Revisiting the Impact of Large Assets on Real Estate Portfolio Returns

Abstract

In this article, Esrig, Hudgins, and Cerreta investigate if large properties have outperformed the institutional property market over time. This topic is relevant for real estate investors and portfolio managers considering property size as a way to differentiate portfolio performance. The body of academic literature on large asset performance is inconclusive due to issues in applied methodologies and definitions. This study uses a new methodology that corrects for property type, stale appraisals, and restricts “large” to the relatively selective and well-defined group that would strike a knowledgeable institutional investor as truly large. The authors also look at performance of large assets across major and non-major markets. Key findings are that large assets, as most reasonably defined, have historically outperformed other properties in the NCREIF database on an absolute and a risk-adjusted basis. This finding applies to all three sectors the authors tested: office, multifamily, and retail. Property size remains an important factor after correcting for large asset overrepresentation in six major markets.