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Model Insight - The Barra Private Real Estate Model (PRE2) Research Notes - May 2014

Global private real estate represents significant opportunities for investors, but also major challenges, similar to global equity 30 years ago. A lack of information, and the smoothness of appraisal-based valuations, have left investors and risk managers guessing about the behavior of global real estate: a wide-range of speculation is commonplace, including the view that real estate is a low-risk, high-return diversifier. In this Model Insight, we shed light on this misunderstood asset class.  With new data from IPD and a new Bayesian desmoothing methodology, the Barra Private Real Estate Model (PRE2) allows investors to make informed asset allocation and risk management decisions.