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Understanding Private Capital’s Exposure to Carbon-Intensive Sectors
Apr 7, 2022 Rumi Mahmood , Abdulla Zaid Learn MoreUnderstanding private capital’s exposure to the energy, materials and utilities sectors, and their related industries, across asset classes, may be critical in supporting more-informed risk management and engagement decisions.
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As 2021 real estate index returns roll in, we’ve seen a broad-based acceleration of returns across nearly all countries and property types. But what can looking beyond the aggregate index returns tell us about the difference between the winners and losers?
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Five Misconceptions About Climate-Change Risk in Real Estate
Feb 25, 2022 Bryan Reid , Jascha Lehmann Learn MoreReal estate portfolios may be particularly vulnerable to the threat of climate-change risks. While investors are increasing their focus on the topic and considerable progress has been made in recent years, some misconceptions remain.
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Private-asset investors are waking up to the urgency of the climate crisis, while dealing with other long-term disruptive trends that accelerated during the pandemic. We may see a substantial reallocation of capital as investors respond to these challenges.
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Real estate is an illiquid asset class. But liquidity can also vary considerably between different assets, markets and time periods. Have differences in liquidity within real estate had an impact on investment returns?
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Beginning to Understand the Performance of Social Properties
Nov 22, 2021 Bert Teuben Learn MoreThe precise measurement of social impact is in its early stages. But some property sectors like affordable housing have obvious links to social themes, and investment in these “social properties” has increased significantly over the last 10 years.
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Could Factors Help Explain Asset-Level Real Estate Performance?
Oct 19, 2021 Bryan Reid , Fritz LouwReal Estate Investing , Factor Investing
Learn MoreFor real estate investors, property type and geography segmentations are the primary lens through which they measure and manage their portfolios. Testing five potential real estate style factors, however, were we able to better explain asset-level variation.
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COVID-19 has weighed heavily on the financial positions of companies that hold leases for commercial real estate. Property investors can track the covenant quality of their tenants and translate it into a probability of default over the length of the lease.
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Real estate investors have increasingly sought pan-regional funds to diversify globally. But such funds’ exposures can be significantly different from the market at large. What’s an appropriate benchmark for these diversified fund investments?
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Assessing Private Infrastructure in a Multi-Asset-Class Portfolio
Aug 4, 2021 Michael Hayes , Yang LiuReal Estate Investing , Risk Management
Learn MorePrivate infrastructure is a popular element of institutional capital allocations, and increased focus on renewable or carbon-neutral infrastructure may mean significant new investment opportunities. What role could it play in a multi-asset-class portfolio?
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COVID-19’s Uneven Impact on Office Vacancy
Jul 26, 2021 Niel HarmseReal Estate Investing , Global Investing
Learn MoreWhat was the precise impact of the COVID-19 crisis on office properties? While the overall vacancy rate at the end of 2020 was lower than the previous cycle’s peak, the percentage of fully leased office buildings reached an all-time low.
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Translating Climate Goals into Action in Real Estate Portfolios
Jun 28, 2021 Will Robson , Niel Harmse Learn MoreMany investors have made bold commitments to transition their real estate portfolios to net-zero carbon emissions and are now developing and implementing plans to achieve this goal. But what could this transition look like in practice for property portfolios?
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Real Estate’s Climate-Transition Risk: The Path to Net-Zero
May 25, 2021 Will RobsonReal Estate Investing , Risk Management , Global Investing
Learn MoreThe 2015 Paris Agreement seeks to keep the rise in global temperature to well below 2 degrees Celsius above pre-industrial levels, and many governments are aiming for 1.5°C through nationally determined contributions. What are the implications for real estate markets?
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COVID-19 disrupted real estate across countries and property segments. The biggest initial impacts were felt in retail, leisure and hotels. But more recently, the performance of listed offices has lagged.
