Alternative Total Return Series for Direct Real Estate Investment

Executive Summary. With the recognition of real estate as a distinct asset class, there is an increasing need to understand the alternative performance measures of return available to assist in real estate decisions. This study reviews the literature and several of the available return series used in industry and supports in spirit much of the findings of previous studies that a number of problems can be identified in real estate return series and index measures. However, to achieve the perspective of real estate as an asset class and develop techniques for performance measurement in that context, the approach of simply criticizing existing data and suggesting limited hope for developing appropriate measures is not a viable option. Although future techniques are expected and can be developed, there is a need to more fully utilize existing data, because long-term observations are necessary to understand cyclical performance, the nature of various relationships and to delineate equilibrium potentials. The position of this investigation is that one option is to view return series as artifacts that allow comparative analysis of real asset performance in distinct time periods. Within this context several traditional tools can be employed to abstract implicit information from existing, albeit divergent, databases to form comparable and explicit performance measures that can then be viewed in a comparative analytical context.