After-tax returns, 45 Aggregate bias, 100 "Agricultural Land Values and Markets:

Outlook and Situation Report," 131

Allen, Robert, 39 American Appraisal Association Index, 62 American Stock Exchange (AMEX), 9,

145-147, 155 Appraisal bias, 71-72, 117 Appraisals, use of, 71 Arbitrage, 65, 69, 78 Arbitrage pricing model (APT), 66,

74-75 AREUEA Journal, 25 Arithmetic-mean-return bias, 86 Asset returns, unbundling of, 2

Behavioral factors, overriding economic considerations, 2

Betas, portfolio (regression coefficient), 12, 14, 90-91, 181

real estate firm, 150-153

INDEX

Board of Trustees, REITs decisions, 8 Boeckh construction cost indexes, 62 Bren, Donald, 42 Building Owners and Managers

Association, 43 Bundling, definition, 84 Business/commercial real estate, 84-86

California Public Employees' Retirement System, 42

Capital asset pricing model (CAPM), 2, 59,65-66

Capital market theory, 59, 65, 99 Capital market theory on real estate

investment performance, 37 Cap rates, 63, 71 "Carve-out", 7 Cash flow concentration level (CFCL),

101, 102, 103-104, 110 correlation with PPI, 110 portfolio performance index, correlation

analysis, 108 Catellus, 42

191

192

Center for Research in Security Prices (CRSP) from the University of Chicago, 145

Clientele effects, 69, 72, 78 Closed-end investment companies, 63 "Close to customer" management

principle, 43 Coefficient for inflation, 153-154 Coefficient of variation (CV), 12, 16, 17n Combined fund index, 29 Combined Index Value (CJV). See CRSP

New York and American Combined Index .value: With Dividends (CIV)

Commingled real estate funds (CREFs), 19-33, 40, 63

benefits of diversifying, 29-30 benefits of diversifying within the

pooled fund portfolio, 25 closed-end, 29 data, 1 fees charged by fund managers, 31 fund investment return, 30 fund-specific data and studies, 28-31 historical returns on real estate, 20-22 inflation risk, 77 level of cash balances, 31 open-end, 29 potential for bias in transactions-based

returns on CREF properties, 28 property indexes and property-specific

studies, 22-28 returns based on appraised values, 64 return studies, categories of, 20 size of the CREF as factor, 31

Common stock, 86-96 Complete hedge against inflation, 132 Composite Index, Standard & Poor's, 63 Compuserve's MicroQuote database, 9,

10-11 Construction cost indices, 62 Consumer price index (CPI), 10, 12, 15,

16 annual percentage change: 1919-1988,

133 average annual compound rate of

change, S&P 500 prices and land values: 1919-1988, 135

average of annual percentage changes,

INDEX

S&P 500 prices and land values: 1919-1988, 134

average percent change, S&P 500 prices and land values during periods of significant inflation: 1919-1988, 136-137, 139

compared to real estate firm returns, 153

correlation coefficients for annual percent changes, S&P 500 prices and land values: 1919-1988, 140

hedging effectiveness of farmland, 131-132

Consumption theory, 67 Corporate bonds, 86-96 Correlation coefficients, 15, 16 CRSP New York and American Combined

Index Value: With Dividends (CIV), 117, 112-120, 121, 123, 126n

efficient real return expectations, 121, 123

periodic returns summary and correlation with PRISA, 119-122

Cultural factors, 46

Deficient valuation paradigms, 65-68 Department of Housing and Urban

Development, study on multifamily housing, 40

Depreciation impact, 164 Desirability index (Dl), 91 "Difference of means" test, 109 Diversification index (01), 104, 105, 107

calculation of, 103 true, 110 verification of, 109

Diversification of real estate portfolio by sources of return, 99-110

hypothesis test, 103 methodology, 101-103 research hypothesis, 100-101

Dividends for portfolio, 12 Divisibility, 78 Divisibility costs, 68 Dummy variable technique, 180-183, 185 Durbin-Watson D statistic, 117

INDEX

East, as profitable region, 23, 24, 31, 32 Efficient frontier, 24, 63, 104, 109, 110,

122 Efficient real property liquidity premiums,

113-119 data compilation and analysis of real vs.

nominal returns, 117-119 distribution of potentially efficient

portfolios adjusted for liquidity premium effect, 124

distribution of potentially efficient portfolios unadjusted for liquidity premium effect, 124

expected real returns and mean liquidity premium, 121

liquidity premium, existence of, 119-122

relationship between real property equity investments and financial assets, 115-117

review of prior research, 114 sample distribution of potentially

efficient portfolio composition adjusted for liquidity premium effect, 123

sample distribution of potentially efficient portfolio composition unadjusted for liquidity premium effect, 123

