Publications

- April 1, 2020: Vol. 32, Number 4

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2020 foresight? Assessing risk in real estate requires new perspectives and shifting benchmarks

by David Rees

Risk is a fashion item. Like the music of Bob Dylan or Beethoven, it’s always there but has to be rediscovered by every generation. While a generation has a life cycle of perhaps 30 years, financial market risk tends toward shorter cycles — 10 to 15 years seems to be the norm.

Where do the real estate risks currently lie? The global stock market crash of October 1987, for the first time, assured “risk” a prominent place on the checklist of investors. Three reasons account for this:

First, the 1987 crash (confined to stock markets) came out of the blue. It illustrated how interconnected global markets had become. It was preceded by a long period of above-trend performance. Periods of financial stability seem to be a reliable precursor of market shocks, and the longer the period of stability, the bigger the subsequent shock.

Second, the 1987 crash coincided with emerging availability of desktop-computing power. Financial analysis migrated from the classroo

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