Exploiting Property Characteristics In Commercial Real Estate Portfolio Allocation

摘要

A commercial property is characterized by more than simply the fact that it is an office building or an industrial warehouse located in the U.S. Northeast or the U.S. South. Yet heretofore commercial real estate portfolio analytics have relied primarily on property type and property location when allocating investment across commercial properties. Since other property characteristics, for example, property cap rates, are related to the moments of property returns, we apply the parametric portfolio allocation approach of Brandt, Santa-Clara, and Valkanov [2009] to efficiently incorporate this property-specific information into commercial real estate portfolio management. Not surprisingly, taking such information into account significantly improves the risk-adjusted performance of commercial real estate portfolios relative to property portfolios that are well diversified across property types and property locations.