the asset allocation of sustainable real estate: a chance for a green contribution ?

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The Asset Allocation of Sustainable Real Estate: A Chance for a Green Contribution? Analysing Sustainable Real Estate within the Context of a Mean-Variance Model Peter Geiger | Marcelo Cajias | Sven Bienert

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The Asset Allocation of Sustainable Real Estate: A Chance for a Green Contribution ? Analysing Sustainable Real Estate within the Context of a Mean-Variance Model. Peter Geiger | Marcelo Cajias | Sven Bienert. Agenda. What about Sustainable Real Estate All Good things are three… - PowerPoint PPT Presentation

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Page 1: The Asset  Allocation of Sustainable  Real Estate: A Chance  for  a Green  Contribution ?

The Asset Allocation of Sustainable Real Estate: A Chance for a Green Contribution?

Analysing Sustainable Real Estate within the Context of a Mean-Variance Model

Peter Geiger | Marcelo Cajias | Sven Bienert

Page 2: The Asset  Allocation of Sustainable  Real Estate: A Chance  for  a Green  Contribution ?

Agenda

1. What about Sustainable Real Estate2. All Good things are three…3. How to define Sustainable Real Estate4. Method as usual, Data usual or unusual…5. The Role of Sustainable Real Estate6. The Contribution

Page 3: The Asset  Allocation of Sustainable  Real Estate: A Chance  for  a Green  Contribution ?

What about Sustainable Real Estate

Sustainable Investing (SI) and Social Responsible Investing (SRI)

Recognition of growing footprint…

Four general reasons to invest in Sustainable Assets

Sustainable Real Estate growing topic over the last five years However: Mainly corporate level as well as property level in the research focus.

What about Sustainable Real Estate Investment…?

Risk Control Tail Wind Effects

Early Mover Advantage

Securisation of Long Term

Business Success

Long Term View on Natural Resources

Page 4: The Asset  Allocation of Sustainable  Real Estate: A Chance  for  a Green  Contribution ?

All Good things are three…

Defining and Setting Sustainable Investments in a Real Estate Context!

What Role does Sustainable Real Estate play in a Mean-Variance Framework?

Contribution of Sustainable Real Estate to a Multi-Asset Portfolio?

Page 5: The Asset  Allocation of Sustainable  Real Estate: A Chance  for  a Green  Contribution ?

How to define Sustainable Real Estate

“Development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (Brundtland)

“Triple Bottom Line”

Dow Jones Sustainability Index Sector Real Estate Basis to identify international sustainable real estate companies DJSI developed together with SAM a Corporate Sustainability Assessment

Real Estate a Major Role

Corporate Sustainability Assessment

Corporate Sustainability Score

Criteria Definition:GeneralIndustry Specific

Sources of Information: Questionnaire, Company Documents, Media&Stkh.,Contact with Companies

Source: DJSI

Page 6: The Asset  Allocation of Sustainable  Real Estate: A Chance  for  a Green  Contribution ?

Corporate Sustainability Monitoring

Impact Evaluation

Quality of Crisis Managament

Index Design Committee

Remaining or Excluding Company

Critical Issues Media & Stakeholder Anaylsis

Source: DJSI

How to define Sustainable Real Estate

Page 7: The Asset  Allocation of Sustainable  Real Estate: A Chance  for  a Green  Contribution ?

Dow Jones Sustainability Index Sector Real Estate in 2010

UNITED KINGDOM

19%

SINGAPORE6%

SWEDEN3%

AUSTRALIA26%NETHERLANDS

6%

UNITED STATES

16%

GERMANY3%

HONG KONG6%

FRANCE6%

JAPAN6%

Country Distribution

Real Estate Sector Distribution

How to define Sustainable Real Estate

Retail REITs29%

Real Estate Hold, Dev

19%Ind. & Office REITs26%

Diversified RE-ITs3%

Mortgage Finance

3%

Real Estate Services

3%

Residential RE-ITs6%

Mortgage RE-ITs3%

Specialty REITs3%

Divers. Industrials3%

Page 8: The Asset  Allocation of Sustainable  Real Estate: A Chance  for  a Green  Contribution ?

Dow Jones Sustainability Index Sector Real Estate – 2004 until 2010

0.02 0.04 0.06 0.08 0.1 0.12 0.14

-0.03

-0.02

-0.01

0

0.01

0.02

0.03

0.04

σ

μ

μ - σ Diagramm

Sustainable Real Estateequally weighted in accordance to the MarketCap

But: Varying amount of Constituents

How to define Sustainable Real Estate

2004

2010

Page 9: The Asset  Allocation of Sustainable  Real Estate: A Chance  for  a Green  Contribution ?

