Winter 2000/2001, Vol 25, No 4

Abstract: Real estate is more heterogeneous in nature compared to other asset classes; there are substantial differences in the risk/return characteristics even among the same property types. Consider the fact that real estate is still a relatively local business, dependent on local employment trends (albeit potentially a national tenant). Relationships to tenants are key, and assets are tied to contract leases that can vary significantly among properties, even those office buildings across the street from one another. As the real estate market moves from a comfortable equilibrium to a riskier future outlook for supply and demand balances, investors need to embark upon a rigorous review of the performance characteristics of each property held in its portfolio. This manuscript is written from a property level or tactical basis to identify performance measures that can assist an investor in culling out the potentially weaker performing assets from the solidly positioned properties. Obviously, the authors recognize that there are secular and broad market trends that affect all properties, but a risk assessment of each property within a portfolio will enable an investor to potentially outperform market indices. After all, that is where investment professionals add value.