Point of View Clustering the U.S. Real Estate Markets

Allen Smith, Robert Hess and Youguo Liang

Journal of Real Estate Portfolio Management, 2005, vol. 11, issue 2, 197-209

Abstract: Executive Summary. Articulating a regional investment strategy poses challenges for real estate portfolio managers. This paper offers a way of collapsing the many US metros into eight clusters, taking into account the dominance of a few large metros, economic similarities and geographic proximity. Through cluster analysis, we used the relative similarities of metros to group them. Our approach involved identifying many socio-economic indexes for each market; concentrating the information in the indexes into a few blended indexes by using principal component analysis; and generating clusters based on correspondence to the reduced set of indexes. The results are simple, intuitive and effective for diversification, market targeting and benchmark exercises.

Date: 2005
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DOI: 10.1080/10835547.2005.12089719

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