Essay about Real Estate

MODERN REAL ESTATE PORTFOLIO MANAGEMENT (MREPM) REAL ESTATE IN A CAPITAL MARKET CONTEXT, PORTFOLIO DIVERSIFICATION AND OPTIMIZATION APPLICATIONS TO WESTERN REGIONAL APARTMENT PORTFOLIOS E (r) • • • • • • • • • • • •• • • • • • • • • • • • • • • M ? Prepared by Lawrence A. Souza, CRE Principal – Real Estate and Financial Economist Johnson/Souza Group Special Research Consultant, BRE Properties, Inc. Doctoral Candidate, Corporate Finance, Golden Gate University 42 Jersey Street San Francisco, CA 94114 Message: (415) 826-5661 Direct: (415) 713-0213 [email protected] com OUTLINE I. II.
Introduction Risk Management and Institutional Real Estate Securities A. B. 1. 2. 3. 4. 5. 6. C. 1. Institutional Real Estate Capital Markets Tends in Institutional Real Estate Capital Markets Institutional Real Estate Holdings Capital Flows Into Real Estate Emerging Institutional Real Estate Securities Capital Markets Optimal Size for Market Efficiency Institutional Trading of Real Estate Securities Frictionless Portfolio Construction and Diversification Risk Management and Institutional Real Estate Securities Risk Management Strategies: An Integrated Top Down/Bottom Up Approach Vertical Integration a. . Geographic Diversification Strategy c. Economic Base Diversification Strategy d. Catastrophic Risk Underwriting Property Level Diversification Strategy e. Economic Efficiency and Wealth Maximization D. III. Literature Review A. B. Modern Portfolio Theory (MPT) Modern Real Estate Portfolio Theory (MREPT) IV. Research Design I: Real Estate In A Capital Markets Context A. B. C. D. E. F. G. Introduction Capital Market Assumptions Methodology Discussion of Results Conclusions and Recommendations Research Criticisms Future Research 2 V.
Research Design II: Portfolio Diversification and Optimization Program A. B. C. D. E. F. G. H. I. J. K. L. M. Introduction Portfolio Diversification Portfolio Optimization Housing Market Variable Determination Multifamily Parameter Production Time Series Analysis Testing the Market Model Methodology Multiple Index Model Multiple Regression Model Results Portfolio Optimization and Determination Model Results Acquisition and Development Portfolio Strategy VI. Research Design II: Portfolio Diversification and Optimization Methodology A. B. C. D. E. F. G. H.
The Geographic Diversification Model Optimal Weights and Projected Annual Total Returns The Market Selection Model The Models Compared Metro Area Correlation Analysis Preliminary Economic Base Analysis Mitigating Industry Concentrations Integration of Results VII. Research Results II: Integrated Delphi Process A. B. C. D. E. Definition of Delphi Process Statement of Purpose Goals and Objectives Activities Survey Worksheet and Results VIII. Research Evaluation II: Expected Portfolio Performance Outcomes A. The Model Portfolio: Back Testing the Forecast Model 1. 2. 3. 4.
Results Objective Methodology and Analysis Variables and Assumptions 3 5. 6. Summary of Back Test Analysis Example of Metro Rankings over Time IX. Research Results II: Portfolio Performance Evaluation A. The Model Portfolio: Back Testing the Forecast Model 1. 2. Introduction Methodology a. External Data b. Internal Data: Asset Management and Research Analysis a. Benchmark Performance Ratios b. Positive Variance Measurement Implementation Results 3. 4. 5. X. Research Results II: Portfolio Evaluation – Dispositions/Exit Strategy A. Portfolio Asset Sales Decisions: Hold-Sell Analysis 1. 2. Introduction Methodology a.
External Data Internal Data: Asset Management and Research b. Analysis c. Benchmark Performance Ratios d. Positive Variance Measurement Implementation 3. 4. XII. Research Design III: Time Diversification Portfolio Strategies B. Western Metro Area Apartment Cycles and their Trends 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Introduction to Apartment Cycles Apartment Market Characteristics Total Return Comparisons Risk Comparisons Vacancy Rate Comparisons Effective Rent Comparisons Cycle Comparisons Methodology Assumptions and Limitations Statement of Research Questions Description of Population and Sample Data 12. 13. ANOVA/MANOVA Analysis and Results Concluding Remarks XIII. Contribution to Discipline XIV. References 5 MODERN REAL ESTATE PORTFOLIO MANAGEMENT: APPLICATIONS TO WESTERN REGIONAL APARTMENT PORTFOLIOS Introduction This report is a three part real estate portfolio research series that include: 1) Apartments in a Capital Markets Context, 2) Portfolio Diversification: Geographic and Economic Base Analysis, and 3) Modern Portfolio Theory: Arriving at Optimal Portfolio Weights. Portfolio benchmarking, exit strategies and time diversification strategies are also discussed.
