Optimal Real Estate Portfolios

In recent years, increasing attention has been paid the problem of analyzing, evaluating and selecting real estate investments within the context of a portfolio. Most approaches simply attempt to adapt existing theory and models from the well‐developed literature of securities investments. Most adaptations or extensions to real estate are not without serious problems, however, because of several fundamental difficulties relating to optimization technology inadequacies and a general lack of reliable and consistent market data. This article deals with the major problems of utilizing some of the classic securities investment models for real estate. Further, a risk‐return model is advanced which overcomes most of the fundamental problems outlined earlier in the article.