Real Estate

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MODERN REAL ESTATE PORTFOLIO MANAGEMENT (MREPM)
REAL ESTATE IN A CAPITAL MARKET CONTEXT, PORTFOLIO DIVERSIFICATION AND OPTIMIZATION APPLICATIONS TO WESTERN REGIONAL APARTMENT PORTFOLIOS E (r)

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Prepared by

Lawrence A. Souza, CRE Principal – Real Estate and Financial Economist Johnson/Souza Group Special Research Consultant, BRE Properties, Inc. Doctoral Candidate, Corporate Finance, Golden Gate University 42 Jersey Street San Francisco, CA 94114 Message: (415) 826-5661 Direct: (415) 713-0213 Lsouza@johnsonsouzagroup.com

OUTLINE
I. II. Introduction Risk Management and Institutional Real Estate Securities A. B. 1. 2. 3. 4. 5. 6. C. 1. Institutional Real Estate Capital Markets Tends in Institutional Real Estate Capital Markets Institutional Real Estate Holdings Capital Flows Into Real Estate Emerging Institutional Real Estate Securities Capital Markets Optimal Size for Market Efficiency Institutional Trading of Real Estate Securities Frictionless Portfolio Construction and Diversification Risk Management and Institutional Real Estate Securities Risk Management Strategies: An Integrated Top Down/Bottom Up Approach Vertical Integration a. b. Geographic Diversification Strategy c. Economic Base Diversification Strategy d. Catastrophic Risk Underwriting Property Level Diversification Strategy e. Economic Efficiency and Wealth Maximization

D. III.

Literature Review A. B. Modern Portfolio Theory (MPT) Modern Real Estate Portfolio Theory (MREPT)

IV.

Research Design I: Real Estate In A Capital Markets Context A. B. C. D. E. F. G. Introduction Capital Market Assumptions Methodology Discussion of Results Conclusions and Recommendations Research Criticisms Future Research

2

V.

Research Design II: Portfolio Diversification and Optimization Program A. B. C. D. E. F. G. H. I. J. K. L. M. Introduction Portfolio Diversification Portfolio Optimization Housing Market Variable Determination Multifamily Parameter Production Time Series Analysis Testing the Market Model Methodology Multiple Index Model Multiple Regression Model Results Portfolio Optimization and Determination Model Results Acquisition and Development Portfolio Strategy

VI.

Research Design II: Portfolio Diversification and Optimization Methodology A. B. C. D. E. F. G. H. The Geographic Diversification Model Optimal Weights and Projected Annual Total Returns The Market Selection Model The Models Compared Metro Area Correlation Analysis Preliminary Economic Base Analysis Mitigating Industry Concentrations Integration of Results

VII.

Research Results II: Integrated Delphi Process A. B. C. D. E. Definition of Delphi Process Statement of Purpose Goals and Objectives Activities Survey Worksheet and Results

VIII. Research Evaluation II: Expected Portfolio Performance Outcomes A. The Model Portfolio: Back Testing the Forecast Model 1. 2. 3. 4. Results Objective Methodology and Analysis Variables and Assumptions 3

5. 6.

Summary of Back Test Analysis Example of Metro Rankings over Time

IX.

Research Results II: Portfolio Performance Evaluation A. The Model Portfolio: Back Testing the Forecast Model 1. 2. Introduction Methodology a. External Data b. Internal Data: Asset Management and Research Analysis a. Benchmark Performance Ratios b. Positive Variance Measurement Implementation Results

3.

4. 5. X.

Research Results II: Portfolio Evaluation – Dispositions/Exit Strategy A. Portfolio Asset Sales Decisions: Hold-Sell Analysis 1. 2. Introduction Methodology a. External Data Internal Data: Asset Management and Research b. Analysis c. Benchmark Performance Ratios d. Positive Variance Measurement Implementation

3.

4. XII.

Research Design III: Time Diversification Portfolio Strategies B. Western Metro Area Apartment Cycles and their Trends 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Introduction to Apartment Cycles Apartment Market Characteristics Total Return Comparisons...
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