Empire State Building, 42 Employment Retirement and Income

Security Act of 1974, 45 Environmental compliance standards, 44 Equilibrium price of residential real

estate, 74 Equity real estate, 21-22 Equity REIT (EREIT) index, 64 Evaluation Associates, Inc. (EAI), 28 Event parameter approach, 177-185,

186n Event study technique, 177 "Excess return to beta" ratio, 91 Expected return on an equity investment

in real property, 115 Expected return/risk (E-V) framework,

110

Farmland as an inflation hedge, 61, 84-96, 129-141

193

development of the model and data sources, 131-132

inflation hedging ability of, 2 literature review, 130-131 negative relationship with financial

assets, 130 positive correlation with CPI, 130

"Farm Real Estate Market Developments" (USDA), 131

Federal Housing Administration, fining of employees, 44

Federal Housing Authority, Section 608 properties, 60-61

Federal Reserve Bank, 44 Federal Reserve Bulletin, 125n Fee appraisers, 40 Financial'ehgineering, 41, 55 Finite Life REITs (FREITs), 5, 6

correlation coefficient of real estate securities returns with the market index, 15

institutional characteristics, 6, 8-9, 10-11

liquidation provisions, 9 low correlations with the market, 6 returns, 12-14

Finnegan's Financial Green Sheet Rate-oj­Return (Green), 84, 85, 86, 87, 88-89,92

FlREEA legislation, 44 First National Bank of Chicago, 85 500 Stock Index (S&P 500), Standard and

Poor's, 10-16, 133, 135 hedging effectiveness of farmland

studied, 131 FMMA,44 Frank Russell Company, 19, 22, 125n Friedman study, 62, 71 F-test 110

General partnership, 17n management of MLPs, 8

Government bonds, 84-96 Gross lease contract, 176n

194

Handbook of Common Stock (Moody's), 145

Haroldsen, Mark, 38-39 Hedge demand hypothesis, 77 Hedonic pricing model (HPM), 66, 67, 68,

71,75 Hedonic pricing theory; 68 High-rated, long-term corporate bonds,

84-91 Hoag model for real estate, 66, 67, 68, 71

appraisal bias and, 72 Holding period returns, 65 Holding-return bias, 86 Home purchase price component, 76 How I Turned $1000 Into One Million

Dollars in Real Estate in My Spare Time, 38-39

Ibbotson and Associates (I&S), 86, 88-89 Ibbotson and Siegel (I&S), 87, 91, 92, 94 Ibbotson, Siegel, and Love, 91 Illiquidity, 2, 20, 22, 70-72

market segmentation and, 72-73 Illiquidity tax, 73 Inadequate theory, 65-68 Independent expertise, 49 Individual investors

attributes and attitudes, 46-49 beyond passive versus active strategies,

52-55 information access and economics,

48-49 legal aspects of investor status, 44-46 property scale, 43 property size and securitization, 40-43 scale implications, 35-38 securitization, 54 strategies, 38-40

Indivisibility, 2 Inflation, 2

defined as significant, 131 real estate as a hedge, 26 risk,76-78

Infomercials, 39 Information costs, 68, 70-72, 78 Initial investment return, 159 In Search of Excellence, 44 Institute of Real Estate Management, 43

INDEX

Institutional investors, 35-55 attributes and attitudes, 46-49 avoidance of equity positions in single

family home properties, 73-74 beyond passive versus active strategies,

52-55 information access and economics,

48-49 legal aspects of investor status, 43-45 motives, 53 property scale, 43 property size and securitization, 40-43 regulation, 45 scale implications, 35 - 38 securitization, 37-38, 40 strategies, 38-40

Insurance companies, 39-40 diversification, 97 outside advisors involved, 40 short-term, 15, 16

Inter-investment correlations, 87-91 Internal rate of return (IRR), 61, 65, 71,

101 partitioning by components of return,

105-108 partitioning of real estate investment

cash flows, 157-175 Internal Revenue Code, 17n

1960 amendment to, 8 Internal Revenue Service, 45 Investing institution, description of, 36 Investment grade, 41, 42 Investment Survey (Valueline's), 145 Irvine Company, 42

