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Article

REIT-Based Property Return Indices: A New Way to Track and Trade Commercial Real Estate

Holly Horrigan, Brad Case, David Geltner and Henry Pollakowski
The Journal of Portfolio Management Special Real Estate Issue 2009, 35 (5) 80-91; DOI: https://doi.org/10.3905/JPM.2009.35.5.080
Holly Horrigan
is a research associate at the MIT Center for Real Estate in Cambridge, MA.
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  • For correspondence: hthorr@mit.edu
Brad Case
is vice president of research and industry information at the National Association of Real Estate Investment Trusts in Washington, DC.
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  • For correspondence: bcase@nareit.com
David Geltner
is the Macomber professor of real estate finance at the MIT Center for Real Estate in Cambridge, MA.
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  • For correspondence: dgeltner@mit.edu
Henry Pollakowski
is a principal research associate at the MIT Center for Real Estate in Cambridge, MA.
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  • For correspondence: pollak@mit.edu
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Abstract

Using REIT return data, bond data, and property holding data, the authors construct property market segment-specific indices of asset returns. The authors show that these pure-play indices can be employed to make pure, targeted investments in the commercial real estate market while retaining the liquidity, transparency, and pricing efficiency benefits of the well-developed public market in REITs. These pure-play indices compare favorably with existing property market return indices, displaying volatilities similar to transaction-based indices, such as the Moody’s/REAL Commercial Property Price Index, but tending to lead the private market in time. The pure-play indices can be generated at a daily frequency without significant noise and at various levels of market segment granularity and, notably, have led the transactions-based direct property market indices during the recent market downturn. The authors’ findings suggest that the REIT-based pure-play indices may provide a unique, new information source about the commercial property market, as well as a unique capability to facilitate targeted investments, construct hedges, and potentially support derivatives trading.

  • © 2009 Institutional Investor, Inc.
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The Journal of Portfolio Management: 35 (5)
The Journal of Portfolio Management
Vol. 35, Issue 5
Special Real Estate Issue 2009
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REIT-Based Property Return Indices: A New Way to Track and Trade Commercial Real Estate
Holly Horrigan, Brad Case, David Geltner, Henry Pollakowski
The Journal of Portfolio Management Sep 2009, 35 (5) 80-91; DOI: 10.3905/JPM.2009.35.5.080

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REIT-Based Property Return Indices: A New Way to Track and Trade Commercial Real Estate
Holly Horrigan, Brad Case, David Geltner, Henry Pollakowski
The Journal of Portfolio Management Sep 2009, 35 (5) 80-91; DOI: 10.3905/JPM.2009.35.5.080
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  • Article
    • Abstract
    • BACKGROUND
    • THE MECHANICS: HOW PURE-PLAY PORTFOLIOS WORK
    • DATA
    • RESULTS
    • EXPERIMENTING WITH MODEL GRANULARITY
    • DAILY FREQUENCY PROPERTY SECTOR INDICES
    • THE ROLE OF PURE-PLAYS IN PORTFOLIO INVESTMENT STRATEGY
    • CONCLUSIONS
    • APPENDIX
    • ENDNOTES
    • REFERENCES
  • Info & Metrics
  • PDF (Subscribers Only)
  • PDF (Subscribers Only)

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