Real Estate Finance and Investments

by Brueggeman, William B.

• ISBN13: 9780073524719
• ISBN10: 0073524719
• Edition: 13th
• Format: Hardcover
• Copyright: 2006-11-10
• Publisher: McGraw-Hill/Irwin

Summary

Rigorous yet practical,Real Estate Finance and Investmentshas been the leading real estate finance and investments text for over 25 years, consistently setting the standard for currency and coverage in real estate finance and investments textbooks. The 13th edition continues to provide students with the tools they need to understand and analyze real estate markets and the investment alternatives available to both debt and equity investors. New content and problems addressing current trends in real estate finance and investments have been seamlessly incorporated into the text, without disrupting the material and organization instructors have relied on in past editions.

Table of Contents

PART ONE INTRODUCTION
An Introduction to Real Estate Investment: Legal Concepts	1	(14)
Property Rights and Estates	2	(4)
Definition of Estate	4	(1)
Two General Classifications of Estates	4	(1)
Examples of Freehold Estates	4	(1)
Estates Not Yet in Possession (Future Estates)	5	(1)
Examples of Leasehold Estates	5	(1)
Interests, Encumbrances, and Easements	6	(1)
Assurance of Title	7	(2)
The Meaning of Title	7	(2)
Deeds	9	(1)
Methods of Title Assurance	9	(3)
Abstract and Opinion Method	10	(1)
The Title Insurance Method	11	(1)
Recording Acts	12	(1)
Limitations on Property Rights	13	(2)
Financing: Notes and Mortgages	15	(25)
Notes	15	(1)
The Mortgage Instrument	16	(5)
Definition of a Mortgage	17	(1)
Relationship of Note to Mortgage	17	(1)
Interests That Can Be Mortgaged	17	(1)
Minimum Mortgage Requirements	17	(2)
Important Mortgage Clauses	19	(2)
Assumption of Mortgage	21	(1)
Acquiring Title ``Subject to'' a Mortgage	21	(2)
Property Covered by a Mortgage	22	(1)
Junior Mortgages	22	(1)
Recording of Mortgages	22	(1)
Other Financing Sources	23	(1)
Seller Financing	23	(1)
Land Contracts	23	(1)
Default	24	(1)
What Constitutes Default	24	(1)
Alternatives to Foreclosure: Workouts	25	(4)
Restructuring the Mortgage Loan	25	(2)
Transfer of Mortgage to a New Owner	27	(1)
Voluntary Conveyance	28	(1)
Friendly Foreclosure	28	(1)
Prepackaged Bankruptcy	28	(1)
Foreclosure	29	(6)
Judicial Foreclosure	29	(1)
Redemption	29	(1)
Sales of Property	30	(3)
Effect of Foreclosure on Junior Lienors	33	(1)
Deficiency Judgment	33	(1)
Taxes in Default	34	(1)
Bankruptcy	35	(5)
Liquidation	35	(1)
Chapter 11	35	(1)
Chapter 13	36	(4)
The Interest Factor in Financing	40	(32)
Compound Interest	40	(1)
Compound or Future Value	41	(6)
Calculating Compound Interest Factors	44	(3)
Expanding the Use of Financial Calculators	47	(2)
Present Value	49	(4)
A Graphic Illustration of Present Value	49	(2)
Expanding the Use of Calculators for Finding Present Values	51	(2)
Compound or Future Value of an Annuity	53	(4)
Use of Compound Interest Factors for Annuities	55	(2)
Present Value of an Annuity	57	(4)
Use of the Present Value of an Annuity Factors	58	(3)
Accumulation of a Future Sum	61	(1)
Determining Yields, or Internal Rates of Return, on Investments	62	(10)
Investments with Single Receipts	62	(3)
Yields on Investment Annuities	65	(2)
