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Real estate investment has been generally accepted as a value-adding proposition for a portfolio investor. Such an impression is not only shared by investment professionals and financial advisors but also appears to be supported by an overwhelming amount of research in the academic literature. The benefits of adding real estate as an asset class to a well-diversified portfolio are usually attributed to the respectable risk-return profile of real estate investment together with the relatively low correlation between its returns and the returns of other financial assets. By using the regime-switching technique on an extensive historical dataset, we attempt to look for the statistical evidence for such a claim. Unfortunately, the empirical support for the claim is neither strong nor universal. We find that any statistically significant improvement in risk-adjusted return is very much limited to the bullish environment of the real estate market. In general, the diversification benefit is not found to be statistically significant unless investors are relatively risk averse. We also document a regime-switching behavior of real estate returns similar to those found in other financial assets. There are two distinct states of the real estate market. The low-return (high-return) state is characterized by its high (low) volatility and its high (low) correlations with the stock market returns. We find this kind of dynamic risk characteristics to play a crucial role in dictating the diversification benefit from real estate investment.

The real estate market has evolved significantly over the past 10 years and has experienced rapid growth throughout the world in its various forms. Many emerging countries witnessed the significant growth in their commercial real estate markets that became a stable sector of their economies. These countries, after developing a reliable commercial real estate base within their economies subsequently developed real estate financial markets. The growth of the real estate investment trusts, REITs, markets in many countries within the past decade helped attract global capital that facilitated additional investments in local real estate developments. Significantly, this period of time may have witnessed a higher degree of integration of real estate with the broader financial markets due in large part to the securitization of mortgages. Yet the general real estate market was also impacted in many parts of the world with rising prices and subsequent price collapses. This section focuses on the various areas of the global real estate market and the changes that it has encountered as examined by researchers of real estate. This chapter also examines the recent trends in global real estate markets and explores how these changes have affected the broader investment community.

This article identifies the concept of market value as a standardizing concept that coordinates the actions of market participants in relatively inefficient real estate markets. The paper also identifies different levels of discourse that reflect the organizational/institutional complexity of the real estate appraisal profession. The standardizing effect of market value includes a cognitive and fiduciary component. Using this framework, the paper traces the influence of Richard T. Ely’s institutional economics – and its legacy in the form of the research program of Urban Land Economics at the University of Wisconsin – on the formation and development of the standards of appraisal and ethical practice. This complexity is traced historically from the early part of the 19th century to the formation of the professional organizations and the establishment of their standards, and also through a series of reform efforts in the 1960s and 1980s that were articulated in the academic community. The paper illustrates the manner in which Institutional Economics has been influential in the continuing development of the real estate appraisal profession and suggests reasons for its continuing relevance.

This paper explores the origins of the great fortunes of the Gilded Age. It relies on two lists of millionaires published in 1892 and 1902, similar to the Forbes magazine list of the 400 richest Americans. Manufacturing, as might be expected, was the most important source of Gilded Age fortunes. Many of the millionaires, moreover, won their fortunes by exploiting the latest technology: Alfred D. Chandler's “continuous-flow production.” A more surprising finding is that wholesale and retail trade, real estate, and finance together produced more millionaires than manufacturing. Real estate and finance, moreover, were by far the most important secondary and tertiary sources of Gilded Age fortunes: entrepreneurs started in many sectors, but then expanded their fortunes mainly through investments in real estate and financial assets. Inheritance was also important, especially in older regions. The observations, moreover, come before and after the Crisis of 1893, one of the most severe financial crises of the nineteenth century. The data reveal a high degree of survival among the great fortunes, and perhaps most surprising, a high degree of survival for fortunes based on real estate.

Both neoclassical and Keynesian economists have widely favored the use of equilibrium models to understand economic activity, but dramatic periods of change such as the current global economic downturn are poorly understood by assuming equilibrium. The economist Joseph Schumpeter tried to inject dynamism and disequilibrium into economic models by arguing for the role of entrepreneurs in creating microeconomic change, and for examining long-term macroeconomic change as represented in business cycles. No economist, including Schumpeter, has ever connected these two approaches to change and these approaches are not typically used as alternative and complementary ways of viewing transformation over time. We suggest that these theories can be connected in a “mesoeconomic” institutional analysis rooted in economic sociology; we demonstrate this connection by examining the US commercial building industry. This industry has changed in qualitatively distinct ways over the past two centuries in what we call market orders, economic orders sometimes lasting for decades or more. In each market order, entrepreneurs of different sorts are able to flourish and push forward institutional changes that result in long-term economic shifts. Credit and finance have been pivotal influences in each market order, a factor supporting Schumpeter's focus on entrepreneurial action and speculation and one not largely discussed today. We view the recent disruption of financial markets as a signal of the destruction of a reigning market order.