Jensen index test, 150 fournal of Finance, 177 fournal of Financial Economics, 177 fournal of Financial Research, 25

k-factor linear model, 66

Large capitalization common stocks (S&P 500),84-91

Lease terms, degree of influence, 25, 27 Least-squares normal equations, 179-180

INDEX

Leverage, 60, 61, 62 taxes and, 70-71

Liquidity, master limited partnerships primary benefit, 7

Liquidity differential, 116 Liquidity premium confidence intervals,

126n Liquidity premium effect, 119-122, 123 Loan amortization, 159, 168-169

impact on internal rate of return, 163-164

Loan-to-value ratio, 165 Long-term high-rated corporate bonds,

86-96 Long-term investments, 49 Long-term U.S. government bonds,

84-96 Lowery, Albert, 38-39 Lowry Real Estate Fund Indexes, 29

Marketability costs, 68 Market index, 6, 11-12, 15, 70, 82,

90-91, 148 construction of, 91 relationship of assets to, 92-94

Market model equation, 12 Market risk, 68 Market segmentation, 2, 72-76 Markowitz diversification (true), 105, 109 Markowitz efficient portfolio, 115 Markowitz (1952) mean/variance portfolio

formulation, 84 Markowitz model, 100 Markowitz's study, quantifying risk and

return, 99-100 Master Limited Partnerships (MLPs), 1, 5

categories, 7 correlation coefficient of real estate

securities' returns with the market index, 15

guaranteed minimum returns offered to some investors, 11

institutional characteristics, 6, 7-8, 10-11

low correlations with the market, 6 returns, 12-14 returns outperforming the market

index, 16

"roll-in", 7-8 "roll-out", 7 "roll-up", 7

195

Mean-variance efficiency, 66, 113-114 Mean-variance inefficiencies, 122 Measurement of real estate returns,

143-144 Merton capital asset pricing model

(CAPM),76 Midwest, as profitable region, 23, 24 Miles and Esty study, 30-31 "Minimum variance" real estate portfolio,

100 Mixed-asset frontier, 63 Mixed-asset portfolios, 62, 73

unbundling asset returns effect, 83-96 Modern Real Estate Investment: An

Institutional Approach, 39 "Mom-and-popization of real estate", 48 Monte Carlo technique, 101 Monthly return of portfolio, 12 Monthly return on the S&P 500 Index in

period t, 12 Mortgage correspondents, 40 Multifund portfolios, 29

NASDAQ, 9 National Association of Real Estate

Investment Trusts (NAREIT) listings, 9

National Association of Securities Dealers, 44

National Council of Real Estate Fiduciaries (NCREIF), 19,22, 125n

NCREIFlFRC Index, 23, 24 NCREIFI FRC Property Index, 22-24 NCREIF/ FRC Property Index database,

19 National Real Estate Index, Standard &

Poor's, 23 "Net" price appreciation, 159 New equilibrium theory (NET), 68 New York Stock Exchange (NYSE), 9,

145-148, 154 Nickerson, William, 38-39 Non-investment grade, 41, 42 Nonmarket risks, 70 Null hypothesis, 107, 108, 119

196

Omitted asset phenomenon, 68-70 One-period internal rate of return (IRR)

model, 160-161 One-period model (Sharpe), 114

Paired t-tests, 12-13 Partial hedge against inflation, 132 Partitioning real estate investment cash

flows using the internal rate of return, 157-175

advantages, 167 expected return, 167 impact of partitioned components on

returns, 162-166 multiple component example, 169-174 one- and two-period models, 159-162 previous work on partitioning returns,

158-159 ranking return sources by risk levels,

167-168 sources and uses of the internal rate of

return, 166-167 sources of real estate returns, 157 -158 variance of the real estate returns,

167-168, 169 Pension funds, 39

diversification, 99 regulation of, 45

Pension World magazine, 29 Percentage, 101 Pooled fund's portfolio, 29-31 Portfolio error term, 12 Portfolio intercept, 12 Portfolio performance index (PPI), 102,

103-104,110 correlation with CFCL, 110 regression analysis of, 105, 107, 108

Portfolio program ("REALPORT"; GSU), 101-102

Portfolio risk, calculation of, 96 Positive return bias, 79n Premier assets, 42 Price of portfolio, 12 Pricing assets, risk characteristics, 68 Pro forma ineome statements for real

estate investments, 159-160 Property location subindex, 23 Property tax subindices, 23

INDEX

Prudential, 64 Prudential Property Investment Separate

Account (PRISA), 64, 117-118, 123, 125n

periodic returns summary and correlation with combined index value (CIV), 120-122

PRISA I-CREF, 23 Public limited partnerships, 40

Quadratic programming decision process of modern portfolio theory, 62

Qualifying, 17n

Random event hypothesis, 77 Rates-of-return, 32

farmland as an inflation hedge, 132, 135, 138

farmland during periods of significant inflation, 136-138

Real estate firm common stock returns, measures of, 143-154

comparison of returns to inflation, 153-154

real estate firm returns: 1977-1986, 148-154

real estate related firms: nominal returns 1977-1986, 146

research design, 145-148 research hypothesis, 144-145 statistical comparison of eompany

exeess return equally weighted index adjusted, 149

Real estate investment performance, 59-79

inadequate theory and deficient valuation paradigms, 65-69

inflation risk, 76-78 market imperfections, 70-72 market segmentation, 72-76 omitted real estate asset markets,

