Publications

- February 1, 2023: Vol. 17, Number 2

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Risk analysis: Is real estate investing really more risky today?

by Geoffrey Dohrmann

I've been seeing several pundits lately suggesting that real estate investing has become more risky today.

What is true is that all investments, other than sovereign issuances such as Treasuries, are risky.

Risk, of course, has been defined as the fact that more things can happen than will happen. That includes good things (things you want to happen) and bad things (things you don't want to happen).

Again, it's helpful to turn to the NFI-ODCE index, as a proxy or measure of return potential, risk (defined here as variability of the mean or average return the asset class has produced over time), and the asset class' risk-adjusted rate of return.

If you do the math, what you'll see is a very attractive risk-adjusted return profile. If your measure is the Sharpe ratio, which looks at the risk premium a specific asset class has produced over the risk-free (10-year Treasury) rate, divided by the standard deviation of those returns. In other

words, the p

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