Method as usual, Data usual or unusual…

Methodology Using a Mean – Variance Model

Timeframe 2004 until 2010 ; Monthly Total Returns; 84 Observations Sub Sample 1: Jan 2004 until Jun 2007 and Sub Sample 2: Jul 2007 until Dec 2010 ( Bull & Bear ) Focus on UK Market

Opportunity Set

Domestic Equity FTSE ALL Share

Oversea Equity FTSE WORLD EX UK

Public Real Estate FTSE EPRA NAREIT

Sustainable Real Estate Dow Jones Sustainability Index – Sector Real Estate

Direct Real Estate IPD (unsmoothed)

LT Government Bond Long Term Government Bond-10y

Cash Treasury bill 3M

Page 10: The Asset  Allocation of Sustainable  Real Estate: A Chance  for  a Green  Contribution ?

Method as usual, Data usual or unusual…

0

50

100

150

200

250

Domestic EquityOversea EquityPublic Real EstateDJSI SREDirect Real EstateLT Gov.Bond

TR Index

Time

Jun 2007

2004

2010

Page 11: The Asset  Allocation of Sustainable  Real Estate: A Chance  for  a Green  Contribution ?

Method as usual, Data usual or unusual…

Asset Descriptive Statistic - Period 2004 -2010 Monthly

Domestic Equity Oversea Equity Public Real Estate DJSI SRE Direct Real Estate Long-Term Gov.Bond Cash

Mean 0,77% 0,80% 0,34% 1,46% 0,67% 0,17% 0,29%

Variance 0,0018 0,0021 0,0053 0,0045 0,0059 0,0003 0,0000

St.Dev. 4,22% 4,56% 7,27% 6,69% 7,71% 1,74% 0,17%

Asset Correlation - Period 2004 - 2010 Monthly

Domestic Equity

Oversea Equity

Public Real Estate DJSI SRE Direct Real

EstateLong-Term Gov.Bond Cash

Domestic Equity 1            

Oversea Equity 0,894 1

Public Real Estate 0,663 0,783 1

DJSI SRE 0,751 0,783 0,773 1

Direct Real Estate 0,262 0,166 0,351 0,265 1Long-Term Gov.Bond -0,136 0,008 -0,016 0,106 -0,343 1

Cash -0,150 -0,131 -0,064 -0,145 -0,172 -0,071 1

Page 12: The Asset  Allocation of Sustainable  Real Estate: A Chance  for  a Green  Contribution ?

Method as usual, Data usual or unusual…

Asset Descriptive Statistic - Period 012004 -062007 MonthlyDomestic Equity Oversea EquityPublic Real Estate DJSI SRE Direct Real

Estate Long-Term Gov.Bond Cash

Mean 1,33% 1,05% 1,91% 2,24% 1,35% -0,11% 0,39%

Variance 0,0004 0,0008 0,0020 0,0023 0,0027 0,0001 0,0000

St.Dev. 2,07% 2,76% 4,43% 4,79% 5,19% 1,08% 0,03%Asset Correlation - Period 012004 -062007 Monthly

Domestic Equity Oversea EquityPublic Real Estate DJSI SRE Direct Real Estate Long-Term Gov.Bond Cash

Domestic Equity 1            Oversea Equity 0,815 1Public Real Estate 0,562 0,440 1DJSI SRE 0,558 0,540 0,741 1Direct Real Estate 0,185 0,253 0,431 0,377 1Long-Term Gov.Bond -0,032 -0,018 0,307 0,241 0,206 1Cash 0,019 0,037 -0,357 -0,369 -0,107 -0,189 1

Domestic Equity

Oversea Equity

Public Real Estate DJSI SRE Direct Real

EstateLong-Term Gov.Bond Cash

Mean 0,21% 0,55% -1,22% 0,69% -0,01% 0,45% 0,19%Variance 0,0031 0,0034 0,0082 0,0066 0,0092 0,0005 0,0000St.Dev. 5,58% 5,86% 9,07% 8,15% 9,61% 2,20% 0,18%

Asset Correlation - Period 072007 -122010 MonthlyDomestic Equity Oversea EquityPublic Real Estate DJSI SRE Direct Real

Estate Long-Term Gov.Bond Cash

Domestic Equity 1            Oversea Equity 0,914 1Public Real Estate 0,677 0,630 1DJSI SRE 0,803 0,855 0,783 1Direct Real Estate 0,270 0,139 0,318 0,220 1Long-Term Gov.Bond -0,133 0,025 -0,049 0,095 -0,477 1Cash -0,318 -0,234 -0,251 -0,281 -0,316 0,053 1

Up

Mar

ket

Dow

n M

arke

t

Page 13: The Asset  Allocation of Sustainable  Real Estate: A Chance  for  a Green  Contribution ?