Effective Annual Yields: Extensions	67	(1)
Solving for Annual Yields with Partial Periods: An Extension	68	(4)
PART TWO FINANCING RESIDENTIAL PROPERTIES
Fixed Rate Mortgage Loans	72	(40)
Determinants of Mortgage Interest Rates: A Brief Overview	72	(4)
The Real Rate of Interest: Underlying Considerations	73	(1)
Interest Rates and Inflation Expectations	73	(1)
Interest Rates and Risk	74	(1)
A Summary of Factors Important to Mortgage Loan Pricing	75	(1)
Development of Mortgage Loan Payment Patterns	76	(5)
Early Loan Patterns	76	(1)
The Constant Amortization Mortgage Loan (CAM)	77	(1)
Fully Amortizing, Constant Payment Mortgage Loan (CPM)	78	(3)
Constant Payment and Constant Amortization Loans: A Comparison	81	(12)
Determining Loan Balances	84	(1)
Loan Closing Costs and Effective Borrowing Costs: Fully Amortized Loans	85	(3)
Truth-in-Lending Requirements and the Annual Percentage Rate	88	(1)
Loan Fees and Early Repayment: Fully Amortizing Loans	88	(4)
Charging Fees to Achieve Yield, or Pricing FRMs	92	(1)
Other Loan Patterns	93	(10)
Partially Amortizing Constant Payment Loans	93	(1)
Zero Amortization, or ``Interest Only'' Loans	94	(1)
Increasing Loan Balances, or Negative Amortization	95	(1)
Interest-Only Option Mortgages	96	(1)
Amortization Schedules and Callable Loans	97	(1)
Reverse Annuity Mortgages (RAMs)	97	(6)
Appendix Inflation, Mortgage Pricing, and Payment Structuring	103	(9)
Adjustable Rate Mortgages	112	(29)
ARMs and Lender Considerations	113	(1)
The Price Level Adjusted Mortgage (PLAM)	114	(27)
PLAM: Payment Mechanics	115	(2)
ARMs: An Overview	117	(1)
ARM Basics Illustrated	117	(1)
Other ARM Characteristics	118	(2)
Additional Basic ARM Loans	120	(1)
Importance of the ``Teaser Rate'' on ARMs	121	(2)
Risk Premiums, Interest Rate Risk, and Default Risk on ARMs	123	(2)
Expected Yield Relationships and Interest Rate Risk	125	(1)
More Complex ARM Features	126	(2)
ARM Payment Mechanics	128	(5)
Expected Yields on ARMs: A Comparison	133	(8)
Residential Financial Analysis	141	(35)
Incremental Borrowing Cost	141	(8)
Early Repayment	143	(1)
Origination Fees	144	(1)
Incremental Borrowing Cost versus a Second Mortgage	145	(1)
Relationship between the Incremental Cost and the Loan-to-Value Ratio	145	(3)
Differences in Maturities	148	(1)
Loan Refinancing	149	(6)
Early Repayment: Loan Refinancing	150	(1)
Effective Cost of Refinancing	151	(1)
Borrowing the Refinancing Costs	152	(1)
Other Considerations	153	(2)
Early Loan Repayment: Lender Inducements	155	(1)
Market Value of a Loan	156	(1)
Effective Cost of Two or More Loans	157	(3)
Second Mortgages and Shorter Maturities	159	(1)
Effect of Below-Market Financing on House Prices	160	(3)
Assuming a Lower Loan Balance	162	(1)
Cash Equivalency	163	(1)
Cash Equivalency: Smaller Loan Balance	164	(1)
Cash Equivalency: Concluding Comments	165	(1)
Wraparound Loans	166	(2)
Buydown Loans	168	(4)
Appendix After-Tax Effective Interest Rate	172	(4)
Single Family Housing: Pricing, Investment, and Tax Considerations	176	(37)
Overview	176	(9)
Appreciation in House Prices	176	(1)
Income and Employment	177	(1)
Renting versus Owning	178	(7)
Regional Economic Influences on Property Values	185	(5)
Analogy with the Law of Comparative Advantage	188	(1)
