Predicting uncertainty: the impact of risk measurement on value of real estate portfolios

Szumilo, Nikodem and Gantenbein, Pascal and Gleißner, Werner and Wiegelmann, Thomas. (2016) Predicting uncertainty: the impact of risk measurement on value of real estate portfolios. Journal of Property Research, 33 (1). pp. 1-17.

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Official URL: http://edoc.unibas.ch/53129/

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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.
Faculties and Departments:06 Faculty of Business and Economics > Departement Wirtschaftswissenschaften > Professuren Wirtschaftswissenschaften > Finanzmanagement (Gantenbein)
UniBasel Contributors:Gantenbein, Pascal
Item Type:Article, refereed
Article Subtype:Research Article
Note:Publication type according to Uni Basel Research Database: Journal article
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Last Modified:08 Jun 2017 08:30
Deposited On:08 Jun 2017 08:30

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