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Real Estate Returns by Strategy: Have Value‐Added and Opportunistic Funds Pulled Their Weight?
Author(s) -
Pagliari Joseph L.
Publication year - 2017
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/1540-6229.12190
Subject(s) - leverage (statistics) , economics , real estate , closed end fund , value (mathematics) , capital asset pricing model , asset (computer security) , net asset value , financial economics , monetary economics , finance , market liquidity , mathematics , statistics , computer security , computer science
Real estate strategies broadly fall into three categories: core, value‐added and opportunistic. This empirical examination of net returns from these three strategies indicates that, on a risk‐adjusted basis, the value‐added funds have strongly underperformed and the returns from opportunistic funds have weakly underperformed the returns available from core funds. In so concluding, this article departs from standard asset‐pricing models in two important respects: the total risk is used and the cost of borrowing increases as leverage increases. While the first departure has no substantive effect, the second departure lowers the estimate of the underperformance of noncore funds.