Economic Base Analysis---Location Quotients	189	(1)
Supply Overview	190	(10)
The Influences of Neighborhoods/Municipalities	190	(1)
Capitalization Effects: Price Premiums	191	(1)
Pricing Property in Specific Submarkets/Locations	192	(8)
Investing in ``Distressed Properties''	200	(13)
Financial Framework for Analyzing Distressed Properties	201	(1)
Acquisition Phase	201	(4)
Holding Period Phase	205	(1)
Disposition Phase---Exit Strategies	205	(8)
Underwriting and Financing Residential Properties	213	(32)
Underwriting Default Risk	213	(1)
Classification of Mortgage Loans	214	(4)
Conventional Mortgage Loans	214	(2)
Insured Conventional Mortgage Loans	216	(1)
FHA Insured Mortgage Loans	216	(1)
VA Guaranteed Mortgage Loans	217	(1)
The Underwriting Process	218	(5)
Borrower Income	218	(2)
Verification of Borrower Assets	220	(1)
Assessment of Credit History	220	(2)
Estimated Housing Expense	222	(1)
Other Obligations	222	(1)
Compensating Factors	222	(1)
The Underwriting Process Illustrated	223	(7)
Underwriting Standards---Conventional and Insured Conventional Mortgages	224	(2)
Underwriting Standards---FHA Insured Mortgages	226	(2)
Underwriting Standards---VA Guaranteed Mortgages	228	(1)
Underwriting and Loan Amounts---A Summary	229	(1)
The Closing Process	230	(6)
Fees and Expenses	231	(1)
Prorations, Escrow Costs, and Payments to Third Parties	231	(2)
Statutory Costs	233	(1)
Requirements under the Real Estate Settlement and Procedures Act (RESPA)	233	(3)
Settlement Costs Illustrated	236	(9)
Federal Truth-in-Lending (FTL) Requirements	237	(1)
Truth-in-Lending Sample Disclosure	238	(1)
Establishing the APR under Federal Truth-in-Lending Requirements	238	(1)
ARMs and Truth-in-Lending Disclosure	239	(6)
PART THREE FINANCING INCOME PROPERTIES (DEBT AND EQUITY)
Introduction to Income-Producing Properties: Leases, Rents, and the Market for Space	245	(35)
Property Types	245	(2)
Supply and Demand Analysis	247	(6)
Local Market Studies of Supply and Demand	250	(1)
Location and User-Tenants	251	(2)
The Business of Real Estate	253	(1)
The ``Market'' for Income-Producing Real Estate	254	(1)
Income Potential---Real Estate Assets	255	(2)
Vacancy	256	(1)
Underwriting Leases	257	(1)
General Contents of Leases	257	(9)
Leases and Rental Income	258	(3)
Leases and Responsibility for Expenses (Recoveries)	261	(2)
Comparing Leases: Effective Rent	263	(3)
Developing Statements of Cash Flow	266	(2)
Leases: Office Properties	268	(2)
Rent Premiums and Discounts for Office Space	268	(2)
Leases: Industrial and Warehouse Properties	270	(1)
Leases: Retail Properties	271	(2)
The Retail Leasing Environment	271	(1)
CAM Charges --- Recoveries	272	(1)
Leases: Apartment Properties	273	(7)
Valuation of Income Properties: Appraisal and the Market for Capital	280	(39)
Introduction	280	(1)
Valuation Fundamentals	280	(1)
Appraisal Process and Approaches to Valuation	281	(1)
Sales Comparison Approach	282	(2)
Income Approach	284	(10)
Capitalization Rate	286	(2)
Capitalization Rate---A Note of Caution	288	(1)
Discounted Present Value Techniques	288	(1)
Selection of a Discount Rate (r)	289	(2)
Using Approximations to Estimate Reversion Values	291	(3)
Land Values: Highest and Best Use Analysis	294	(2)
Volatility in Land Prices	295	(1)