This real estate capital markets research study is intended to: • • • Educate real estate portfolio managers and institutional investors with capital market theory and its application to real estate portfolios. Identify those portfolios (individual assets and real estate markets) that have exhibited high risk-adjusted rates of return in the capital markets over time. Examine historical relationships between portfolio risk and return and recommend portfolios based on high historical risk-adjusted rates of return, and those portfolios that appear to have reached their cyclical bottom and are poised for value increases.
The goal of this research project is to identify the optimal portfolio weights by geographic region for an institutional (REIT) existing and future apartment portfolio. The REIT’s current strategy is to acquire and develop in 14 metropolitan areas with in the western region: Albuquerque, Denver, Riverside-San Bernardino, Las Vegas, Los Angeles-Ventura, Orange County, Phoenix, Portland, Sacramento, Salt Lake City, San Diego, San Francisco Bay Area, Seattle, and Tucson. The mission of this project is to identify the optimal portfolio mix based on economic, demographic, and apartment market indicators.
Real Estate in a Capital Markets Context The first section of this report analyzes the risk-adjusted returns of competitive financial and real estate capital market assets (portfolios) and ranks them is descending order from highest to lowest. It is assumed that all capital market assets compete in the market for the finite loanable funds (savings) from surplus spending units (savers-investors) in the economy. The majority of investors is risk-averse and desires the highest return at the lowest risk.
If capital markets are assumed to be efficient, the majority of capital flows from savers and investors to those assets that have provided the highest risk-adjusted rate of return over time. Depending on the investors yield requirement, investors may also invest in assets with the highest (expected) return or invest in assets that will compensate them for taking on any additional risk. Speculators and contrarian or risk-seeking investors may invest in assets with very low returns or very high risk in anticipation of the possibility of achieving abnormal returns in the future. 6
This section of the study tries to prove, through objective research, that risk-averse (institutional) investors are better off investing in apartments, the West, and apartments in the West in the future. This study also looks at historical risk-adjusted returns for REITs and tries to prove that risk-averse investors are better off investing in Western apartment REITs in the future. Portfolio Diversification and Optimization Portfolio Diversification The first phase of the portfolio optimization project is to measure the correlation between economic variables and apartment returns within the 14 target markets.
The goal of these tests is to determine the degree to which economic or demographic variables help explain movements in apartment returns. Since apartment return data is limited, running these tests on the data that is available allows us to identify economic variables that are statistically significant in their predictability of future apartment returns. By using economic variables produced by government agencies and collected in and on a consistent basis, we can go back as far as the late 1970s, compared to the late 1980s for apartment return data.
The ability to go back to the late 1970s allows us to assemble a large sample data set. Under statistical theory, if the sample size is significantly large, it will approximate a normal (bell curve) distribution. The normality of the data is a prerequisite for using mean-variance analysis or modern (Markowitz) portfolio optimization techniques. Portfolio Optimization The second phase of the portfolio diversification study is to identify optimal portfolio allocations that achieve the highest expected rate of return at the lowest level of risk for the portfolio.
This phase determines the optimal portfolio weighting by geographic area. The goal of this phase is to compare the REIT’s portfolio diversification to a risk-return weighted (“target”) portfolio, then, from the variances, optimal v. s. actual allocations, a recommended acquisition strategy is structured to eliminate, to the extent possible, the risk of excess geographic concentration in the portfolio. Time Diversification The third phase of the portfolio diversification study is to identify stable real estate cycles across metro areas.
Investment in metro areas with long expansion cycles and short contraction periods reduces total portfolio return volatility (risk) and increases risk-adjusted returns (expected return). The determining factor in low long-term risk-adjusted returns is infinite land availability; resulting in inventory supply shocks, and higher probabilities that the metro area will enter hyper-supply (new construction) phases more often. Unconstrained real estate markets are more volatile, resulting in lower long-term total returns, occupancy rates, and effective rent growth.
