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Is Value-Added and Opportunisitc Real Estate Investing Beneficial? If So, Why?

Author

Listed:
  • James D. Shilling

    (DePaul University)

  • Charles H. Wurtzebach

    (DePaul University)

Abstract

There has been a great deal of interest in the question of whether value-added and oppor- tunistic real estate investing has resulted in appropriate risk-adjusted returns. However, a satisfactory answer to this question has not been agreed upon. In this paper, data from the National Council of Real Estate Investment Fiduciaries (NCREIF) property database are examined to bring new evidence to bear on the subject. Using these data, ex post returns are calculated for all sold properties. Then groups are formed based on these returns. A series of discriminant functions are then estimated to relate mem- bership in these groups over time to value-added and opportunistic indicator variables (i.e., risk exposures) and market conditions. Results demonstrate that while value-added and opportunistic private equity real estate investments have higher returns than core investments, their superior returns are driven primarily by market conditions and the use of cheap debt rather than by risk exposure.

Suggested Citation

  • James D. Shilling & Charles H. Wurtzebach, 2012. "Is Value-Added and Opportunisitc Real Estate Investing Beneficial? If So, Why?," Journal of Real Estate Research, American Real Estate Society, vol. 34(4), pages 429-462.
    • Handle: RePEc:jre:issued:v:34:n:4:2012:p:429-462
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    Citations

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    Cited by:

    1. Desiree Fields, 2017. "Unwilling Subjects of Financialization," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 41(4), pages 588-603, July.
    2. Avis Devine & Andrew Sanderford & Chongyu Wang, 2024. "Sustainability and Private Equity Real Estate Returns," The Journal of Real Estate Finance and Economics, Springer, vol. 68(2), pages 161-187, February.
    3. Peter Chinloy & William Hardin & Zhonghua Wu, 2013. "Transaction Frequency and Commercial Property," The Journal of Real Estate Finance and Economics, Springer, vol. 47(4), pages 640-658, November.
    4. Ben Ameur, Hachmi & Le Fur, Eric, 2020. "Volatility transmission to the fine wine market," Economic Modelling, Elsevier, vol. 85(C), pages 307-316.
    5. Martin Hoesli & Graeme Newell & Muhammad Jufri Bin Marzuki & Rose Neng Lai, 2022. "The Performance and Diversification Potential of Non-Listed Value-Add Real Estate Funds in Japan," JRFM, MDPI, vol. 15(5), pages 1-16, April.
    6. Graeme Newell, 2021. "Future research opportunities for Asian real estate," International Journal of Urban Sciences, Taylor & Francis Journals, vol. 25(2), pages 272-290, April.
    7. Jianhua Gang & Liang Peng & Thomas G. Thibodeau, 2020. "Risk and Returns of Income Producing Properties: Core versus Noncore," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 48(2), pages 476-503, June.
    8. Florian Manz & Birgit Müller & Dirk Schiereck, 2020. "The pricing of European non-performing real estate loan portfolios: evidence on stock market evaluation of complex asset sales," Journal of Business Economics, Springer, vol. 90(7), pages 1087-1120, August.

    More about this item

    JEL classification:

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

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