Project 1You are an investment consultant retained to advise a mid-size university endowment fund about commercial real estate investment. You are to prepare a report which addresses several questions on real estate investment (listed in the next section) raised by the university’s investment committee.
Background
At its most recent meeting the Investment Committee of XYZ University has decided to investigate allocating a portion of the university’s endowment to commercial real estate. The committee has no previous experience of investment in this area and requires further information before committing investment funds to this sector. In particular, they wish to have your advice on the following questions:
Research questions
(1) What are the main property types in the commercial real estate market usually considered by institutional investors?
(2) If this fund wishes to allocate $200-400m to this sector, is this sufficient to build a diversified portfolio of commercial buildings?
(3) Advise the fund on the main advantages and disadvantages of investing in REITs as opposed to buying commercial real estate buildings directly.
(4) The endowment fund is already heavily invested in US equities, provide evidence on the average return, variance and correlations of direct real estate with REITs, equities (S&P500, Russell 2000) and bonds (data provided).
(5) Provide your assessment of the outlook for the commercial real estate market relative to the other classes.
This project is designed to provide experience using data on the performance of the commercial real estate market. A selection of quarterly returns data is provided in the file project_data.xls to assist with the project.

Date NCREIF SP500 Russell 2000 REITs 30 Year Bonds 30 Day Treasuries
1979Q1 0.038 0.071 0.169 0.137 0.017 0.024
1979Q2 0.043 0.027 0.067 0.090 0.045 0.025
1979Q3 0.048 0.076 0.111 0.148 -0.019 0.024
1979Q4 0.062 0.002 0.032 -0.045 -0.049 0.030
1980Q1 0.055 -0.040 -0.128 -0.044 -0.136 0.031
1980Q2 0.024 0.133 0.202 0.121 0.237 0.027
1980Q3 0.038 0.113 0.226 0.092 -0.112 0.020
1980Q4 0.053 0.095 0.078 0.063 0.022 0.032
1981Q1 0.030 0.014 0.083 0.056 -0.022 0.034
1981Q2 0.042 -0.022 0.037 0.035 -0.010 0.037
1981Q3 0.032 -0.103 -0.175 -0.107 -0.090 0.038
1981Q4 0.053 0.069 0.102 0.087 0.145 0.032
1982Q1 0.025 -0.071 -0.093 -0.037 0.043 0.028
1982Q2 0.021 -0.005 -0.014 -0.011 0.017 0.032
1982Q3 0.015 0.116 0.105 0.089 0.198 0.024
1982Q4 0.030 0.184 0.265 0.172 0.100 0.019
1983Q1 0.018 0.100 0.174 0.131 0.012 0.020
1983Q2 0.025 0.109 0.203 0.097 -0.002 0.021
1983Q3 0.030 -0.002 -0.049 -0.038 0.003 0.023
1983Q4 0.053 0.005 -0.039 0.095 0.000 0.022
1984Q1 0.034 -0.021 -0.067 0.044 -0.010 0.023