Supply constrained markets have limited land availability, reducing supply shocks, and allowing the market to recover sooner. Weighting the portfolio with a bias toward supplyconstrained markets reduces portfolio volatility and maximizes risk-adjusted return. 7 RISK MANAGEMENT AND INSTITUTIONAL REAL ESTATE SECURITIES Institutional Real Estate Capital Markets Current trends impacting institutional real estate capital markets are the accumulation of large saving pools, continued securitization of real estate assets and decreasing capital flows into direct real estate investments.
This shift away from direct real estate ownership, managed and operated by real estate pension advisors, to indirect real estate ownership, managed and operated through real estate investment trusts (REITs) and real estate operating companies (REOCs), has caused many of these firms to reorganize and develop sophisticated risk management systems. The goal of these systems is to manage growth and mitigate dividend yield and stock price volatility. Lower volatility and correlations between stocks and bonds provides institutional nvestors with opportunities to reduce overall portfolio risk, warranting additional allocations into REIT/REOC securities. Additional allocations are projected to accelerate the development of the institutional real estate securities market. Real estate investment markets are notorious for their inefficiency, failures and asymmetric information; as a result, the institutional real estate securities market should provide benefits to the economy by allocating real estate capital flows more efficiently.
The efficient allocation and intermediation of real estate investment capital through REITs/REOCs provides deficit spending units with low cost capital and surplus spending units with higher investment returns. Lower social costs and higher public welfare are achieved through the elimination of high transaction and information costs associated with direct real estate investment. Trends in Institutional Real Estate Capital Markets Institutional Real Estate Holdings The importance of real estate as a legitimate asset class for investment and diversification purposes is exemplified by its contribution to total world wealth.
According to Ibbotson Associates, in 1991, of the over $43. 8 trillion in total world wealth, 48% is held in real estate, compared to 27% in bonds and 19% in equities; and of the over $15. 4 trillion in total U. S. wealth, 39% is held in real estate, compared to 23% in bonds and 28% in equities. According to these percentages most individual investors are over weighted and most institutional investors are under weighted in real estate from a global portfolio perspective. Although institutions are under weighted in real estate, they do hold a significant portion of the total U.
S. real estate market. According to Equitable Real Estate, May 1996, institutional investors owned $1. 28 trillion of the $3. 2 trillion total U. S. real estate market. Pension funds account for $114. 4 billion (43%) and REITs account for $56. 1 billion (22%) of the $254. 4 billion 8 in total equity holdings. Pension funds currently own 10. 7% and REITs own 8. 0% of the $1. 2 trillion institutionally owned commercial real estate market. As of June 1996, institutional holdings of direct real estate measured by the NCREIF Property Index totaled $53. billion, over 35% in retail, 32% in office, 15% in apartments and 12% in warehouse properties. Institutional investors–pension funds, life companies and mutual funds-now control well over 50% of the outstanding shares of publicly traded real estate investment trusts. Capital Flows into Real Estate Capital flows into real estate is determined through the diversification benefits received by including it in a multi-asset portfolio, but is mainly due to investor expectations for future financial performance.
Many investors are becoming weary of the stock market’s ability to continue to rise and are feeling that the market might be over bought. If equities are over priced, providing historically low dividend yields compared to other asset classes, then real estate assets are under priced in comparison. This disequilibrium in (arbitrage) pricing between the two capital markets will cause an increasing flow of investment capital into the real estate market, driving down current yields for real estate and drive up dividend yields for stocks.
Capital flows into the real estate market will continue until risk-adjusted returns and arbitrage pricing spreads between the two asset classes are equalized and traded away. Potential capital flows into real estate are enormous. The accumulation of new capital for real estate investments comes mostly from private savings of corporations and individuals. According to a recent ULI article, from 1990 to 1995, corporate net income rose 6. 5% per year from $581 billion to $798 billion, personal saving rose 7. 3% per year from $170 billion to $241 billion, and gross savings (public and private) rose 8. % from $722 billion to $1. 06 trillion. As of the first quarter of 1996 savings equaled investment, real private fixed investment totaled $1. 06 trillion. A significant portion of this savings and investment went into direct real estate investments and real estate related financial instruments. As of the second quarter of 1996, the NCREIF Property Index totaled over $53. 68 billion, up 6. 4% per year from $39. 36 billion in the second quarter of 1991; and from 1990 to 1995, the NAREIT index rose 46. 0% per year from $8. 7 billion to $57. 5 billion.