``Highest and Best Use'' Analysis	295	(1)
Mortgage-Equity Capitalization	296	(2)
Reconciliation: Sales Comparison and Income Capitalization Approaches	298	(1)
Exploring the Relationships between Changing Market Conditions, Cap Rates, and Property Values	298	(4)
A Closing Note on Cap Rates and Market Conditions	302	(1)
A Word of Caution---Simultaneous Effects of Real Estate Market Forces and Interest Rates on Property Values	303	(1)
Valuation of a Leased Fee Estate	303	(1)
Cost Approach	304	(3)
Valuation Case Study---Oakwood Apartments	307	(12)
ARGUS Solution	311	(8)
Investment Analysis and Taxation of Income Properties	319	(29)
Motivation for Investing	319	(1)
Real Estate Market Characteristics and Investment Strategies	320	(2)
``The Real Estate Cycle''	320	(2)
Investment Strategies	322	(1)
Marketing Investments: Projecting Cash Flows	322	(1)
Office Building Example	322	(9)
Base Rent	325	(1)
CPI Adjustment	326	(1)
Expense Stops	327	(1)
Net Operating Income	328	(1)
Expected Outlays for Replacements and Capital Improvements	328	(1)
Estimated Sale Price	329	(2)
Introduction to Investment Analysis	331	(1)
Internal Rate of Return (IRR)	331	(1)
Present Value	331	(1)
ARGUS Solution	332	(1)
Introduction to Debt Financing	332	(4)
Measures of Investment Performance Using Ratios	332	(2)
Before-Tax Cash Flow from Sale	334	(1)
Summary of Investment Analysis Calculations	335	(1)
Taxation of Income-Producing Real Estate	336	(1)
Taxable Income from Operation of Real Estate	336	(3)
Depreciation Allowances	337	(1)
Loan Points	338	(1)
Tax Liability and After-Tax Cash Flow	338	(1)
Taxable Income from Disposal of Depreciable Real Property	339	(1)
After-Tax Investment Analysis	339	(4)
After-Tax Cash Flow from Operations	339	(2)
After-Tax Cash Flow from Sale	341	(1)
After-Tax IRR	342	(1)
Effective Tax Rate	342	(1)
A Note about Passive Losses	343	(5)
Special Expectations to PAL Rules	344	(4)
Financial Leverage and Financing Alternatives	348	(36)
Introduction to Financial Leverage	348	(6)
Conditions for Positive Leverage---Before Tax	349	(4)
Conditions for Positive Leverage---After Tax	353	(1)
Break-Even Interest Rate	354	(2)
Risk and Leverage	356	(2)
Underwriting Loans on Income Properties	358	(2)
Market Study and Appraisal	358	(1)
Borrower Financials	358	(1)
The Loan-to-Value Ratio	359	(1)
The Debt Coverage Ratio	359	(1)
Other Loan Terms and Mortgage Covenants	360	(2)
Alternatives to Fixed Rate Loan Structures	362	(1)
Participation Loans	363	(5)
Lender Motivations	363	(1)
Investor Motivations	364	(1)
Participation Example	364	(4)
Sale-Leaseback of the Land	368	(2)
Effective Cost of the Sale-Leaseback	370	(1)
Interest-Only Loans	370	(1)
Accrual Loans	370	(4)
Structuring the Payment for a Target Debt Coverage Ratio	372	(2)
Convertible Mortgages	374	(2)
Lender's Yield on Convertible Mortgage	374	(2)
Comparison of Financing Alternatives	376	(2)
Monument Office Example---ARGUS Solution with a Loan	378	(2)
Other Financing Alternatives	380	(4)
Risk Analysis	384	(31)
Introduction	384	(12)
Comparing Investment Returns	384	(1)
Types of Risk	385	(2)
Due Diligence in Real Estate Investment Risk Analysis	387	(1)
Sensitivity Analysis	387	(4)
Partitioning the IRR	391	(1)
Variation in Returns and Risk	392	(4)
