{"title":"Leverage in real estate investments: an optimization approach","authors":"Nick Tyrrell, Jesse Bostwick","doi":"10.1002/bref.163","DOIUrl":null,"url":null,"abstract":"<p>Real estate investments are frequently leveraged. Leverage is an important tool for any real estate investor whose target return exceeds the expected return on core, unleveraged assets, since it can increase potential returns – although at the cost of increasing risk. It therefore competes with other means of raising risk and returns – in particular, buying riskier underlying investments – as a method of improving the performance of a portfolio. From a theoretical perspective, leverage should be preferred so long as the marginal increase in expected return per unit of extra risk from leverage exceeds that obtained from buying riskier assets. Since there are diminishing returns to leverage – primarily because costs rise as borrowing levels rise relative to value – this trade-off will become less attractive as leverage rises, leading to an equilibrium optimal level of leverage. If all investors face the same opportunity set, then, from a theoretical perspective, all investors should leverage core investments up to this level so long as their return target is at least as high as the returns generated at this equilibrium point – a conclusion that is out of line with current practice. Unfortunately, it is very difficult to measure this equilibrium point, since, while it is relatively straightforward to compute the increase in risks and returns deriving from leverage, rather little is known about the risk/return trade-off in real estate space. Copyright © 2008 John Wiley & Sons, Ltd.</p>","PeriodicalId":100200,"journal":{"name":"Briefings in Real Estate Finance","volume":null,"pages":null},"PeriodicalIF":0.0000,"publicationDate":"2008-03-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1002/bref.163","citationCount":"12","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Briefings in Real Estate Finance","FirstCategoryId":"1085","ListUrlMain":"https://onlinelibrary.wiley.com/doi/10.1002/bref.163","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"","JCRName":"","Score":null,"Total":0}
引用次数: 12
Abstract
Real estate investments are frequently leveraged. Leverage is an important tool for any real estate investor whose target return exceeds the expected return on core, unleveraged assets, since it can increase potential returns – although at the cost of increasing risk. It therefore competes with other means of raising risk and returns – in particular, buying riskier underlying investments – as a method of improving the performance of a portfolio. From a theoretical perspective, leverage should be preferred so long as the marginal increase in expected return per unit of extra risk from leverage exceeds that obtained from buying riskier assets. Since there are diminishing returns to leverage – primarily because costs rise as borrowing levels rise relative to value – this trade-off will become less attractive as leverage rises, leading to an equilibrium optimal level of leverage. If all investors face the same opportunity set, then, from a theoretical perspective, all investors should leverage core investments up to this level so long as their return target is at least as high as the returns generated at this equilibrium point – a conclusion that is out of line with current practice. Unfortunately, it is very difficult to measure this equilibrium point, since, while it is relatively straightforward to compute the increase in risks and returns deriving from leverage, rather little is known about the risk/return trade-off in real estate space. Copyright © 2008 John Wiley & Sons, Ltd.
房地产投资中的杠杆作用:一种优化方法
房地产投资经常是杠杆化的。对于那些目标收益超过核心非杠杆资产预期收益的房地产投资者来说,杠杆是一个重要的工具,因为它可以增加潜在收益——尽管代价是风险增加。因此,作为一种改善投资组合业绩的方法,它与其他提高风险和回报的手段——特别是购买风险较高的基础投资——展开竞争。从理论上讲,只要单位额外风险的预期收益边际增长超过购买风险资产的边际增长,就应该优先使用杠杆。由于杠杆的收益递减——主要是因为成本随着借贷水平相对于价值的上升而上升——随着杠杆的上升,这种权衡将变得不那么有吸引力,从而导致均衡的最优杠杆水平。如果所有投资者都面临相同的机会集,那么,从理论的角度来看,只要他们的回报目标至少与这个平衡点产生的回报一样高,所有投资者都应该将核心投资杠杆化到这个水平——这一结论与当前的实践不符。不幸的是,衡量这个平衡点是非常困难的,因为虽然计算杠杆带来的风险和回报的增加相对简单,但对房地产领域的风险/回报权衡知之甚少。版权所有©2008 John Wiley &儿子,有限公司
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