As of October 1996, REITs raised a record $8. 36 billion in 1996 through 100 secondary offerings. This compares with $7. 32 billion in 93 offerings in 1995 and just $3. 94 billion in 52 secondary offering in 1994. Supply and demand for real estate assets has become more balanced over the past five years and rents in most metro areas support new construction. Although the capital markets are currently aligned with supply and demand fundamentals, industry observers are concerned that public market and institutional investors will over react to improved market conditions, ncreasing the supply of investment capital, and creating capital flow pressures the market can not absorb. 9 The affect of these capital flows could drive down current capitalized yields on real estate assets to the point were new construction is justified to obtain higher yields. As the magnitude of capital flowing into the market increases, the probability of over building runs high. The risk of over building could parallel that seen in the mid-to-late 1980s.
Emerging Institutional Real Estate Securities Capital Markets Institutional investors are drawn to the REIT/REOC markets to create core portfolios, to balance the diversification of a private market portfolio, to co-invest, to arbitrage between public and private markets and to access larger property types and niches unavailable in the private markets. According to AEW Research, the average pension fund allocation targets 50% equities 45% in fixed income and 5% in other investments. Most pension funds admit their target real estate allocations are not fully funded and individuals are under-allocated evidenced by the only $2. billion in REIT -dedicated mutual funds, compared to a total of $1. 3 trillion in all stock mutual funds. An adjustment by institutions and individuals to a 6% allocation of their total investment portfolio would cause institutional investors to increase their investment flows into real estate by $100 billion and individuals by $65 billion, a total of $165 billion; this, along with the ability to take advantage of the up-and -down REIT structures, could push REIT market capitalization well above $200 billion. With financial institutions and infrastructure already in place, the REIT market could quadruple in size over the next five years.
The ability of REITs/REOCs to raise capital in four dimensions (private equity and debt and public equity and debt) gives them a significant competitive advantage over other market participants. As an emerging capital market, the REIT/REOC market has advantages over other markets that have developed in the past: the Southeast Asian equity markets of the early-1990s and the junk bond markets of the early-1980s. The advantages REITs/REOCs have are capitalizing in a financial system with well established monetary policies and controls, financial reporting and disclosure rules, financial ntermediaries and institutions and a developed financial market infrastructure with the latest information processing and telecommunications technologies. This system allows REITs/REOCs to raise capital in the public markets at relatively low costs and allows their issues to trade in liquid and established stock markets at relatively low transaction and trading costs. In comparison, the emerging Southeast Asian markets of the early-1990s saw significant flows of capital but were unable to handle these flows due to lack of monetary controls and central bank independence and inefficient, illiquid and thinly traded capital markets.
These characteristics were reflected in the volatility of stock prices and the inability of investors to exit the markets due to currency controls and lack of market participants. 10 In the early-1980s the U. S. saw the emergence of the junk bond market. This market, like the Asian equity market, was established due to relatively low yields being offered on comparative financial instruments at the time. These low yields were a result of the recessions of 1980 and 1982. Low current yields caused investors to look toward more riskier markets for returns.
The establishment of the junk bond market provided investors with the yields they wanted and corporate raiders with finance capital needed for hostel takeovers. Eventually, the lack of market capitalization and liquidity collapsed the junk bond market through successive Wall Street scandals and the S&L crisis. Optimal Size for Market Efficiency It is assumed that over the next five years the size of the REIT market will capitalize to the point were up to $1. 0 billion dollars in shares can be traded within a reasonable time period.
This will allow investors to convert their investments to cash without significant loss of value. Increased liquidity of the REIT/REOC market has been accompanied by an increase in share price, but increased liquidity will make these shares more sensitive to changes in the expectations of market liquidity. Growth in market capitalization has be driven by high expected returns in the stock market, low volatility in U. S. stock markets, continuation of rising capital flows from defined contribution plans into stock mutual funds, better alignment of interests etween management and investors and public market information and valuation. REITs are being accepted more and more by institutional and individual investors as the investment vehicle of choice due to low capital requirements for constructing a well-diversified multi-asset real estate portfolio. The growth of publicly traded real estate securities has improved the dissemination of data available to public and private market investors, information previously deemed proprietary and closely guarded. REITs/REOCs are continuing to make improvements in reporting, full disclosure standards and timeliness of new releases.