Retail Case Study---Westgate Shopping Center	396	(3)
Westgate Shopping Center Scenario Analysis	399	(1)
Westgate Shopping Center---ARGUS Analysis	399	(1)
Lease Rollover Risk	399	(2)
Market Leasing Assumptions with Renewal Probabilities	401	(2)
Market Rent	402	(1)
Months Vacant	402	(1)
Leasing Commissions	402	(1)
Tenant Improvements	402	(1)
Industrial Case Study---Worthington Distribution Center	403	(1)
Solution with ARGUS	404	(1)
Risk and Leverage	404	(5)
A ``Real Options'' Approach to Investment Decisions	409	(6)
Traditional Approach to Land Valuation	410	(1)
Real Option Approach to Land Valuation	410	(1)
Real Options Extensions and Strategy	411	(4)
Disposition and Renovation of Income Properties	415	(22)
Disposition Decisions	415	(2)
A Decision Rule for Property Disposal	416	(1)
IRR for Holding versus Sale of Property	417	(3)
Return to a New Investor	420	(4)
Marginal Rate of Return	420	(4)
Refinancing as an Alternative to Disposition	424	(2)
Incremental Cost of Refinancing	424	(1)
Refinancing at a Lower Interest Rate	425	(1)
Other Disposition Considerations---Portfolio Balancing	426	(1)
Renovation as an Alternative to Disposition	427	(2)
Renovation and Refinancing	429	(2)
Rehabilitation Investment Tax Credits	431	(6)
Low-Income Housing	432	(5)
Financing Corporate Real Estate	437	(22)
Lease-versus-Own Analysis	437	(13)
Leasing versus Owning---An Example	437	(1)
Cash Flow from Leasing	438	(1)
Cash Flow from Owning	438	(2)
Cash Flow from Owning versus Leasing	440	(1)
Return from Owning versus Leasing	440	(1)
Importance of the Residual Value of Real Estate	441	(2)
The Investor's Perspective	443	(1)
A Note on Project Financing	444	(1)
Factors Affecting Own-versus-Lease Decisions	445	(5)
The Role of Real Estate in Corporate Restructuring	450	(1)
Sale-Leaseback	451	(3)
Refinancing	454	(1)
Investing in Real Estate for Diversification	454	(3)
Appendix Real Estate Asset Pricing and Capital Budgeting Analysis: A Synthesis	457	(2)
PART FOUR FINANCING PROPOSED PROJECTS
Financing Project Development	459	(37)
Introduction	459	(1)
Overview: The Planning and Permitting Process	459	(3)
The Development of Income-Producing Property	462	(4)
Market Risks and Project Feasibility	464	(2)
Project Risks	466	(1)
Project Development Financing---An Overview	466	(2)
Lender Requirements in Financing Project Development	468	(9)
Loan Submission Information for Loan Requests---An Overview	468	(4)
Contingencies in Lending Commitments	472	(1)
The Construction or Interim Loan	473	(1)
Methods of Disbursement---Construction Lending	474	(1)
Interest Rates and Fees	474	(1)
Additional Information for Interim Loan Submission	475	(1)
Requirements to Close the Interim Loan	475	(1)
The Permanent Loan Closing	476	(1)
Project Development Illustrated	477	(9)
Project Description and Project Costs	477	(5)
Market Data and Tenant Mix	482	(1)
Pro Forma Construction Costs and Cash Flow Projections	483	(3)
Feasibility, Profitability, and Risk---Additional Issues	486	(10)
Profitability before and after Taxes	486	(3)
Sensitivity Analysis, Risk, and Feasibility Analysis	489	(7)
Financing Land Development Projects	496	(29)
Characterization of the Land Development Business	496	(2)
The Land Development Process---An Overview	498	(5)
