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Considerations in the Design and Construction of Investment Real Estate Research Indices

Author

Listed:
  • David Geltner

    (George Macomber Professor of Real Estate Finance, Department of Urban Studies & Planning, Massachusetts Institute of Technology, Cambridge, MA 02139)

  • David C. Ling

    (William D. Hussey Professor of Real Estate, Department of Finance & Real Estate, Warrington College of Business Administration, University of Florida, Gainesville, FL 32611-7160)

Abstract

Since the founding of NCREIF almost three decades ago statistical methodologies useful for investment performance index construction have advanced dramatically, notably including developments such as the repeated-measures regression (RMR) and related noise-filtering techniques. In recent years, electronic databases of commercial property prices have been developed that far exceed the quality and coverage of those databases available only a few years ago. Together, these two developments offer capabilities for transactions-based indices, mass appraisal, and other tools that could be very useful for improving real estate research indices. This paper focuses on the technical considerations associated with the design and construction of commercial real estate return indices for asset class research. In particular, we discuss in detail property sampling issues, differences between transaction price and appraisal based indices, the trade-off between random measurement error and temporal lag bias, optimal reporting and property revaluation frequencies, and the uses and limitations of some econometric methods of index construction developed over the past decade in the real estate academic literature.

Suggested Citation

  • David Geltner & David C. Ling, 2006. "Considerations in the Design and Construction of Investment Real Estate Research Indices," Journal of Real Estate Research, American Real Estate Society, vol. 28(4), pages 411-444.
    • Handle: RePEc:jre:issued:v:28:n:4:2006:p:411-444
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    References listed on IDEAS

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    1. Jeff Fisher & David Geltner & Henry Pollakowski, 2007. "A Quarterly Transactions-based Index of Institutional Real Estate Investment Performance and Movements in Supply and Demand," The Journal of Real Estate Finance and Economics, Springer, vol. 34(1), pages 5-33, January.
    2. Jeffrey Fisher & Dean Gatzlaff & David Geltner & Donald Haurin, 2003. "Controlling for the Impact of Variable Liquidity in Commercial Real Estate Price Indices," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 31(2), pages 269-303, June.
    3. Richard Barkham & David Geltner, 1995. "Price Discovery in American and British Property Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 23(1), pages 21-44, March.
    4. Neil Crosby & Anthony Lavers & John Murdoch, 1998. "Property valuation variation and the 'margin of error' in the UK," Journal of Property Research, Taylor & Francis Journals, vol. 15(4), pages 305-330, January.
    5. Yuming Fu, 2003. "Estimating the Lagging Error in Real Estate Price Indices," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 31(1), pages 75-98, March.
    6. Fisher, Jeffrey D & Geltner, David M & Webb, R Brian, 1994. "Value Indices of Commercial Real Estate: A Comparison of Index Construction Methods," The Journal of Real Estate Finance and Economics, Springer, vol. 9(2), pages 137-164, September.
    7. Julian Diaz & Marvin L. Wolverton, 1998. "A Longitudinal Examination of the Appraisal Smoothing Hypothesis," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 26(2), pages 349-358, June.
    8. Russell Chaplin, 1997. "Unsmoothing valuation-based indices using multiple regimes," Journal of Property Research, Taylor & Francis Journals, vol. 14(3), pages 189-210, January.
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    Citations

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    Cited by:

    1. Lawrence Fisher & Daniel G. Weaver & Gwendolyn Webb, 2012. "Removing Biases in Computed Returns: An Analysis of Bias in Equally-Weighted Return Indexes of REITs," International Real Estate Review, Global Social Science Institute, vol. 15(1), pages 43-71.
    2. David Geltner & Peiling Wei & David C. Ling, 2007. "Indices for Investment Benchmarking and Return Performance Analysis in Private Real Estate," International Real Estate Review, Global Social Science Institute, vol. 10(1), pages 93-118.
    3. Jaroslav Kaizr, 2019. "Some reflections on commercial real estate indices [Vybrané úvahy nad indexy komerčních nemovitostí]," Oceňování, Prague University of Economics and Business, vol. 12(1), pages 29-41.
    4. Willem P Sijp & Anastasios Panagiotelis, 2024. "Estimating granular house price distributions in the Australian market using Gaussian mixtures," Papers 2404.05178, arXiv.org.
    5. Jeff Fisher & David Geltner & Henry Pollakowski, 2007. "A Quarterly Transactions-based Index of Institutional Real Estate Investment Performance and Movements in Supply and Demand," The Journal of Real Estate Finance and Economics, Springer, vol. 34(1), pages 5-33, January.
    6. António Miguel Martins & Ana Paula Serra, 2012. "Real Estate Market Risk in Bank Stock Returns: Evidence for 15 European Countries," CEF.UP Working Papers 1203, Universidade do Porto, Faculdade de Economia do Porto.
    7. Robert J. Hill & Alicia N. Rambaldi & Michael Scholz, 2021. "Higher frequency hedonic property price indices: a state-space approach," Empirical Economics, Springer, vol. 61(1), pages 417-441, July.
    8. Shi, Song & Young, Martin & Hargreaves, Bob, 2009. "Issues in measuring a monthly house price index in New Zealand," Journal of Housing Economics, Elsevier, vol. 18(4), pages 336-350, December.
    9. Füss, Roland & Ruf, Daniel, 2021. "Bank systemic risk exposure and office market interconnectedness," Journal of Banking & Finance, Elsevier, vol. 133(C).
    10. Marc K. Francke & Alex Minne, 2017. "The Hierarchical Repeat Sales Model for Granular Commercial Real Estate and Residential Price Indices," The Journal of Real Estate Finance and Economics, Springer, vol. 55(4), pages 511-532, November.
    11. Song Shi & Martin Young & Bob Hargreaves, 2010. "House Price-Volume Dynamics: Evidence from 12 Cities in New Zealand," Journal of Real Estate Research, American Real Estate Society, vol. 32(1), pages 75-100.
    12. Sheharyar Bokhari & David Geltner, 2012. "Estimating Real Estate Price Movements for High Frequency Tradable Indexes in a Scarce Data Environment," The Journal of Real Estate Finance and Economics, Springer, vol. 45(2), pages 522-543, August.
    13. Deng, Yongheng & McMillen, Daniel P. & Sing, Tien Foo, 2014. "Matching indices for thinly-traded commercial real estate in Singapore," Regional Science and Urban Economics, Elsevier, vol. 47(C), pages 86-98.

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    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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