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Predicting uncertainty: the impact of risk measurement on value of real estate portfolios
JournalArticle (Originalarbeit in einer wissenschaftlichen Zeitschrift)
 
ID 3718794
Author(s) Szumilo, Nikodem; Gantenbein, Pascal; Gleißner, Werner; Wiegelmann, Thomas
Author(s) at UniBasel Gantenbein, Pascal
Year 2016
Title Predicting uncertainty: the impact of risk measurement on value of real estate portfolios
Journal Journal of Property Research
Volume 33
Number 1
Pages / Article-Number 1-17
Keywords Property valuation, real estate risk, portfolio management
Abstract

This paper presents a theoretical framework for an assessment and valuation of real estate assets and funds, based on modern stochastic discounted cash flow (DCF) models, which accurately captures the nature of related risks. We show that an accurate risk-adjusted valuation is particularly difficult for real estate investments, due to practical limits to diversification and difficulties in approximating total risk with systematic risk. We develop a risk assessment framework that includes idiosyncratic risk but focuses on insolvency risk related to a specific cash flow profile. We also present a methodology of rating this risk, using forecasts and simulations. We conclude that simulation techniques are a valuable tool in property risk assessment. Further, we show that cost of capital and value of assets depend on diversification of specific risks, investors can achieve in their portfolios.

Publisher Routledge
edoc-URL http://edoc.unibas.ch/53129/
Full Text on edoc No
Digital Object Identifier DOI 10.1080/09599916.2016.1146790
ISI-Number WOS:000412357800001
Document type (ISI) Article
 
   

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