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Open- vs. Closed-End Real Estate Funds: How the Choice Mattered
Mar 30, 2021 Luis O’Shea , Bryan Reid , Bert Teuben Learn MoreThe aggregate performance of closed- and open-end real estate funds in the U.S. was strikingly similar in recent years, despite large differences in their strategy and roles in portfolios. But did some investors gain an edge through fund selection?
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How Inflation Could Affect Multi-Asset-Class Portfolios
Mar 3, 2021 Thomas Verbraken , Daniel SzaboReal Estate Investing , Fixed Income , Global Investing , Integrated Risk Management
Learn MoreMarket participants are hotly debating whether U.S. monetary and fiscal policy may cause inflation. We consider four scenarios — reflation, disinflation, an overheated economy and stagflation — and their potential impact on multi-asset-class portfolios.
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Currency-Risk Hedging in Real Estate Benchmarks
Feb 22, 2021 Bert Teuben , Lionel Ebener , Chirag GosarReal Estate Investing , Risk Management , Global Investing
Learn MoreGlobal real estate investors can expose themselves to currency risk. Using a hedged index, they may better align their benchmark and investment approach and ensure currency risk is accurately treated in allocation modeling and performance attribution.
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COVID-19 has caused a severe and rapid economic contraction and accelerated secular changes already hitting parts of the real estate markets. Investors face a fundamental question: How will real estate evolve as a sector and asset class? Here are our 2021 real estate trends to watch.
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With new COVID-19 lockdowns and swaths of white-collar workers working from home, many office tenants are contemplating whether the future of work includes office space. This could have significant impact on office demand and income from leases.
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Was Infrastructure Solid During COVID-19?
Oct 27, 2020 Will Robson , Niel HarmseReal Estate Investing , Risk Management
Learn MoreInfrastructure investments have not been spared the effects of the pandemic. A closer look across investment types, subsectors and risk levels over time may provide useful perspective as private-capital firms and their investors manage through.
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Property investors turned to global gateway cities to diversify portfolios and generate capital growth in the years since the 2008 global financial crisis. We assess whether COVID-19 could jeopardize the relative dominance of these power cities.
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Missed Rents’ Impact on Real Estate
Sep 11, 2020 Bryan Reid , Niel HarmseReal Estate Investing , Fixed Income
Learn MoreSome commercial tenants have stopped paying rent amid COVID-19. Without rental income, property funds are not able to pay distributions to shareholders and borrowers cannot service their debt. We analyzed property-fund data to assess the impact on investors.
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Measuring Climate Risk in Real Estate Portfolios
Jul 8, 2020 Bryan ReidESG Research , Real Estate Investing
Learn MoreBy evaluating real estate portfolios in terms of different physical risks as well as under different transition-risk scenarios, investors may be able to build a more complete picture of their exposure.
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COVID-19 and Real Estate: The Devil Is in the Dispersion
Jun 23, 2020 Fritz Louw , Niel HarmseReal Estate Investing , Risk Management
Learn MoreMany real estate markets were showing signs of a slowdown even before COVID-19’s negative impact on property portfolios. Has this correction been similar to previous ones? We looked at dispersion of returns, within and across real estate sectors, for the answer.
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Real Estate Asset Selection Mattered — Especially in a Crisis
May 14, 2020 Bryan Reid Learn MoreAs real estate strategies become more complex and market disruption continues, attribution analysis may prove a valuable tool. We looked at asset selection’s role in driving portfolios’ relative returns during relatively calm and disruptive periods.
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How COVID-19 could impact private real estate values
Apr 20, 2020 Bryan Reid , Yang Liu Learn MoreReal estate has not historically been immune to growth shocks, but the impact of COVID-19 has been harder to establish than it has for public equities. Discounted-cash-flow scenarios may help investors understand the potential sensitivity of their portfolios.
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What out-of-cycle write-downs may mean for real estate yields
Apr 3, 2020 Bryan Reid Learn MoreAs real estate investors seek to understand how the COVID-19 crisis could affect their portfolios, several large Australian pension funds recently wrote down their property portfolios by up to 10%. What could a 10% write-down imply for yields?