The Role of Sustainable Real Estate

Sample 2004 until 2010Portfolio MVP Low Risk Medium Risk High Risk Maximum ReturnDomestic Equity 0,00% 0,00% 0,00% 0,00% 0,00%Oversea Equity 10,48% 29,81% 40,94% 26,95% 0,00%Public Real Estate 4,13% 4,37% 3,79% 0,00% 0,00%Sustainable Real Estate 4,87% 26,50% 39,30% 72,72% 100,00%Direct Real Estate 3,67% 8,48% 10,97% 0,34% 0,00%LT Government Bond 71,85% 25,84% 0,00% 0,00% 0,00%Cash 5,00% 5,00% 5,00% 0,00% 0,00%Mean 0,33% 0,76% 1,00% 1,28% 1,46%St.Dev. 1,44% 2,39% 3,34% 5,02% 6,69%

MVP Low Risk Medium Risk High Risk Maximum Return

Domestic Equity

Oversea Equity

Public Real Estate

Sustainable Real Estate

Direct Real Estate

LT Government Bond

Cash

Page 14: The Asset  Allocation of Sustainable  Real Estate: A Chance  for  a Green  Contribution ?

The Role of Sustainable Real Estate

Up-Market : Jan.2004 until Jun. 2007Portfolio MVP Low Risk Medium Risk High Risk Maximum ReturnDomestic Equity 0,00% 0,00% 0,00% 0,00% 0,00%Oversea Equity 11,05% 30,39% 19,61% 0,00% 0,00%Public Real Estate 4,30% 19,95% 32,47% 30,51% 0,00%Sustainable Real Estate 3,67% 19,70% 36,18% 69,49% 100,00%Direct Real Estate 3,13% 10,68% 11,74% 0,00% 0,00%LT Government Bond 72,85% 14,28% 0,00% 0,00% 0,00%Cash 5,00% 5,00% 0,00% 0,00% 0,00%Mean 0,26% 1,29% 1,79% 2,14% 2,24%St.Dev. 0,90% 1,65% 2,40% 3,59% 4,79%

MVP Low Risk Medium Risk High Risk Maximum Return

Domestic Equity

Oversea Equity

Public Real Estate

Sustainable Real Es-tate

Direct Real Estate

LT Government Bond

Cash

Page 15: The Asset  Allocation of Sustainable  Real Estate: A Chance  for  a Green  Contribution ?

The Role of Sustainable Real Estate

Down-Market: Jul. 2007 until Dec. 2010Portfolio MVP Low Risk Medium Risk High Risk Maximum ReturnDomestic Equity 0,00% 0,00% 0,00% 0,00% 0,00%Oversea Equity 10,08% 27,17% 37,18% 27,69% 0,00%Public Real Estate 4,21% 0,00% 0,00% 0,00% 0,00%Sustainable Real Estate 5,21% 27,87% 41,88% 72,31% 100,00%Direct Real Estate 3,74% 0,00% 0,00% 0,00% 0,00%LT Government Bond 71,75% 44,96% 20,95% 0,00% 0,00%Cash 5,00% 0,00% 0,00% 0,00% 0,00%Mean 0,37% 0,54% 0,59% 0,65% 0,69%St.Dev. 1,81% 2,94% 4,07% 6,11% 8,15%

MVP Low Risk Medium Risk High Risk Maximum Return

Domestic Equity

Oversea Equity

Public Real Estate

Sustainable Real Estate

Direct Real Estate

LT Government Bond

Cash

Page 16: The Asset  Allocation of Sustainable  Real Estate: A Chance  for  a Green  Contribution ?

