Re-Examining the Real Estate Quadrants
Research takes a new look at an established method for categorising real estate investment.
The quadrant investment model was first formulated by Hudson-Wilson in 2001.
It demonstrated that there are four primary investment conduits through which institutional investors can gain exposure to commercial real estate, these being Public and Private holding structures, across Debt and Equity investments (i.e.- Public debt, Private equity etc.) These quadrants have developed significantly over the last twenty years, and with real estate allocations being shaped by both market and regulatory forces, investors are re-examining the broadening of blended strategies with allocations across multiple quadrants.
The research paper, Re-examining the Real Estate Quadrants examines the performance of the quadrants, their dynamic inter-relationships, and how they can be utilised to enhance risk adjusted returns.
By looking at the last 20 years of relationships between the quadrants, the research offers insights into diversification benefits, the status of relationships pre- and post the Great Financial Crisis, and the sources and effects of shocks.
It concludes that there are sufficient market and regulatory reasons to believe that the Quadrant model remains a useful framework for allocation decisions, and that significant diversification benefits are available to investors utilising the quadrants. Finally, blended real estate portfolios are found to lower the estimated risk and enhance the risk-adjusted performance of a purely private real estate exposure.
Re-examining the Real Estate Quadrants is available to download at City Research Online.