68-70 relative to other assets, 60-68

Real estate investment trusts (REITs), 1, 2,5,6,63

correlation coefficient of real estate securities' returns with the market

INDEX

index, 15 diversification, 99 institutional characteristics, 6, 8-9,

10-11 low correlations with the market, 6 measures of real estate firm common

stock returns, 144, 145, 154 outside advisors involved, 40 relationship between real property

equity investments and financial assets, 116

returns, 12-14 stock market performance, 144

Real Estate Limited Partnerships (RELPs), not publicly traded, 5-6

Real Estate Profiles, "Diversified Edition" of, 28

Real estate related firms, covariance with the stock market, 144

Real estate risk factors, 2 Real estate securities, characteristics, 6 Real Estate Simulation program

("GSUWMS3"), 101 Real interest rate risk, 68 Real estate investment trusts, 40 Real rate of return on equity real estate,

21-22 Rectangular approximation method, 101 Reed, John T., 38, 39, 49 Regression coefficient. See Betas,

portfolio Resale component, 74 Residential real estate, 84-96 Return of portfolio (Rp')' 11-12 Reward-to-systematic risk, 147 Risk adjustments, 20 Risk aversion, 69, 113 Risk-aversion factor, 69 Risk from a lack of diversification, 68 Risk-return equilibrium potential, 125n Rockefeller Center, 42 Roulac, Stephen E., 39, 41 Russell Company, Frank, 19, 22, 1250 Russell! NCREIF Index, 33n Russell-NCREIF Property Index, 116,

125n

Salomon Brothers. 64

Santa Fe Realty. 42 SAS code, 181 SAS MACRO option, 181 Search and transaction costs, 68 Second-period discount factor, 162 Second period discount rate, 163,

164-165, 166

197

Securities and Exchange Commission, 45 Securitization, 37-38, 40-43, 54, 55

market segmentation, 75 Security market line, 119 Sharpe indices, 147-148, 150, 151 Sharpe-Lintner-Mossin capital asset

pricing model (CAPM), 69 Sharpe's index model, 100 Sharpe's portfolio performance index,

101, 105 Sharpe's security market line (1964), 119 Short-sellihg, restrictions on, 90 Single index market model (SIMM), 178 Single index model, 63, 91, 100 Small Business Administration, 44 Small capitalization common stock, 84-92 Small stock, 86-96 Smoothing, 77 Source code for example event study,

188-189 South, as profitable region, 23, 24, 32 "Spin-off", 7 The Stranger Register, 9 Statistical inference in event studies using

multiple regression, 177 -185 Stock Guide (Standard and Poor's), 145 Stock market crash of 1987, 11, 12, 14, 15 Stock Market Encyclopedia (Standard and

Poor's), 145 Submarkets, housing, 75 Superior real estate returns, reasons for,

65 Systematic risk, 13-14, 16, 25, 62, 64, 66

downward bias, 72 in total portfolio risk, 110

Systematic risk factor, 119-120

Taxes, 68, 70-72 leverage and, 70-71

Tax Reform Act of 1986, 11, 16, 17n, 159, 164, 176n

198

Tax Reform Act of 1987, 7 Tax shelters, 45, 60, 70-71, 159, 164

benefits, 41 pro forma items, 160

Thin trading, 2, 71, 72, 78 bias, 72

Time horizon, 48-49 Time value of money, 159, 164 Top down approach, 54 Total portfolio risk, 110 Total risk, 61 Traditional inflation hedge, 132 Transaction costs, 70-72, 78 Treasury bills (T -bills)

bids on T -bills used to derive anticipated inflation, 78, 130

90-day T-bill rate, 10, 15, 16 Treynor indices, 147-148, 150, 151 Treynor ratio, 148 Trust Advisor, for REITs, 8 t-statistic, 17 t-test, 180-181

binomial, 148, 149 Two-period internal rate of return model,

161-162

Unanticipated inflation risk, 68 Unbundling asset returns, effect on mixed­

asset portfolios, 83-96

INDEX

historical returns on investment media: 1960-1986, 87

inter-investment correlation coefficients: 1960-1986, 87, 88-89

literature review, 84-85 optimal portfolio characteristics:

1960-1986, 94 research design, 85-91

USDA annual surveys, farmland appreciation and income data, 85

U.S. Market Wealth Portfolio, 125, 126n U.S. Treasury Notes, 125n Unsystematic risk, in total portfolio risk,

110 Urban Land Institute, 43

Valachi partitioning method, 159 Variation in return (total risk), 13-14

Webb and Sirmans study, 62 Wendt and Wong (1965) study, 60, 61 West, as profitable region, 23, 24, 32 World Market Wealth Portfolio, 125, 126

Zerbst partitioning method, 159 Z test, 181