On the pulse of the property world Managing risk in residential portfolios An instrument for the...
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Transcript of On the pulse of the property world Managing risk in residential portfolios An instrument for the...
On the pulse of the property world
Managing risk in residential portfoliosAn instrument for the benchmarking of risk forreal estate investors and social housing associations
Rob CourtensBert TeubenMaarten Broek Eindhoven, June 17th 2011
© IPD 2011 ipd.com 2
Agenda
• Introduction
• The Blundell risk dimensions
• Suitability for Dutch residential market• Top down• Bottom up• Parameters and Ranking
•Towards the Risk Web
• Ambition/ Further research
© IPD 2011 ipd.com 3
Introduction
• Investors point of view
• Return is reward for risk
• Risk based on volatility lacks diagnostic
content• Risk based on volatility of past returns is
backward looking
(Blundell et. al., 2005)
• What causes volatility in portfolio returns?
Total return = income return + capital growth
© IPD 2011 ipd.com 4
Blundell Risk dimensions
Sector Balance Score
Income return
Location concentration
Development exposure
Asset/ Lot size concentration
Lease Length
TICCS stress score
Tenant concentration
Weighted Beta
Void rate
© IPD 2011 ipd.com 5
Introduction
• Also for Dutch residential investment market
What is the Dutch market???? • € 197 billion market size• € 110 billion in residential (75 % private)• € 19 billion in IPD/ROZ residential universe
But also: The Dutch social housing market
• € 243 billion market size (market value)• € 66 billion in IPD/aeDex universe
© IPD 2011 ipd.com 6
Suitablility for dutch residential market
Dimension Suitable to dutch investment market?
Suitable to residential market seperately?
Data available at IPD Netherlands?
Sector balance score Yes No Yes
Income return Yes Yes Yes
Location concentration Yes Yes Yes
Development exposure Yes Yes Yes
Asset concentration Yes Yes Yes
Lease Length Yes No* No*
TICCS stress score Yes Yes No
Tenant concentration Yes No No
Weighted Beta Yes Yes Yes
Void Rate Yes Yes Yes
* Data not relevant for residential market
Top Down
© IPD 2011 ipd.com 7
Suitablility for dutch residential market
Bottom Up
Identifying risk dimensions for Dutch market• IVBN report• IPD/ROZ questionnaire:
0
2
4
6
8
10
12
14
Dis
count ra
te
Vacancy rate
Turn
over
rate
Concentr
ation o
f re
nta
l valu
e
Location c
oncentr
ation
Asset C
oncentr
ation
Dow
nsid
e ris
k b
ased o
n
his
torical r
etu
rns
Port
folio
age
Overr
ente
d p
art
of
port
folio
Develo
pm
ents
Part
ly s
old
com
ple
xes
Energ
y e
ffic
iency
Type s
ingle
/multi te
nant
dw
elli
ngs
Share
gro
und r
ent
min
mean
max
© IPD 2011 ipd.com 8
Commercial: concentration 5 highest value props Social: same as commercialCommercial: No interesting outcomesSocial: No interesting outcomesCommercial: concentration of assets in 5 regionsSocial: same as commercialCommercial: Turnover rate (valuation)Social: same as commercial Commercial: Bad energy label or no labelSocial: Not enough data yetCommercial: Concentration 1945-1980Social: Concentration 1945-1974Commercial: Volatility of invested segmentsSocial: same as commercialCommercial: Based on % market rental valueSocial: same as commercial
Parameter and ranking
• Concentration of rental value• Development exposure• Asset concentration• Over-rented part of portfolio• Location concentration• Turnover rate• Energy efficiency• Portfolio age• Weighted Beta• Vacancy Rate
Commercial: concentration > €1.000/ monthSocial: % gap to maximized legal rent
Commercial: Sale incomeSocial: Total transformation
© IPD 2011 ipd.com 9
Asset concentration
Location concentration
share 1945 - 1980
Regions concetration
(demographic decine)
Vacancy
Energy efficiency
Turnover rate
Share rental value > € 1000
Sale income
Weighted Betas
Index
FUND X
Towards the Risk Web
Asset concentration
Location concentration
Age (1945- 1974)
Regions concentration (demographic decline)
Weighted Betas
Effi ciency rate
Turnover rate
Vacancy
Gap in % of maximized legal rents
Transformation
Index
Fund xx
14
0%
10%
20%
30%
40%
50%
60%
70%
0 5 10 15 20 25 30 35
index
FUND X
© IPD 2011 ipd.com 10
Ambition?
• Prediction of tracking error
• Quick and dirty research on volatility • No statistically significant conclusions yet !
• Underlying parameters of dimensions should be discussed• More long term average research• Play around with segmentations• Timing of risk (correlation) • Limitative set of definitions (with predictive use)
R² = 0.1765
0
0.01
0.02
0.03
0.04
0.05
0.06
0.07
0.08
0.09
0 2 4 6 8 10
Vacancy
Vacancy
Lineair (Vacancy)
© IPD 2011 ipd.com 11
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© Investment Property Databank Limited (IPD) 2011. Database Right, Investment Property Databank Limited (IPD) 2011. All rights conferred by law of copyright and by virtue of international conventions are reserved by IPD
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