Magazine article Real Estate Issues

Active Private Equity Real Estate Strategy

Magazine article Real Estate Issues

Active Private Equity Real Estate Strategy

Article excerpt

Active Private Equity Real Estate Strategy

by David J. Lynn, Ph.D. ([C]2009, John Wiley & Sons, Inc., 286 pages)

THIS BOOK "IS A COLLECTION of abridged market analyses, forecasts, and strategy papers from ING Clarion's Research & Investment Strategy (RIS) group ... It is not meant to be a comprehensive approach to strategy formulation for the real estate industry, but instead illustrates a cross section of private equity strategies across the various property types." (1)

Active Private Equity Real Estate Strategy effectively achieves what it intends, providing readers with an inside look at the kinds of issues, investment factors and other considerations that go into private equity real estate decision-making at one of the world's largest real estate investment management organizations. Books on private equity real estate investment are rare, and even rarer is a book that spends less time defining terms and more time discussing the nuance and process of making private equity decisions. In this case, unlike in making sausage, the process is enjoyable to learn about.

While most of the chapters focus on describing the key investment drivers and risks for particular property sectors, and will be quite useful for those readers who want to understand how institutional property investors think about real estate, it is in chapters 11 and 12 where the book lives up to its name. Chapter 11, "Active Portfolio Management using Modern Portfolio Theory," introduces "Hypothetical Fund Forecasts" utilizing sector, region and metropolitan area forecasts. Key issues in benchmarking, balancing and rebalancing portfolios and scenario analysis to test the impact of rebalancing are discussed. While the treatment of these issues is not extensive, it is difficult to find books that address them at all.

Chapter 12 on derivatives is quite good. While derivatives are seen as somewhat of a "dirty" word today, this chapter demystifies some important private equity-based derivatives that can have important applications to active portfolio management through hedging, asset allocation and rebalancing, and speculation. The chapter discusses the key risks of derivatives--liquidity, basis risk, counter-party risk and interest rate risk, and provides some detailed applications of derivatives as a form of portfolio insurance and to rebalance a fund.

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The book's initial chapters start with an overview of the key markets and trends that form the basis of more sophisticated investment strategy and active portfolio management techniques, which are discussed in the second half of the book. While the initial chapters on the real estate market and forecasting are straightforward and may be useful for those with limited background in these issues, the chapter on recession simulation is interesting and of course, quite important in today's market environment. …

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