the asset allocation of sustainable real estate: a chance for a green contribution ?
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The Asset Allocation of Sustainable Real Estate: A Chance for a Green Contribution?
Analysing Sustainable Real Estate within the Context of a Mean-Variance Model
Peter Geiger | Marcelo Cajias | Sven Bienert
Agenda
1. What about Sustainable Real Estate2. All Good things are three…3. How to define Sustainable Real Estate4. Method as usual, Data usual or unusual…5. The Role of Sustainable Real Estate6. The Contribution
What about Sustainable Real Estate
Sustainable Investing (SI) and Social Responsible Investing (SRI)
Recognition of growing footprint…
Four general reasons to invest in Sustainable Assets
Sustainable Real Estate growing topic over the last five years However: Mainly corporate level as well as property level in the research focus.
What about Sustainable Real Estate Investment…?
Risk Control Tail Wind Effects
Early Mover Advantage
Securisation of Long Term
Business Success
Long Term View on Natural Resources
All Good things are three…
Defining and Setting Sustainable Investments in a Real Estate Context!
What Role does Sustainable Real Estate play in a Mean-Variance Framework?
Contribution of Sustainable Real Estate to a Multi-Asset Portfolio?
How to define Sustainable Real Estate
“Development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (Brundtland)
“Triple Bottom Line”
Dow Jones Sustainability Index Sector Real Estate Basis to identify international sustainable real estate companies DJSI developed together with SAM a Corporate Sustainability Assessment
Real Estate a Major Role
Corporate Sustainability Assessment
Corporate Sustainability Score
Criteria Definition:GeneralIndustry Specific
Sources of Information: Questionnaire, Company Documents, Media&Stkh.,Contact with Companies
Source: DJSI
Corporate Sustainability Monitoring
Impact Evaluation
Quality of Crisis Managament
Index Design Committee
Remaining or Excluding Company
Critical Issues Media & Stakeholder Anaylsis
Source: DJSI
How to define Sustainable Real Estate
Dow Jones Sustainability Index Sector Real Estate in 2010
UNITED KINGDOM
19%
SINGAPORE6%
SWEDEN3%
AUSTRALIA26%NETHERLANDS
6%
UNITED STATES
16%
GERMANY3%
HONG KONG6%
FRANCE6%
JAPAN6%
Country Distribution
Real Estate Sector Distribution
How to define Sustainable Real Estate
Retail REITs29%
Real Estate Hold, Dev
19%Ind. & Office REITs26%
Diversified RE-ITs3%
Mortgage Finance
3%
Real Estate Services
3%
Residential RE-ITs6%
Mortgage RE-ITs3%
Specialty REITs3%
Divers. Industrials3%
Dow Jones Sustainability Index Sector Real Estate – 2004 until 2010
0.02 0.04 0.06 0.08 0.1 0.12 0.14
-0.03
-0.02
-0.01
0
0.01
0.02
0.03
0.04
σ
μ
μ - σ Diagramm
Sustainable Real Estateequally weighted in accordance to the MarketCap
But: Varying amount of Constituents
How to define Sustainable Real Estate
2004
2010
Method as usual, Data usual or unusual…
Methodology Using a Mean – Variance Model
Timeframe 2004 until 2010 ; Monthly Total Returns; 84 Observations Sub Sample 1: Jan 2004 until Jun 2007 and Sub Sample 2: Jul 2007 until Dec 2010 ( Bull & Bear ) Focus on UK Market
Opportunity Set
Domestic Equity FTSE ALL Share
Oversea Equity FTSE WORLD EX UK
Public Real Estate FTSE EPRA NAREIT
Sustainable Real Estate Dow Jones Sustainability Index – Sector Real Estate
Direct Real Estate IPD (unsmoothed)
LT Government Bond Long Term Government Bond-10y
Cash Treasury bill 3M
Method as usual, Data usual or unusual…
0
50
100
150
200
250
Domestic EquityOversea EquityPublic Real EstateDJSI SREDirect Real EstateLT Gov.Bond
TR Index
Time
Jun 2007
2004
2010
Method as usual, Data usual or unusual…
