects. Most pension managers use models and processes that are developed for the traditional asset classes for analyzing this problem. The purpose of this paper is to investigate how real estate is included in this process, for what purpose and how the real estate portfolio is constructed. Design/methodology/approach Seven individuals responsible for the asset allocation process were interviewed, and their responses were analyzed with regards to organizational options and their real estate strategy. Findings It was found that real estate is held for three different purposes, risk diversification, inflation hedging/liability matching and return enhancement and that the allocation has increased over time. The allocation strategy has evolved at least in part in conjuncture with the organizational structure set in place to overcome real estate market frictions. Research limitations/implications The interviews were geographically limited to pension funds domiciled in Sweden and Finland. Practical implications It is concluded that the organizational capabilities of the pension fund of handling real estate is an important consideration for the ensuing real estate portfolio. Originality/value The originality of this paper lies in that it is based on interviews with individuals who are responsible for the asset allocation decision at large pension funds. The findings of the paper identify areas of interest for future research.

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Exploiting Property Characteristics in Commercial Real Estate Portfolio Allocation

The Journal of Portfolio Management ◽

10.3905/jpm.2011.35.5.039 ◽

2011 ◽

Vol 35 (5) ◽

pp. 39-50 ◽

Cited By ~ 12

Author(s):

Alberto Plazzi ◽

Walter Torous ◽

Rossen Valkanov

Keyword(s):

Real Estate ◽

Portfolio Allocation ◽

Commercial Real Estate

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