FEBRUARY 12, 2020

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Measuring risk in a real estate portfolio

by Steve Bergsman

Is there an effective way to measure risk in a real estate portfolio? The traditional methodology for assessing risk across all financial portfolios is a measure of volatility or standard deviation, which is also how to measure risk in real estate as well. The difference is real estate is not frequently traded on an exchange like a stock, explains Ben Maslan, managing director with RCLCO Real Estate Advisors. “You don’t have daily pricing. What you have instead is annual appraisals with quarterly marks. Less frequent pricing in part leads to lower volatility. Real estate tends to have lower standard deviation than global equities.”

That being said, there are no fully effective instruments to hedge real estate portfolio risk, although studious types have tried. Over time, various people have attempted to create an investable index in real estate that benchmarks off an index such as the NCREIF Property Index.

“I have seen that attempted several times without any

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