%0 Journal Article %A Adam Hastings %A Hans Nordby %T Benefits of Global Diversification on a Real Estate Portfolio %D 2007 %R 10.3905/jpm.2007.698905 %J The Journal of Portfolio Management %P 53-62 %V 33 %N 5 %X Capital flows are increasingly global across all asset classes, including the real estate world. Because global real estate portfolios contain assets influenced by different national economies, with very different drivers, growth rates, and risk, the correlation of total returns between assets in these markets can be very low. Low or negative correlations provide the ultimate recipe for the “free lunch” of modern portfolio theory: returns that are the weighted average of assets within the portfolio, but volatility less than the weighted volatility of the individual assets. Unlike the case in domestic investments, however, the movement of foreign exchange rates must be considered, as unfavorable currency movements can severely hinder performance. Real estate is generally a long-hold investment strategy, but property income and ultimately the final selling price will be received in the local currency and must, at some point, be repatriated to U.S. dollars. The authors examine investments in global office properties, both with and without currency exchange rate factors, and make a compelling case for investment in the global office sector instead of investment only in the U.S. market.TOPICS: Real estate, risk management, portfolio management/multi-asset allocation %U https://jpm.pm-research.com/content/iijpormgmt/33/5/53.full.pdf