Time-Varying Betas of US REITs from 1972 to 2013
Tien Foo Sing1 & I-Chun Tsai 2 & Ming-Chi Chen3

Abstract

This study estimates the time-varying REIT betas with a structural
time series model using monthly REIT return data for the periods from 1972 to
2013. Based on the FTSE-NAREIT return indices for the equity REIT (EREIT)
and mortgage REIT (MREIT), we found corroborative evidence of the temporal
declines in the betas of the two REITs up to 1999. The time-varying beta
characteristics of the two REIT betas are fundamentally different in the 2000s.
While the MREIT betas continued to decline, the EREIT betas showed a sharp
reversal of the downward trend. Coinciding with the low interest regime in the
US, EREITs used more external debt to fund new acquisitions and development
activities, and as a result, the EREIT betas increased sharply in 2000s. The
EREIT betas hit the peak in 2009; and declined thereafter when active
deleveraging occurred in the market. Using firm level data, we construct two
leverage-sorted EREIT portfolios, and our empirical results do not reject the
leverage effects on time-varying EREIT betas. However, we find that the
leverage effect is not triggered by the declines in stock prices as proposed in
the finance literature.

Cornish-Fisher Expansion for Commercial Real Estate
Value at Risk
Charles-Olivier Am´ed´ee-Manesme ·
Fabrice Barth´el´emy · Donald Keenan
Published online: 5 July 2014

Abstract

The computation of Value at Risk has traditionally been a troublesome
issue in commercial real estate. Difficulties mainly arise from the lack of appropriate
data, the non-normality of returns, and the inapplicability of many of the traditional
methodologies. As a result, calculation of this risk measure has rarely been done in
the real estate field. However, following a spate of new regulations such as Basel
II, Basel III, NAIC and Solvency II, financial institutions have increasingly been
required to estimate and control their exposure to market risk. As a result, financial
institutions now commonly use “internal” Value at Risk (VaR) models in order
to assess their market risk exposure. The purpose of this paper is to estimate distribution
functions of real estate VaR while taking into account non-normality in
the distribution of returns. This is accomplished by the combination of the Cornish-
Fisher expansion with a certain rearrangement procedure. We demonstrate that this
combination allows superior estimation, and thus a better VaR estimate, than has
previously been obtainable. We also show how the use of a rearrangement procedure
solves well-known issues arising from the monotonicity assumption required for the
Cornish-Fisher expansion to be applicable, a difficulty which has previously limited the useful of this expansion technique. Thus, practitioners can find a methodology
here to quickly assess Value at Risk without suffering loss of relevancy due to any
non-normality in their actual return distribution. The originality of this paper lies
in our particular combination

The German Open-End Fund Crisis – A Valuation Problem?
Christian Weistroffer · Steffen Sebastian
Published online: 19 December 2014

Abstract

Using a unique dataset of appraised values and transaction prices, this
paper investigates whether systematic over-appraisals could have been at the heart
of the 2005/2006 German open-end fund crisis. Because sold properties are valued
more closely to market values than unsold properties, we develop a hedonic pricing
model that controls for sample selectivity. The resulting estimates of prices achievable
in the market are then compared to appraised values. Our results show that the
properties held by open-end real estate funds were likely to have been overvalued
prior to the crisis. This supports the view that a fundamentally justified run was at the
heart of the 2005/2006 crisis, and it challenges the effectiveness of current valuation
practices.

Performance Chasing, Fund Flows and Fund Size
in Real Estate Mutual Funds
Wen-Hsiu Chou & William G. Hardin III
Published online: 8 October 2013

Abstract

Real estate mutual funds have grown dramatically in number, size, scope and
assets under management over the last 15 years, but little assessment is evident. The
present study addresses this limitation. Better prior period performance is associated with
greater shares of fund inflows for a period. Returns, however, are negatively associated
with increased fund flows and fund size. Investors chase past performance limiting fund
managers’ ability to optimize investments. Under normal market conditions, but
departing fromtypicalmutual fund performance, real estatemutual fund returns generally
exceed relevant benchmarks on a before expenses basis and match benchmark returns
after expenses. The ability to meet and exceed benchmark returns, however, does not
hold during the financial crisis period. Overall, more established funds are hown to have
higher returns while fund turnover is not a determinant of returns.

COMMERCIAL PROPERTY PRICE INDEXES
AND THE SYSTEM OF NATIONAL ACCOUNTS
W. Erwin Diewert
University of British Columbia and UNSW
Kevin J. Fox*
UNSW
Chihiro Shimizu National University of Singapore

Abstract.

This paper studies the problems associated with the construction of price indexes for commercial properties that could be used in the System of National Accounts (SNA). Property price indexes are required for the stocks of commercial properties in the Balance Sheets of the country. Related service price indexes for the land and structure input components of a commercial property are required in the Production Accounts of the country if the Multifactor Productivity of the Commercial Property Industry is calculated as part of the SNA. The paper reviews existing methods for constructing an overall Commercial Property Price Index (CPPI) and concludes that mostmethods are biased (due to their neglect of depreciation) and more importantly, not able to provide separate
land and structure subindexes. A class of hedonic regression models that is not subject to these problems is discussed.