Diversification Benefits of Real Estate Private Debt in Real Estate Portfolios of Institutional Investors

Wilhelm Breuer and Jonas Englert

ERES from European Real Estate Society (ERES)

Abstract: Institutional investors, such as insurance companies and funds, can increase the risk-adjusted return of their real estate portfolio by directly or indirectly granting real estate loans. This is the central finding of our study. Real estate loans, also known as real estate private debt (REPD), which are not issued through bonds but are granted directly by banks and institutional investors, are an ideal addition to a real estate portfolio, according to the study. Contrary to its relevance, this topic has received little attention in the literature so far, so that there are currently no comparable studies. Within the scope of the work, the diversification potentials that can be achieved in this way were examined. For the US market, the Giliberto Levy Commercial Mortgage Performance Index (GLCMPI) provides publicly accessible data for an analysis of the performance of REPD. The "NCREIF Property Index" (NPI) was used as a benchmark for the property portfolio to be diversified. Portfolio theory formed the theoretical foundation of the study. The indices were evaluated over the largest possible observation period from 1978 – 2021.

Keywords: Diversification; Investment Management; Real Estate Private Debt; Sharp Ratio (search for similar items in EconPapers)
JEL-codes: R3 (search for similar items in EconPapers)
Date: 2023-01-01
New Economics Papers: this item is included in nep-rmg and nep-ure
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