Portfolio MVP Low Risk Medium Risk High Risk Maximum Return

Domestic Equity 15,96% 0,00% 8,56% 0,00% 22,73% 0,00% 0,00% 0,00% 0,00% 0,00%

Oversea Equity 0,00% 11,76% 23,23% 21,52% 21,94% 26,87% 63,63% 39,95% 95,00% 0,00%

Public Real Estate 0,00% 4,14% 2,20% 4,24% 0,00% 4,32% 7,27% 4,46% 0,00% 0,00%

Sustainable Real Estate 6,29% 17,21% 23,21% 37,85% 100,00%

Direct Real Estate 1,43% 3,98% 7,61% 6,44% 8,30% 7,76% 17,65% 11,07% 0,00% 0,00%

LT Government Bond 77,61% 68,83% 53,39% 45,59% 42,03% 32,85% 6,46% 1,67% 0,00% 0,00%

Cash 5,00% 5,00% 5,00% 5,00% 5,00% 5,00% 5,00% 5,00% 5,00% 0,00%

Mean 0,28% 0,36% 0,41% 0,57% 0,49% 0,69% 0,68% 0,98% 0,94% 1,46%

St.Dev. 1,44% 1,44% 1,81% 1,81% 2,17% 2,17% 3,25% 3,25% 4,33% 6,69%

The Role of Sustainable Real Estate

Sample: 2004 until 2010

Page 17: The Asset  Allocation of Sustainable  Real Estate: A Chance  for  a Green  Contribution ?

Portfolio MVP Low Risk Medium Risk High Risk Maximum Return

Domestic Equity 19,87% 0,00% 62,34% 0,00% 68,06% 0,00% 16,10% 0,00% 0,00% 0,00%

Oversea Equity 0,00% 11,05% 0,00% 28,80% 0,00% 26,94% 0,00% 0,00% 0,00% 0,00%

Public Real Estate 0,00% 4,30% 5,54% 18,70% 20,98% 29,37% 67,85% 42,78% 100,00% 0,00%

Sustainable Real Estate 3,67% 18,43% 31,29% 56,97% 100,00%

Direct Real Estate 1,67% 3,13% 7,05% 10,08% 10,96% 12,40% 16,05% 0,25% 0,00% 0,00%

LT Government Bond 73,46% 72,85% 20,07% 19,00% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00%

Cash 5,00% 5,00% 5,00% 5,00% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00%

Mean 0,22% 0,26% 1,03% 1,20% 1,46% 1,71% 1,73% 2,09% 1,91% 2,24%

St.Dev. 0,90% 0,90% 1,55% 1,55% 2,22% 2,22% 3,32% 3,32% 4,43% 4,79%

The Role of Sustainable Real Estate

Up-Market : Jan.2004 until Jun. 2007

Page 18: The Asset  Allocation of Sustainable  Real Estate: A Chance  for  a Green  Contribution ?

Portfolio MVP Low Risk Medium Risk High Risk Maximum Return

Domestic Equity 15,28% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00%

Oversea Equity 0,00% 10,59% 31,35% 20,80% 45,66% 27,07% 74,38% 39,78% 100,00% 0,00%

Public Real Estate 0,00% 2,24% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00%

Sustainable Real Estate 5,68% 19,09% 27,66% 45,55% 100,00%

Direct Real Estate 1,48% 3,32% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00%

LT Government Bond 78,25% 73,16% 68,65% 60,11% 54,34% 45,28% 25,62% 14,68% 0,00% 0,00%

Cash 5,00% 5,00% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00%

Mean 0,39% 0,41% 0,48% 0,52% 0,50% 0,54% 0,53% 0,60% 0,55% 0,69%

St.Dev. 1,82% 1,82% 2,38% 2,38% 2,93% 2,93% 4,39% 4,39% 5,86% 8,15%

The Role of Sustainable Real Estate

Down-Market : Jul.2007 until Dec. 2010

Page 19: The Asset  Allocation of Sustainable  Real Estate: A Chance  for  a Green  Contribution ?

Contribution

Sustainable Real Estate Risk- Return attributes unique compared to Direct and Public Real Estate

Higher Return by less RiskQuestion: Is it a own Asset Class…?

Major Role within a Multi-Asset- Portfolio in view of its characteristics. Sustainable Real Estate represented in basically all Portfolios. Positive Effect on the other Real Estate Asset Class in a MVP.

The comparison shows that Sustainable Real Estate has to be integrated! Chance for a Green Sustainable Contribution in a Mean-Variance Framework:

What gets measured, gets done“

Page 20: The Asset  Allocation of Sustainable  Real Estate: A Chance  for  a Green  Contribution ?

Thank you!Any Questions or Commentaries?