Asset Descriptive Statistic - Period 2004 -2010 Monthly
Domestic Equity Oversea Equity Public Real Estate DJSI SRE Direct Real Estate Long-Term Gov.Bond Cash
Mean 0,77% 0,80% 0,34% 1,46% 0,67% 0,17% 0,29%
Variance 0,0018 0,0021 0,0053 0,0045 0,0059 0,0003 0,0000
St.Dev. 4,22% 4,56% 7,27% 6,69% 7,71% 1,74% 0,17%
Asset Correlation - Period 2004 - 2010 Monthly
Domestic Equity
Oversea Equity
Public Real Estate DJSI SRE Direct Real
EstateLong-Term Gov.Bond Cash
Domestic Equity 1
Oversea Equity 0,894 1
Public Real Estate 0,663 0,783 1
DJSI SRE 0,751 0,783 0,773 1
Direct Real Estate 0,262 0,166 0,351 0,265 1Long-Term Gov.Bond -0,136 0,008 -0,016 0,106 -0,343 1
Cash -0,150 -0,131 -0,064 -0,145 -0,172 -0,071 1
Method as usual, Data usual or unusual…
Asset Descriptive Statistic - Period 012004 -062007 MonthlyDomestic Equity Oversea EquityPublic Real Estate DJSI SRE Direct Real
Estate Long-Term Gov.Bond Cash
Mean 1,33% 1,05% 1,91% 2,24% 1,35% -0,11% 0,39%
Variance 0,0004 0,0008 0,0020 0,0023 0,0027 0,0001 0,0000
St.Dev. 2,07% 2,76% 4,43% 4,79% 5,19% 1,08% 0,03%Asset Correlation - Period 012004 -062007 Monthly
Domestic Equity Oversea EquityPublic Real Estate DJSI SRE Direct Real Estate Long-Term Gov.Bond Cash
Domestic Equity 1 Oversea Equity 0,815 1Public Real Estate 0,562 0,440 1DJSI SRE 0,558 0,540 0,741 1Direct Real Estate 0,185 0,253 0,431 0,377 1Long-Term Gov.Bond -0,032 -0,018 0,307 0,241 0,206 1Cash 0,019 0,037 -0,357 -0,369 -0,107 -0,189 1
Domestic Equity
Oversea Equity
Public Real Estate DJSI SRE Direct Real
EstateLong-Term Gov.Bond Cash
Mean 0,21% 0,55% -1,22% 0,69% -0,01% 0,45% 0,19%Variance 0,0031 0,0034 0,0082 0,0066 0,0092 0,0005 0,0000St.Dev. 5,58% 5,86% 9,07% 8,15% 9,61% 2,20% 0,18%
Asset Correlation - Period 072007 -122010 MonthlyDomestic Equity Oversea EquityPublic Real Estate DJSI SRE Direct Real
Estate Long-Term Gov.Bond Cash
Domestic Equity 1 Oversea Equity 0,914 1Public Real Estate 0,677 0,630 1DJSI SRE 0,803 0,855 0,783 1Direct Real Estate 0,270 0,139 0,318 0,220 1Long-Term Gov.Bond -0,133 0,025 -0,049 0,095 -0,477 1Cash -0,318 -0,234 -0,251 -0,281 -0,316 0,053 1
Up
Mar
ket
Dow
n M
arke
t
The Role of Sustainable Real Estate
Sample 2004 until 2010Portfolio MVP Low Risk Medium Risk High Risk Maximum ReturnDomestic Equity 0,00% 0,00% 0,00% 0,00% 0,00%Oversea Equity 10,48% 29,81% 40,94% 26,95% 0,00%Public Real Estate 4,13% 4,37% 3,79% 0,00% 0,00%Sustainable Real Estate 4,87% 26,50% 39,30% 72,72% 100,00%Direct Real Estate 3,67% 8,48% 10,97% 0,34% 0,00%LT Government Bond 71,85% 25,84% 0,00% 0,00% 0,00%Cash 5,00% 5,00% 5,00% 0,00% 0,00%Mean 0,33% 0,76% 1,00% 1,28% 1,46%St.Dev. 1,44% 2,39% 3,34% 5,02% 6,69%
MVP Low Risk Medium Risk High Risk Maximum Return
Domestic Equity
Oversea Equity
Public Real Estate
Sustainable Real Estate
Direct Real Estate
LT Government Bond
Cash
The Role of Sustainable Real Estate
Up-Market : Jan.2004 until Jun. 2007Portfolio MVP Low Risk Medium Risk High Risk Maximum ReturnDomestic Equity 0,00% 0,00% 0,00% 0,00% 0,00%Oversea Equity 11,05% 30,39% 19,61% 0,00% 0,00%Public Real Estate 4,30% 19,95% 32,47% 30,51% 0,00%Sustainable Real Estate 3,67% 19,70% 36,18% 69,49% 100,00%Direct Real Estate 3,13% 10,68% 11,74% 0,00% 0,00%LT Government Bond 72,85% 14,28% 0,00% 0,00% 0,00%Cash 5,00% 5,00% 0,00% 0,00% 0,00%Mean 0,26% 1,29% 1,79% 2,14% 2,24%St.Dev. 0,90% 1,65% 2,40% 3,59% 4,79%
MVP Low Risk Medium Risk High Risk Maximum Return
Domestic Equity
Oversea Equity
Public Real Estate
Sustainable Real Es-tate
Direct Real Estate
LT Government Bond
Cash
The Role of Sustainable Real Estate