1984Q2 0.032 -0.025 -0.030 -0.006 -0.048 0.024
1984Q3 0.025 0.097 0.055 0.097 0.136 0.025
1984Q4 0.042 0.019 -0.029 0.062 0.081 0.024
1985Q1 0.021 0.091 0.139 0.094 0.017 0.019
1985Q2 0.026 0.076 0.035 0.062 0.135 0.019
1985Q3 0.024 -0.043 -0.044 -0.026 0.011 0.018
1985Q4 0.037 0.174 0.162 0.052 0.153 0.018
1986Q1 0.020 0.142 0.142 0.137 0.221 0.016
1986Q2 0.020 0.058 0.048 0.032 0.031 0.016
1986Q3 0.015 -0.072 -0.122 0.019 -0.024 0.014
1986Q4 0.026 0.053 0.006 -0.003 0.017 0.013
1987Q1 0.018 0.214 0.242 0.096 -0.018 0.014
1987Q2 0.012 0.050 -0.007 0.007 -0.054 0.013
1987Q3 0.021 0.067 0.042 -0.031 -0.104 0.014
1987Q4 0.027 -0.227 -0.291 -0.099 0.110 0.012
1988Q1 0.018 0.058 0.191 0.101 0.037 0.012
1988Q2 0.020 0.067 0.066 0.027 0.009 0.015
1988Q3 0.024 0.004 -0.009 0.012 0.011 0.017
1988Q4 0.031 0.031 -0.006 -0.007 0.018 0.018
1989Q1 0.018 0.070 0.077 0.024 0.010 0.018
1989Q2 0.020 0.089 0.064 0.058 0.141 0.022
1989Q3 0.021 0.107 0.067 0.037 -0.004 0.020
1989Q4 0.018 0.019 -0.049 -0.031 0.049 0.019
1990Q1 0.014 -0.030 -0.022 -0.039 -0.051 0.018
1990Q2 0.015 0.063 0.038 -0.001 0.043 0.019
1990Q3 0.008 -0.139 -0.245 -0.145 -0.036 0.019
1990Q4 -0.014 0.090 0.051 0.032 0.099 0.018
1991Q1 0.001 0.147 0.297 0.227 0.018 0.014
1991Q2 0.000 -0.002 -0.016 0.008 -0.003 0.014
1991Q3 -0.003 0.053 0.082 0.041 0.088 0.014
1991Q4 -0.053 0.084 0.057 0.054 0.063 0.012
1992Q1 0.000 -0.025 0.075 0.007 -0.043 0.009
1992Q2 -0.010 0.018 -0.068 0.026 0.039 0.009
1992Q3 -0.004 0.031 0.029 0.068 0.061 0.008
1992Q4 -0.028 0.053 0.149 0.038 0.012 0.007
1993Q1 0.008 0.043 0.043 0.216 0.068 0.007
1993Q2 -0.002 0.005 0.022 -0.029 0.049 0.007
1993Q3 0.011 0.025 0.087 0.093 0.084 0.007
1993Q4 -0.003 0.024 0.026 -0.074 -0.026 0.007
1994Q1 0.013 -0.038 -0.027 0.034 -0.078 0.007
1994Q2 0.015 0.004 -0.039 0.018 -0.043 0.009
1994Q3 0.015 0.050 0.069 -0.020 -0.015 0.010
1994Q4 0.019 0.000 -0.018 0.000 0.013 0.012
1995Q1 0.021 0.098 0.046 -0.002 0.067 0.012
1995Q2 0.021 0.096 0.094 0.059 0.122 0.015
1995Q3 0.021 0.081 0.099 0.047 0.026 0.014
1995Q4 0.011 0.059 0.022 0.041 0.088 0.014
1996Q1 0.024 0.055 0.051 0.023 -0.083 0.012
1996Q2 0.023 0.045 0.050 0.044 -0.013 0.013
1996Q3 0.026 0.031 0.003 0.065 0.009 0.013
1996Q4 0.026 0.083 0.052 0.188 0.045 0.013
1997Q1 0.023 0.026 -0.052 0.007 -0.046 0.012
1997Q2 0.028 0.175 0.162 0.050 0.058 0.012
1997Q3 0.034 0.076 0.149 0.118 0.064 0.013
1997Q4 0.047 0.030 -0.033 0.017 0.077 0.012
1998Q1 0.041 0.141 0.101 -0.005 0.012 0.013
1998Q2 0.042 0.034 -0.047 -0.046 0.059 0.012
1998Q3 0.035 -0.098 -0.201 -0.105 0.107 0.012
1998Q4 0.036 0.216 0.163 -0.029 -0.013 0.010
1999Q1 0.026 0.049 -0.054 -0.048 -0.071 0.011
1999Q2 0.026 0.069 0.156 0.101 -0.033 0.011
1999Q3 0.028 -0.062 -0.063 -0.080 -0.012 0.011
