Chair: Gerry Blundell

Speaker: Richard Gold, Northfield Information Services

Panelists: Sotiris Tsolacos, PPR, Gianluca Marcato, University of Reading, Charlie Foster, RBS, Alex Moss

While private equity real estate is a known diversifier, the true extent to which it increases a portfolio’s risk adjusted return is difficult to quantify.  In addition to being notoriously smooth, published real estate returns also suffer from return persistence caused by appraisal bias.  Moreover, real estate is clearly a local asset, and published index returns provide little insight into the impact of ownership of specific properties on a broad investment portfolio.  Richard Gold has developed a model that spans the divide between real estate assessment methods and those used in securities markets to overcome these problems. Rick uses financial market data external to real estate to forecast the possible range of inputs to the valuation process across time, and thereby derives a direct assessment of risk. The method disaggregates a portfolio into buildings, and buildings into their constituent sources of risk including the cash flow from tenants, tenant credit risk, lease rollover and renewal rates, rent volatility, and the property’s financing structure. 

Richard introduced the model, its applications, and some of its findings. This was followed by a panel discussion.