Acquisition of Land---Use of the Option Contract	498	(2)
Financing and Development	500	(3)
Lender Requirements in Financing Land Development	503	(3)
Detailed Cost Breakdowns	505	(1)
General Contracts and Subcontracts	505	(1)
Residential Land Development Illustrated	506	(11)
Market Conditions and Site Plan	506	(3)
Estimating Development Cost and Interest Carry	509	(8)
Estimating Release Prices per Parcel Sold	517	(1)
Loan Request and Repayment Schedule	517	(1)
Project Feasibility and Profitability	517	(8)
Project IRR and Net Present Value	520	(1)
Entrepreneurial Profits	521	(1)
Sensitivity Analysis	521	(4)
PART FIVE ALTERNATIVE REAL ESTATE FINANCING AND INVESTMENT VEHICLES
Joint Ventures, Syndications, and Partnerships	525	(29)
Joint Ventures	525	(1)
Organizational Forms	526	(1)
Profit Sharing	526	(1)
Initial Capital Contributions	526	(1)
Sharing Cash Flow from Operations	527	(1)
Sharing of Cash Flow from Sale	528	(1)
Summary of Cash Flows Distributed in Each Operating Year	529	(1)
Cash Flow from Sale	530	(1)
IRR to Each Joint Venture Party	531	(1)
Variation on the Preferred IRR---``IRR Lookback''	531	(1)
Syndications	532	(1)
Use of the Limited Partnership in Private and Public Syndicates	533	(1)
Private Syndication Problem Illustrated	534	(4)
Financial Considerations---Partnership Agreement	534	(2)
Operating Projections	536	(1)
Statement of Before-Tax Cash Flow (BTCF)	536	(1)
Calculation of Net Income or Loss	537	(1)
Calculation of Capital Gain from Sale	537	(1)
Capital Accounts	538	(4)
Distribution of Cash from Sale of Asset	539	(1)
Calculation of After-Tax Cash Flow and ATIRR on Equity	539	(3)
Partnership Allocations and Substantial Economic Effect	542	(1)
Capital Accounts and Gain Charge-Backs	543	(2)
Use of Limited Partnership in Private and Public Syndicates	545	(2)
Use of Corporate General Partners	546	(1)
Private versus Public Syndicates	546	(1)
Accredited Investors---Regulation D	546	(1)
Regulation of Syndicates	547	(2)
Investment Objectives and Policies	548	(1)
Promoters' and Managers' Compensation	548	(1)
Investor Suitability Standards	549	(1)
Federal and State Securities Authorities	549	(5)
The Secondary Mortgage Market: Pass-Through Securities	554	(27)
Introduction	554	(1)
Evolution of the Secondary Mortgage Market	554	(1)
Early Buyers of Mortgage Loans	555	(1)
The Secondary Market after 1954	555	(1)
FNMA's Changing Role	556	(1)
The Government National Mortgage Association	556	(2)
Mortgage-Backed Securities and the GNMA Payment Guarantee	557	(1)
The Federal Home Loan Mortgage Corporation	558	(1)
Operation of the Secondary Mortgage Market	558	(2)
Direct Sale Programs	558	(1)
The Development of Mortgage-Related Security Pools	559	(1)
Mortgage-Backed Bonds	560	(4)
Pricing Mortgage-Backed Bonds	561	(1)
Subsequent Prices	562	(2)
Mortgage Pass-Through Securities	564	(11)
Important Characteristics of Mortgage Pools	565	(4)
Mortgage Pass-Through Securities: A General Approach to Pricing	569	(2)
Mortgage Pass-Through Payment Mechanics Illustrated	571	(1)
Prepayment Patterns and Security Prices	572	(2)
Prepayment Assumptions	574	(1)
The Effects of Prepayment Illustrated	575	(6)
Security Prices and Expected Yields	577	(1)
Market Interest Rates and Price Behavior on Mortgage Pass-Throughs	577	(1)