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Real estate is about more than location during uncertain times
Mar 18, 2020 Niel Harmse Learn MoreWith real estate now occupying a greater slice of multi-asset-class portfolios, factors such as lease length, may be more systematic drivers of return than previously thought.
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In real estate investing, capital growth has historically been responsible for most of the observed volatility in total returns. Could breaking capital growth into its components help tell a more detailed story of property portfolios’ performance?
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From managing climate risk to advances in analytics, 2020 may be a watershed year for real estate. Read our top five emerging trends likely to be front of mind for global real estate investors in 2020 and beyond
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Digging deeper into pan-European property funds’ performance
Nov 26, 2019 Will Robson Learn MoreProperty investors who invest across a broad region, like Europe, can use a peer-group benchmark to gauge relative performance. But to determine the specific drivers of returns, detailed asset-level performance attribution can help shed light.
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The opacity of real estate markets and the wide spectrum of potential outcomes makes it hard to understand performance. Running a historical “what if” analysis may help institutional investors understand how different choices could have impacted outcomes.
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What’s the downside in real estate?
Oct 4, 2019 Bryan ReidReal Estate Investing , Global Investing
Learn MoreReal estate has always been marked by periods of expansion and sometimes painful corrections. But all cycles are not alike.
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Underwater assets? Real estate exposure to flood risk
Sep 17, 2019 Gillian Mollod , Will RobsonESG Research , Real Estate Investing
Learn MoreReal estate investors are buying and leasing assets that might be jeopardized by a climate-changed world. A new analysis can help investors identify high-risk U.K. locations.
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Real estate may be yielding less than you thought
Sep 12, 2019 Bryan ReidGlobal Investing , Real Estate Investing
Learn MoreIncome has long been an important part of real estate returns meaning yields are often heavily scrutinized by investors. However, headline yields do not factor in capital expenditure requirements which can vary significantly. Investors looking to better understand potential “free cash flow” positions of portfolios post-capex may want to adjust the yields they use to account for it.
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The changing face of real estate portfolios
Aug 14, 2019 Bryan ReidGlobal Investing , Real Estate Investing
Learn MoreOffice and retail investments’ historic dominance of commercial real estate portfolios is decreasing, with other property types — including logistics centers, student housing, and data centers — increasing. This evolution highlights how technology and the search for yield have led investors to diversify and seek exposure to other property types.
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Media commentary has fixated on the shuttering of shops, while retail-focused REITs are priced at substantial discounts to the value of their assets. Have appraisers of retail real estate been excessively bullish?
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Asian retail resilience: Have store hours affected performance?
Jul 9, 2019 Bryan ReidReal Estate Investing , Global Investing
Learn MoreIndustrial real estate has outperformed retail assets in recent years, but the trend has been less pronounced in Asia, where store hours, among other reasons, might have led to more resilient retail performance.
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Fed policy, the credit cycle and real estate
May 28, 2019 Yihai Yu , David ZhangRisk Management , Real Estate Investing , Fixed Income
Learn MoreAmid the uncertainty over Federal Reserve policy, investors in commercial real estate (CRE) are confronting asset-allocation challenges and growing concerns about CRE valuation and debt levels, after an extended period of easy credit.
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The Right Tool: How Suitable is Your Real Estate Benchmark?
Apr 11, 2019 Amit NihalaniReal Estate Investing , Global Investing
Learn MoreYou don’t have to be a master craftsman to appreciate the benefits of using the right tool for the job. Even the most casual do-it-yourselfer has experienced the frustration of using the wrong screwdriver for a particular job — one that doesn’t quite fit the screw properly and shreds the head, leaving it uselessly stuck in the wood without fixing anything.