Down-Market: Jul. 2007 until Dec. 2010Portfolio MVP Low Risk Medium Risk High Risk Maximum ReturnDomestic Equity 0,00% 0,00% 0,00% 0,00% 0,00%Oversea Equity 10,08% 27,17% 37,18% 27,69% 0,00%Public Real Estate 4,21% 0,00% 0,00% 0,00% 0,00%Sustainable Real Estate 5,21% 27,87% 41,88% 72,31% 100,00%Direct Real Estate 3,74% 0,00% 0,00% 0,00% 0,00%LT Government Bond 71,75% 44,96% 20,95% 0,00% 0,00%Cash 5,00% 0,00% 0,00% 0,00% 0,00%Mean 0,37% 0,54% 0,59% 0,65% 0,69%St.Dev. 1,81% 2,94% 4,07% 6,11% 8,15%
MVP Low Risk Medium Risk High Risk Maximum Return
Domestic Equity
Oversea Equity
Public Real Estate
Sustainable Real Estate
Direct Real Estate
LT Government Bond
Cash
Portfolio MVP Low Risk Medium Risk High Risk Maximum Return
Domestic Equity 15,96% 0,00% 8,56% 0,00% 22,73% 0,00% 0,00% 0,00% 0,00% 0,00%
Oversea Equity 0,00% 11,76% 23,23% 21,52% 21,94% 26,87% 63,63% 39,95% 95,00% 0,00%
Public Real Estate 0,00% 4,14% 2,20% 4,24% 0,00% 4,32% 7,27% 4,46% 0,00% 0,00%
Sustainable Real Estate 6,29% 17,21% 23,21% 37,85% 100,00%
Direct Real Estate 1,43% 3,98% 7,61% 6,44% 8,30% 7,76% 17,65% 11,07% 0,00% 0,00%
LT Government Bond 77,61% 68,83% 53,39% 45,59% 42,03% 32,85% 6,46% 1,67% 0,00% 0,00%
Cash 5,00% 5,00% 5,00% 5,00% 5,00% 5,00% 5,00% 5,00% 5,00% 0,00%
Mean 0,28% 0,36% 0,41% 0,57% 0,49% 0,69% 0,68% 0,98% 0,94% 1,46%
St.Dev. 1,44% 1,44% 1,81% 1,81% 2,17% 2,17% 3,25% 3,25% 4,33% 6,69%
The Role of Sustainable Real Estate
Sample: 2004 until 2010
Portfolio MVP Low Risk Medium Risk High Risk Maximum Return
Domestic Equity 19,87% 0,00% 62,34% 0,00% 68,06% 0,00% 16,10% 0,00% 0,00% 0,00%
Oversea Equity 0,00% 11,05% 0,00% 28,80% 0,00% 26,94% 0,00% 0,00% 0,00% 0,00%
Public Real Estate 0,00% 4,30% 5,54% 18,70% 20,98% 29,37% 67,85% 42,78% 100,00% 0,00%
Sustainable Real Estate 3,67% 18,43% 31,29% 56,97% 100,00%
Direct Real Estate 1,67% 3,13% 7,05% 10,08% 10,96% 12,40% 16,05% 0,25% 0,00% 0,00%
LT Government Bond 73,46% 72,85% 20,07% 19,00% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00%
Cash 5,00% 5,00% 5,00% 5,00% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00%
Mean 0,22% 0,26% 1,03% 1,20% 1,46% 1,71% 1,73% 2,09% 1,91% 2,24%
St.Dev. 0,90% 0,90% 1,55% 1,55% 2,22% 2,22% 3,32% 3,32% 4,43% 4,79%
The Role of Sustainable Real Estate
Up-Market : Jan.2004 until Jun. 2007
Portfolio MVP Low Risk Medium Risk High Risk Maximum Return
Domestic Equity 15,28% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00%
Oversea Equity 0,00% 10,59% 31,35% 20,80% 45,66% 27,07% 74,38% 39,78% 100,00% 0,00%
Public Real Estate 0,00% 2,24% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00%
Sustainable Real Estate 5,68% 19,09% 27,66% 45,55% 100,00%
Direct Real Estate 1,48% 3,32% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00%
LT Government Bond 78,25% 73,16% 68,65% 60,11% 54,34% 45,28% 25,62% 14,68% 0,00% 0,00%
Cash 5,00% 5,00% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00%
Mean 0,39% 0,41% 0,48% 0,52% 0,50% 0,54% 0,53% 0,60% 0,55% 0,69%
St.Dev. 1,82% 1,82% 2,38% 2,38% 2,93% 2,93% 4,39% 4,39% 5,86% 8,15%
The Role of Sustainable Real Estate
Down-Market : Jul.2007 until Dec. 2010
Contribution
Sustainable Real Estate Risk- Return attributes unique compared to Direct and Public Real Estate
Higher Return by less RiskQuestion: Is it a own Asset Class…?
Major Role within a Multi-Asset- Portfolio in view of its characteristics. Sustainable Real Estate represented in basically all Portfolios. Positive Effect on the other Real Estate Asset Class in a MVP.
The comparison shows that Sustainable Real Estate has to be integrated! Chance for a Green Sustainable Contribution in a Mean-Variance Framework:
What gets measured, gets done“
Thank you!Any Questions or Commentaries?
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