A Note on MBBs and MPTs	578	(3)
The Secondary Mortgage Market: CMOs and Derivative Securities	581	(40)
Introduction	581	(1)
Mortgage Pay-Through Bonds (MPTBs)	581	(1)
Collateralized Mortgage Obligations	582	(14)
CMOs Illustrated	583	(2)
CMO Mechanics	585	(5)
CMOs: Pricing and Expected Maturities	590	(3)
CMO Price Behavior and Payment Rates	593	(1)
CMO Tranche Variations	594	(2)
Derivatives Illustrated	596	(6)
Yield Enhancement	599	(1)
IO and PO Strips	599	(3)
Convexity	602	(1)
Residential Mortgage-Related Securities: A Summary	602	(2)
Residential Mortgage-Related Securities: Some Closing Observations	604	(1)
Commercial Mortgage-Backed Securities (CMBSs)	605	(13)
Rating Commercial Mortgage-Backed Securities	608	(2)
Collateralized Debt Obligations (CDOs)	610	(2)
Mortgage-Related Securities and REMICs	612	(2)
REMICs: Other Considerations	614	(4)
Appendix Duration---An Additional Consideration in Yield Measurement	618	(3)
Real Estate investment Trusts (REITs)	621	(27)
Introduction	621	(3)
Legal Requirements	621	(2)
Tax Treatment	623	(1)
Violation Penalties and Status Termination	624	(1)
Taxable REIT Subsidiaries	624	(1)
Types of Trusts	624	(11)
Equity Trusts	625	(1)
The Investment Appeal of Equity Trusts	626	(4)
Private REITs	630	(1)
Importance of FFO (Funds from Operations)	630	(2)
REIT Expansion and Growth	632	(3)
Important Issues in Accounting and Financial Disclosure: Equity REITs	635	(5)
Tenant Improvements and Free Rents: Effects on FFO	636	(1)
Leasing Commissions and Related Costs	636	(1)
Use of Straight-Line Rents	636	(1)
FFO and Income from Managing Other Properties	637	(1)
Types of Mortgage Debt and Other Obligations	637	(1)
Existence of Ground Leases	638	(1)
Lease Renewal Options and REIT Rent Growth	638	(1)
Occupancy Numbers: Leased Space or Occupied Space?	639	(1)
Retail REITs and Sales per Square Foot	639	(1)
Additional Costs of Being a Public Company	639	(1)
The Investment Appeal of Mortgage REITs	640	(8)
Financial Analysis of an Equity REIT Illustrated	641	(7)
Real Estate Investment Performance and Portfolio Considerations	648	(27)
Introduction	648	(1)
The Nature of Real Estate Investment Data	648	(1)
Sources of Data Used for Real Estate Performance Measurement	649	(2)
REIT Data: Security Prices	649	(1)
Hybrid and Mortgage REITs	650	(1)
NCREIF Property Index: Property Values	651	(1)
Data Sources for Other Investments	651	(1)
Cumulative Investment Return Patterns	651	(1)
Computing Holding Period Returns	652	(2)
Computing Investment Returns	654	(1)
Risk, Return, and Performance Measurement	654	(2)
Risk-Adjusted Returns: Basic Elements	655	(1)
Elements of Portfolio Theory	656	(7)
Calculating Portfolio Returns	658	(1)
Portfolio Risk	658	(3)
Portfolio Weighting: Trading Off Risk and Return	661	(2)
Real Estate Returns, Other Investments, and the Potential for Portfolio Diversification	663	(12)
Portfolio Diversification: EREITs and Other Investments	663	(2)
Public versus Private Real Estate Investments	665	(1)
Real Estate Performance and Inflation	666	(1)
Diversification by Property Type and Location	666	(1)
Global Diversification	667	(3)
Risks of Global Investment	670	(1)
Use of Derivatives to Hedge Portfolio Risk	670	(1)
Example---Swap Office for Retail	671	(4)
Index	675