1999Q4 0.029 0.154 0.184 -0.010 -0.041 0.011
2000Q1 0.024 0.026 0.071 0.024 0.092 0.013
2000Q2 0.031 -0.028 -0.038 0.105 0.006 0.013
2000Q3 0.029 -0.006 0.011 0.076 0.016 0.015
2000Q4 0.033 -0.077 -0.069 0.037 0.076 0.015
2001Q1 0.024 -0.121 -0.065 0.004 -0.003 0.013
2001Q2 0.025 0.059 0.144 0.110 -0.031 0.010
2001Q3 0.016 -0.147 -0.209 -0.026 0.064 0.009
2001Q4 0.007 0.110 0.211 0.050 0.005 0.005
2002Q1 0.015 0.003 0.040 0.083 -0.034 0.004
2002Q2 0.016 -0.135 -0.084 0.050 0.058 0.004
2002Q3 0.018 -0.169 -0.214 -0.090 0.144 0.004
2002Q4 0.017 0.085 0.062 0.004 -0.004 0.004
2003Q1 0.019 -0.032 -0.045 0.007 0.006 0.003
2003Q2 0.021 0.155 0.234 0.131 0.051 0.003
2003Q3 0.020 0.027 0.091 0.095 -0.034 0.002
2003Q4 0.028 0.120 0.145 0.100 -0.015 0.002
2004Q1 0.026 0.018 0.063 0.120 0.056 0.002
2004Q2 0.031 0.017 0.005 -0.058 -0.059 0.002
2004Q3 0.034 -0.019 -0.029 0.082 0.070 0.003
2004Q4 0.047 0.092 0.141 0.152 0.022 0.004
2005Q1 0.035 -0.020 -0.053 -0.071 0.021 0.005
2005Q2 0.053 0.014 0.043 0.144 0.097 0.007
2005Q3 0.044 0.036 0.047 0.038 -0.043 0.008
2005Q4 0.054 0.022 0.011 0.015 0.016 0.009
2006Q1 0.036 0.042 0.139 0.147 -0.059 0.010
2006Q2 0.040 -0.015 -0.050 -0.016 -0.033 0.012
2006Q3 0.035 0.057 0.004 0.093 0.081 0.012
2006Q4 0.045 0.066 0.089 0.095 0.004 0.012
2007Q1 0.036 0.007 0.019 0.035 0.003 0.012
2007Q2 0.046 0.062 0.044 -0.090 -0.031 0.012
2007Q3 0.036 0.020 -0.031 0.026 0.057 0.012
2007Q4 0.032 -0.031 -0.046 -0.127 0.073 0.010
2008Q1 0.016 -0.094 -0.099 0.014 0.040 0.006
2008Q2 0.006 -0.026 0.006 -0.049 -0.027 0.004
2008Q3 -0.002 -0.079 -0.011 0.056 0.047 0.004
2008Q4 -0.083 -0.219 -0.261 -0.388 0.337 0.001
2009Q1 -0.073 -0.106 -0.150 -0.319 -0.132 0.000
2009Q2 -0.052 0.157 0.207 0.288 -0.122 0.000
2009Q3 -0.033 0.152 0.193 0.333 0.059 0.000
2009Q4 -0.021 0.061 0.039 0.094 -0.083 0.000
2010Q1 0.008 0.054 0.089 0.100 -0.001 0.000
2010Q2 0.033 -0.115 -0.099 -0.041 0.156 0.000
2010Q3 0.039 0.114 0.113 0.128 0.043 0.000
2010Q4 0.046 0.108 0.163 0.074 -0.097 0.000
2011Q1 0.034 0.057 0.079 0.075 -0.018 0.000
2011Q2 0.039 0.001 -0.016 0.029 0.034 0.000
2011Q3 0.033 -0.138 -0.219 -0.151 0.310 0.000
2011Q4 0.030 0.116 0.155 0.153 0.017 0.000
2012Q1 0.026 0.126 0.124 0.105 -0.074 0.000
2012Q2 0.027 -0.027 -0.035 0.040 0.128 0.000
2012Q3 0.023 0.063 0.053 0.010 -0.004 0.000
2012Q4 0.025 -0.005 0.019 0.031 -0.017 0.000
2013Q1 0.026 0.106 0.124 0.081 -0.025 0.000
2013Q2 0.029 0.029 0.031 -0.021 -0.064 0.000
2013Q3 0.026 0.052 0.102 -0.026 -0.031 0.000
2013Q4 0.025 0.106 0.087 -0.002 -0.041 0.000
2014Q1 0.027 0.017 0.011 0.085 0.087 0.000
2014Q2 0.029 0.051 0.020 0.071 0.048 0.000
2014Q3 0.026 0.011 -0.074 -0.025 0.040 0.000
2014Q4 0.030 0.051 0.097 0.129 0.097 0.000