Background
You are an investment consultant retained to advise a midsize
university
endowment fund about commercial real estate investment. You are to prepare a
report which addresses several questions on real estate investment (listed in the
next section) raised by the universityâs investment committee.
Research questions
At its most recent meeting the Investment Committee of XYZ University has decided
to investigate allocating a portion of the universityâs endowment to commercial real
estate. The committee has no previous experience of investment in this area and
requires further information before committing investment funds to this sector. In
particular, they wish to have your advice on the following questions:
(1) What are the main property types in the commercial real estate market
usually considered by institutional investors?
(2) If this fund wishes to allocate $200400m
to this sector, is this sufficient
to build a diversified portfolio of commercial buildings?
(3) Advise the fund on the main advantages and disadvantages of investing in
REITs as opposed to buying commercial real estate buildings directly.
(4) The endowment fund is already heavily invested in US equities, provide
evidence on the average return, variance and correlations of direct real
estate with REITs, equities (S&P500, Russell 2000) and bonds (data
provided).
(5) Provide your assessment of the outlook for the commercial real estate
market relative to the other classes.
Data
This project is designed to provide experience using data on the performance of the
commercial real estate market. A selection of quarterly returns data is provided in
the file project_data.xls to assist with the project.
Submission
The word limit is 2000 words. Please submit the project electronically through the