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Don’t confuse capital growth and asset-value growth
Mar 21, 2019 Niel HarmseEconomic Exposure , Real Estate Investing , Global Investing
Learn MoreMeasuring real estate growth is not a simple exercise; we run through it highlighting some common confusions
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Brexit, Black Wednesday and Real Estate's Currency Risk
Feb 25, 2019 Niel HarmseReal Estate Investing , Global Investing
Learn MoreWhen investors buy overseas real estate, they inevitably take on foreign-exchange exposure. The resulting currency-market dislocations resulted in near-term losses for some investors, but also created attractive opportunities for investors to buy real estate exposure in the U.K.
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How mortgage fees affect rates and spreads
Feb 7, 2019 Yihai YuModels/Client Cases , Real Estate Investing , Fixed Income
Learn MoreHow could potential changes in U.S. mortgage policy and possible long-term industry trends affect mortgage-related fees and rate spreads?
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2019 Emerging Real Estate Trends
Feb 5, 2019 Will RobsonESG Research , Real Estate Investing , Global Investing
Learn MoreFor real estate investors, 2019 may be a year of adjusting to rapid changes arising from a variety of sources, including environmental, social and governance-related (ESG) risks; geopolitical uncertainty; and disruptive technology.
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Measuring real estate capital growth isn’t rocket science, is it?
Jan 28, 2019 Bryan Reid Learn MoreIn September 1999, NASA’s Mars Climate Orbiter was lost, at a reported cost of USD 125 million, due to a mix-up in measurements.
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Apples vs. Oranges? Core vs. Opportunistic Real Estate Funds
Oct 25, 2018 Amit NihalaniReal Estate Investing , Risk Management , Global Investing
Learn MoreReal estate investors sometimes treat core and opportunistic funds as if they were different asset classes. They are measured against different benchmarks and comparisons are limited by a lack of consistent data. But a comparison of the two shows that both core and opportunistic funds have similar return profiles — it’s the magnitude of their returns that has varied over time.
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Global Real Estate: To Hedge, or Not to Hedge
Sep 12, 2018 Will Robson , Bryan ReidReal Estate Investing , Risk Management , Global Investing
Learn MoreWhile not quite as profound as the Shakespearean original, it is still quite a tricky one for real estate investors to grapple with. Until fairly recently, it is one that has been avoided by the majority of real estate investors due to their heavy home bias. But the increasing global nature of the asset class, combined with rising currency volatility, means the question is becoming increasingly difficult to avoid.
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Due to the private nature of real estate, investors are often faced with making decisions based on broad market-level information or data relating to a rarified class of hypothetical, top-quality, perfectly located, “prime” benchmark properties, which, much like Peter Pan, never age.
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A decade after the global financial crisis, the era of ultra-low interest rates may be drawing to a close. Many real estate investors worry that rising rates could hurt their portfolios. However, our analysis suggests it’s the macroeconomic fundamentals driving interest rates, not the rise itself, that are most important.
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How e-commerce is reshaping the future of retail properties
Mar 13, 2018 Amit Nihalani Learn MoreAlthough e-commerce has disrupted industries once considered staples in retail properties, certain retail assets are thriving. Simply put, some goods and services cannot be purchased over the internet: Working out at a fitness center or dining at a restaurant cannot be replicated by online transactions. And while some companies sell groceries online, most food shopping still takes place in stores. Our findings show that experience-oriented tenants, such as movie theaters and restaurants, and internet-resistant retailers, such as supermarkets, dominated the top-performing retail assets in 2017.
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Since the Global Financial Crisis, real estate investors have turned to Global Gateway Cities as a key way to diversify portfolios and to generate capital growth. The conventional wisdom asserts these large, well connected and economically dynamic cities should provide more liquidity and more stable cash flows than those available from secondary markets. But have these cities, which include London, New York and Tokyo, offered the superior and safer investments to justify their premium pricing?
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Retailer bankruptcies, department store struggles and empty malls have dominated recent headlines. The apparent culprit? A massive movement toward online shopping, driven by retail giants such as Amazon and Walmart.
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When developing investment strategies, institutional investors in private real estate tend to rely on market-level performance data. But many real estate investors know that every asset is different and even two seemingly identical assets in the same area can produce very different returns. How can they better understand the true risk underlying their exposures when developing their strategies?
