Andrew Baum, author of Real Estate Investment, sheds some light on his recently published book.
Real Estate Investment is a book that needed to be written in the aftermath of the global financial crisis. I think it's fair to say that there is a lot of confusion about real estate among investors, and even among professional advisers. Only this week I was with one of the biggest global wealth managers - they do not have a policy regarding real estate and it seemed to me they hoped it would just go away. But it is 50% if the world's assets, so it can't and won't.
Is property a low risk asset or a toxic bag of financial tricks that can cause a global banking collapse? Well, both, of course. The book deals with both forms and remains reasonably agnostic about the asset class, but it does express very clear opinions about the risks of leverage, development and other invitations to lose money. At the heart of the book is a recommendation about how to go about real estate investing from the top down (a strategy) rather than deal by deal. And it is rooted in academic research: it is a challenging textbook for students well as a handbook for professionals.
This focus on process and practical matters makes this a little different from other books in the field.
In summary, the book begins from the position that domestic and (especially) international property investment is not straightforward. Tax and currency issues are considerable, and the data required to fully support a case in the face of these obstacles is hard to find. Investors and managers are creating solutions, albeit with varying degrees of efficiency, with an intended net effect which is advantageous to the investor seeking higher returns and/or diversification of real estate exposure. As long as they are prepared to put up with real estate's obvious problems - lack of liquidity being the main one - they can get it right.
While direct investment is popular with individuals and wealthy family offices, unlisted funds are the natural route to gaining global property exposure for most institutional investors of moderate scale. This is because their performance characteristics are most in line with the direct market over the short to medium term, so that efficient diversification is possible against financial market assets. Building exposure to a portfolio of unlisted funds also provides a means of accessing property-style returns with diversification at the property level, meaning that specific risk is reduced. REITs may be a useful addition, providing useful liquidity, a different tax treatment, and on occasion very attractive pricing. While the overall exposure to REITs should be limited by the sector’s short to medium term performance characteristics, the limitations on unlisted fund investment in certain geographies, coupled with the occasional pricing advantages of the listed sector, mean that the addition of a selection of REITs brings several benefits at the property portfolio level.
The book does not focus on the valuation of assets or on modelling the cash flow from an individual property asset. This information and advice can easily be found elsewhere, and many software package provide a standard way of doing this anyway. What is much harder is to develop a set of policies and strategies that maximise the investor's chances of achieving the objectives he/she sets out with, and that is the core of this book.
Real Estate Investment: A Strategic Approach provides a unique introduction to both the theory and practice of real estate investing, and examines the international real estate investment industry as it reacts to the global financial crisis. Andrew Baum outlines the market and the players who…
Paperback – 2015-05-20