Risk management in the aftermath of Lehmann Brothers – Results from a survey among German and international real estate investors

Abstract

Based on literature research and the ‘ideal’ risk management process, the author presents the findings of a survey amongst German and international real estate investors. The integration of risk management into a corporate structure and the importance of various risk management methods for investors are examined. In this context, the application of Modern Portfolio Theory (MPT), property derivatives and the use of ratings are major topics. Investors also express their views on the need to adjust risk management in light of the current real estate crisis. Overall, the findings suggest that the perception that investors would already use a broad range of highly sophisticated risk management methods is barely reflected by the actual application of such tools in the real estate practice. The study results particularly reveal the importance of interfaces and the establishment of a more future oriented approach to risk management.

Keywords:

• risk management
• portfolio management
• property derivatives
• ratings
• real estate investors

Acknowledgements

The author would like to thank Professor Ottmar Schneck and Dr. Armin Betz for their assistance in the completion of this paper. Also, special thanks to James Bauer MRICS and REAG GmbH Real Estate Advisory Group Germany for their support concerning the data base research.

Notes

1. Information on assets under management was retrieved from the most recent financial statements where available.

2. Future: standardised, forward‐deal traded on a stock exchange; Forward: obligation to buy and sell a commodity at a determined point of time in the future.

3. One of the most important indexes thus far is the IPD index. It is offered by the research firm Investment Property Databank Ltd. It is a value‐based total yield index.