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Have Big-Ticket Properties Performed Better Than Lower-Value Properties?
Aug 15, 2017 Bryan Reid Learn MoreIt is sometimes assumed that larger real estate assets perform differently to smaller assets thanks to reduced accessibility and competition at the top end of the market. Using MSCI’s global private real estate dataset, we find evidence to support the assertion that the size of an asset does have an impact on its performance.
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Are Low Yields a Risk for your Private Real Estate Portfolio?
Jun 8, 2017 Bryan Reid Learn MoreIn a global environment of sluggish growth and low interest rates, yields on private real estate are under sustained pressure. Yields have been compressing since 2010 and are now lower than before 2007.
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Listed and Private Real Estate: Putting the Pieces Back Together
Apr 19, 2017 Bert Teuben Learn MoreA property owned by a listed real estate company, such as a Real Estate Investment Trust (REIT) or a real estate management and development company, should produce returns close to those of an equivalent asset that is privately owned. In reality, however, the results differ, especially when looking at short-term performance. The challenge for real estate investors is to be able to use both listed and direct real estate in their real estate allocations and understand the performance drivers for each. Specifically, how do equity market factors, financial structures and individual properties contribute to performance?
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Amid recent worldwide political, economic and market uncertainty, how can you increase resilience of your real estate portfolio? The answer to this question boils down to prudent use of three simple portfolio construction strategies: Asset selection, sector allocation and global diversification.
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The real story in the growth of global real estate lies below the surface
Jul 28, 2016 Sebastien Lieblich Learn MoreThe global market for professionally managed real estate investments grew marginally last year, reaching $7.1 trillion in 2015, up 2.8% from a year earlier, according to the latest annual survey by MSCI of the largest markets for real estate investment in 32 countries.
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Private real estate and other real assets have become a major component of many institutional investors’ portfolios in recent years, but risk management has lagged. A wide range of proxies and assumptions have stood in place of a solid risk management framework, with perhaps the most common risk model being … nothing.
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Global Real Estate: The Conundrum of High Prices and Wide Yields Spreads
Jul 15, 2015 Peter Hobbs Learn MoreHistorically, the majority of global real estate returns have come from income, which has made up more than 80% of the total return over the past decade. In 2014, however, growth in asset values represented 43% of the total return — more than double its long-term average contribution.
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Professionally Managed Global Real Estate Hits $7 Trillion in 2014
Jun 30, 2015 Mark Clacy-Jones Learn MoreThe professionally managed global real estate market size grew marginally to $7.0 trillion by year-end 2014 from $6.8 trillion at year-end 2013, according to MSCI. Currency movements reduced the global real estate market by approximately 7%.
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The Dimensions of Income Risks in your Global Real Estate Portfolio
Jun 25, 2015 Mark Clacy-Jones Learn MoreIncome is the principal foundation of real estate investment returns. For most markets, particularly over the longer term, the vast majority of the real estate return comes through income rather than capital appreciation. The income generating nature of real estate has become even more relevant in an era of ultra-low interest rates, and in the context of the search for yield.
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Many institutional investors have been favoring private real estate over bonds, drawn by its steady income stream and higher yields. While the short-term income may be bond-like, the long-run behavior of the asset class is much more cyclical and growth-sensitive.
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As an asset class, real estate typically has a high degree of home bias, especially when compared to equities and fixed income. However, this home bias is starting to erode, with asset owners in most countries already investing internationally or actively exploring options for building off-shore exposures.
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Global property has delivered another stellar year of performance of 9.9%, the fifth consecutive year of strong returns since the financial crisis, and the best performance since 2007. A series of countries performed particularly well over the past year, most notably Ireland with a record return of 40%, but also the U.K. (17.9%) and U.S. (11.5%).
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The classic 60:40 mix of stocks and bonds has shifted to a 40:40:20 mix of stocks, bonds and alternatives, according to the 2014 MSCI Asset Owner survey.