Liquidity of the public institutional real estate securities market will be dependent on improved information flows from an increasing number of securities analysts, traders and rating agencies. Increased liquidity that comes from a larger capitalized market will cause real estate security prices to become more sensitive to expected capital market in-flows. This sensitivity will cause higher volatility in REIT/REOC share prices. Volatility in share prices, as in interest rates, will spur the development of a real estate backed derivative securities market.
This market will improve market efficiency by allowing investment managers to hedge portfolio risk, investment bankers to hedge price movements prior to new issues and arbitrageurs to speculate between the options and stock markets. Increased speculator activity provides more liquidity to the market by improved pricing through the reduction of arbitrage spreads between the two markets. 11 Institutional Trading of Real Estate Securities Increased capitalization, information flows and liquidity has sparked institutional interest in real estate securities. REIT/REOC shares have been perceived to have lower liquidity than large-cap issues.
Lower liquidity requires higher yields, the current S&P index dividend yield is roughly 2. 0% compared to 7. 0% for REIT stocks. Large institutional shareholders have been averse to smaller-cap REIT/REOC stocks due to problems associated with trades moving the price, but in 1996 there were 97 REITs with capitalizations over $200 million, the size of most mid-size cap stocks. REITs are fairly heavily traded relative to their market size, but are less liquid by dollar size compared to large-cap stocks. Over the next five years market liquidity is projected to increase as market capitalization grows.
The REIT market is forecast to grow at a rate of 15% per year, based on historical averages. By the year 2007, REIT market capitalization could reach $300 billion and by 2017 over $1. 4 trillion. Efficient market conditions in the REIT market are just now being achieved, this is evidenced by rising volume, institutional block trades and off-market transactions. Friction Less Portfolio Construction and Diversification U. S. stock markets are the most liquid markets in the world due to standards of information disclosure and number of transactions and participation, leading to low cost trading.
Liquid capital markets provide for friction less portfolio construction and diversification. Increased disclosure and dissemination of financial information allows REIT/REOC shares to be bought or sold quickly at prices close to or at their current market value. With lower transaction and search costs associated with stocks, large institutional investors can implement tactical asset allocation programs to increase or decrease exposures to various sectors of the real estate market, while maintaining a core portfolio.
The ability of the investor to construct a securities portfolio of assets with varying unsystematic risks allows for risk reduction through portfolio diversification. The movement from a direct real estate investment portfolio to a REIT/REOC portfolio does expose institutional portfolios to greater systematic real estate risk. , because of the location specific characteristics of the real estate asset in a direct investment portfolio, but lowers the systematic risk of the overall mixedasset portfolio due to real estates positive correlation with inflation and negative correlation with stocks and bonds.
Risk Management and Institutional Real Estate Securities With the potential for enormous flows of capital into the real estate capital market REITs/REOCs must be able to manage these capital infusions and rapid growth associated it. REITs/REOCs need to rethink their organizational structure and implement well thought out risk management strategies. As capital flows increase there will be mounting pressure by institutional shareholders for these firms to accumulate properties and develop a well diversified portfolio.
The value of REIT/REOC shares will come mainly from the perceived strength of their management teams and quality of their real estate portfolio. 12 Risk Management Strategies: An Integrated Top Down/Bottom Up Approach As participation and involvement of institutional investors grow, REIT/REOC management teams will be required to develop and implement well designed risk management strategies. The core of these strategies will be an integrated top down and bottom up approach to portfolio construction and management. The top down approach will be research driven.
This approach draws heavily on the resources and skill sets of its research department, and emphasizes the utilization of real estate market and economic forecast models to select product types and geographic regions for potential acquisitions. Institutional investors, along with their advisors and consultants, screen and select REITs/REOCs based on their strategic plans and alliances, management teams, historical performance and market capitalization; and their ability to maximize cash flow, manage the balance sheet and access capital markets.
