1 / 9

Private Real Estate Returns and Procyclical Risk Taking by Spencer J. Couts

Discussion by Andri Rabetanety Glion Institute of Higher Education, University of Cergy Pontoise Annual Private Capital Conference 2019 June 28, 2019. Private Real Estate Returns and Procyclical Risk Taking by Spencer J. Couts. Motivation (1/2).

selma
Download Presentation

Private Real Estate Returns and Procyclical Risk Taking by Spencer J. Couts

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Discussion by Andri Rabetanety Glion Institute of Higher Education, University of CergyPontoise Annual Private Capital Conference 2019 June 28, 2019 Private Real Estate Returns and Procyclical Risk Taking by Spencer J. Couts

  2. Motivation (1/2) DiPasquale-Wheaton (1992) - Integrated model of real estate markets • Procyclical nature development exposure

  3. Motivation (2/2) Open Ended Real Estate (OPRE) Fund Closed Ended Real Estate Fund • A stated termination date • Pre-determined subscription period and no redemption options • Variety of real estate assets (stabilized, non stabilized) P • No specific term • Continuous periodic subscriptions and redemptions • Investment in stabilized real estate assets • Relationship between the investor queue and real estate strategy • Effect of the development exposure on OPRE market risk exposure

  4. Main contributions • Procyclical development exposure by OPRE funds • OPRE fund flow pressure reduces the development exposure • Lagged development exposure increases OPRE fund’s market risk exposure (accounting for the effect of leverage) • Relationship between variation of development exposure and both capex ratio and conversion

  5. Methodology • Fund level data • 34 funds from 2004 to 2015 • NCREIF Fund Index – Open End Equity, NCREIF Property Index • Capital flow data • Townsend group • Quarterly reports • Department working directly with OPRE funds • Model

  6. General Comments (1/3) 1) Open-ended funds have low development allocation (7% in average based on papers’ data). Correlation with NCREIF Property Index (NPI). • What is the repartition within the development classification (Conversion, development, expansion, pre-development vs renovation, initial leasing) ? • Analysis within the subset (conversion, development, expansion, pre-development)

  7. General Comments (2/3) 2) NCREIF does not calculate individual fund returns of the NCREIF OE Index. The managers submit their fund returns (as reported to the funds’ investors) to NCREIF • Reporting bias ? 3) Adjust for different liquidity holdings between funds 4) Development activities create values for fund investors. Paper shows that development acquisitions positively drives funds’ net return. • Have the funds build and hold strategies ? Do funds develop properties from the ground up and convert them into stabilized assets ? • Or do those funds have a more opportunistic approach of build and sell strategies ?

  8. General Comments (3/3) 5) Paper argues alternative explanation for time varying development exposure: NPV pricing and reaching for yield. To test the time varying development pricing and reaching for yield assumption, the model accounts for fund and time fixed effects. • Fund/Time fixed effect can be explained by other fund characteristics • Could there be a better proxy for development pricing? To test the reaching for yield assumption, the author verifies that the regression coefficients for capital commitment and development acquisition should be positive. • Table 6 capital commitment and development acquisition are not defined in the regression equations • Is there a separate table ?

  9. THANKYOU

More Related