Real Estate Feasibility Ch 22 end of chapter

It is difficult obtaining data to measure real estate investment performance because properties do not sell frequently like stocks and bonds. Also, when properties do sell, the sale price is generally not publicly available. This makes it difficult to compare the investment performance with stocks and bonds.

The NCREIF index measures the investment performance of real estate by using appraised values (rather than actual sale prices) for properties held by institutional investors that are members of the National Council of Real Estate Investment Fiduciaries (NCREIF). Because REITs are publicly traded, actual transactions prices are available for these stocks. Because REITs are operating companies, however, their value reflects both the performance of properties held by the REIT, as well as, the ability of the REIT’s management to operate the company successfully

The arithmetic mean adds the returns that occur over time and divides the sum by the total number of returns. The geometric mean is calculated by add one to each return and taking the product of the returns that occur over time. The geometric mean is the nth root of this product. The geometric mean is considered more appropriate in measuring the mean (i.e., average) of rates of return that occur over time.

The standard deviation (square root of the variance) of returns is typically used as a measure of risk.

Correlation is calculated by dividing the covariance of two returns by the product of the standard deviation of the two returns. Both measure the degree to which returns move together over time. The advantage of the correlation coefficient is that it always ranges from -1 to +1 which makes it easier to compare for different investment alternatives.

Investor should consider investing globally because by doing so it can diversify portfolio risk and hence will be able to achieve higher return for the same level of risk or same return with lower level of risk.

Some of the risks associated with global investing are: government instability in host country, political issues, different rules and regulations, and change in exchange rates.