Premiums are being paid and additional funds are flowing to those firms having the organizational structures in place to handle large flows of investment capital and have risk management policies and a well defined portfolio strategy in place to mitigate portfolio risk from geographic and economic over concentrations. The ability to diversify and manage the core real estate portfolio is reflected in the firms funds from operations (FFO) and stock price volatility. Firms that meet or exceed FFO projections and have lower stock price volatility compared to their peers receive larger allocations from riskaverse institutional investors.
To mitigate FFO and stock price volatility, REITs/REOCs must vertically integrated and have successfully diversified their portfolio by geographic region and economic concentration, taking advantage of low to negative correlations between markets and employment over time. Vertical Integration First, the firm must be vertically integrated. The firm must be vertically integrated with a highquality seamless portfolio-property management and reporting system. The goal of this system is to facilitate information flows up from the property level and down from senior management.
This type of organizational structure eliminates problems associated with decision making based on incomplete (asymmetric) information, and makes for a more complete model of information disclosure and dissemination. With property management functions in-house the firm can take advantage of administrative and management economies of scale, achieving administrative cost savings through efficient payroll, property and portfolio level accounting and reporting systems. Firms with large and diversified portfolios obtain local market efficiencies and synergies obtained through a regional focus and use of regional managers.
Regional managers in association with property managers allow the firm to have better property level focus and management over the life of the property. 13 Geographic Diversification Strategy Second, firms must diversity their portfolio geographically. Geographic diversification reduces the risk of revenue loss caused by regional economic shocks. The goal is to have a large enough portfolio concentrated geographically to obtain economies of scale, but not overly concentrated to the point were economic shocks significantly disrupt portfolio revenue streams.
Geographic diversification is only one method of immunizing the real estate portfolio from over concentrations in economic risk. Economic Base Diversification Strategy The second method of immunizing the portfolio is to diversify across industries or employment concentration. By measuring the correlation between employment trends within each target market, and testing for correlations across time and economic groupings, portfolio management can determine the degree to which shared employment concentrations and shared employment movements between markets impact the portfolio.
Using Economic Base Diversification (EBD) analysis a diversification strategy with existing properties and potential acquisitions can be developed. Using geographic diversification strategies in conjunction with economic base analysis, an optimal portfolio structure can be identified and allocations achieving the highest expected return at the lowest possible risk can be calculated. The goal of this strategy is to compare the company’s portfolio diversification to an evenly weighted (“proxy”) portfolio. From the calculated variances optimal portfolio allocations can be derived.
These variances help guide future portfolio acquisitions and dispositions, eliminating the risk of excessive geographic or economic concentration. Catastrophic Risk Underwriting The third method of immunizing the portfolio is to diversify by product quality and geographic region with respect to the probability of catastrophic loss. An enterprise at risk is characterized by the fact that the fundamental nature of the operation is such that expenditures may exceed receipts during some accounting periods in the normal course of operation.
For example, over $35 billion in damage was wreaked in the 20 largest disasters in recorded Bay Area history, with the largest component coming from earthquakes, $15. 4 billion or about 45% of the total damage. Areas of major concern are areas along the Hayward and San Andreas faults. It is estimated that if there were a major earthquake along the Hayward Fault, it would force more than 300,000 Bay Area residents from their homes. The goal of assessing and systematically managing catastrophic risk is to determine what degree the real estate portfolio income stream is at risk of losses.
This is done by conducting deterministic and probabilistic loss analysis by property, geographic area and type of construction. Estimated costs of damage based on these probabilities determines optimal insurance (premium) coverage that protects the properties without over insuring. 14 By assessing the economic impact of catastrophic events on portfolio income, the REIT/REOC can devise a risk mitigation program consisting of either self-insurance (sinking fund), single insurer coverage, multiply insurer coverage or a multiple property and/or insurer strategies that minimize insurance premiums while maximizing coverage.
Property Level Diversification Strategy The bottom up approach to portfolio construction and management is submarket and product specific. This strategy is implemented by the acquisitions department and overseen by senior officers. This strategy relies heavily on the acquisition team’s experience in any given market and type of real estate being acquired. The value of this approach is reflected in the quality of local market contacts and relationships and the ability to move viable deals through the pipeline. The goal of this approach is to assess risks inherent in property-specific investment decisions, and nderstand the potential risks and returns of those decisions. This approach focuses on risk factors inherent by property type and class; factors such as vacancy loss, property life cycle and the potential use of leverage. A bottom up appro

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