Project and Portfolio Management Decisions: A Framework and Body of Knowledge Model for Cycle Research

Article excerpt

Executive Summary. Investors and portfolio managers have recognized the critical importance of real estate cycles, their pervasive and dynamic impacts on investment returns and risks, and their strategic implications for project and portfolio decisions. Despite the extensive global interest in cycles that has developed over the past ten years, there is not a common body of knowledge that is recognized, nor is there a common terminology, theoretical framework and methodology for cycle research by academic and industry researchers. The purpose of this study is to provide a perspective on real estate cycles research; present a user-friendly research framework and classification model for this evolving literature, based on a grounded theory survey of cycle experts; classify existing real estate cycles literature according to this framework and model; provide a reference bibliography on cycles; and provide commentary on the gaps of knowledge on cycles, a proposed research agenda for the future, and a means of accessing better real estate cycle information and data throughout the world.

This article is the winner of the Best Research Paper manuscript prize (sponsored by the American Real Estate Society Foundation) presented at the 2002 American Real Estate Society Annual Meeting.

Introduction

Real estate cycles have a significant impact on the financial success and failures of real estate investments because of their pervasive and dynamic impacts on real estate returns and risks. Because of this recognition, as well as a growing industry focus on real estate as a distinct asset class that deserves increased portfolio allocations, investors and portfolio managers are placing increased importance on the identification, analysis, and decision-making implications of real estate cycles. In one study of 685 real estate plan sponsors, conducted by Ziering and Worzala (1997), the results show that approximately 40% of the sponsors rated "Real Estate Cycles and Their Predictability" as the most important research topic that should be studied, and 80% rated it among the top three.

The widespread and intense interest in the subject of market and property cycles that has developed among real estate academics and industry researchers and decision makers in recent years is evidenced by the rapidly expanding academic body of knowledge (BOK) on the subject, as well as the inclusion of cycle references, analysis, and discussions in a wide variety of industry publications and trade organization conferences. Specifically, the depth and diversity of this growing but fragmented BOK on real estate cycles is evidenced by the number of articles appearing in the real estate literature, as well as paper and panel sessions at annual meetings of organizations such as the American Real Estate Society (ARES), the International Real Estate Society (IRES), the European Real Estate Society (ERES), the Pacific Rim Real Estate Society (PRRES), the Asian Real Estate Society (AsRES), and the American Real Estate and Urban Economics Association (AREUEA). The Appendix illustrates a representative cross section of this BOK.

The inspiration for developing the framework and BOK model presented here evolved from the completion of the Special Issue of the Journal of Real Estate Research (JRER) devoted to Real Estate Cycles, a three-year project that was published by the American Real Estate Society (Volume 18, Number 1, 1999, ed. by Mueller, Pyhrr and Born) and sponsored by PricewaterhouseCoopers and SynerMark Investments (now Kennedy Wilson). This issue is considered a milestone in the development of theoretical and applied research on real estate cycles and contains nine articles, five written by U. S. authors, and four written by authors outside the U. S.-two articles from the United Kingdom, one from Sweden and one from Australia. Its contents illustrate that research definitely responds to the concerns of the real estate investment community, formally addressing the issues on the causes, volatility, and predictability of real estate cycles. …