@article {Pagliari119, author = {Joseph L.. Pagliari, Jr}, title = {The Pricing of Non-Core Real Estate Ventures}, volume = {33}, number = {5}, pages = {119--133}, year = {2007}, doi = {10.3905/jpm.2007.698911}, publisher = {Institutional Investor Journals Umbrella}, abstract = {The last several years have witnessed a significant shift among institutional real estate investors from {\textquotedblleft}core{\textquotedblright} deals to {\textquotedblleft}non-core{\textquotedblright} ventures. These non-core real estate transactions can be characterized as possessing one or more of the following traits: higher-return/higher-risk assets, greater leverage, shorter time horizons, and the use of a joint venture/operating partner. In this article, the author explores the pricing of non-core real estate investing by investigating three key aspects: 1) examining the impacts of financial leverage and demonstrating how the law of one price can be used to price non-core ventures by comparison to the core-with-leverage alternatives, 2) identifying the adverse effects of transaction costs upon investors{\textquoteright} return (which worsen as the holding period shortens and/or the leverage ratio increases), and 3) describing the costs (e.g., because of the asymmetric nature of the operating partner{\textquoteright}s promote, computing the expected value of the promote using the venture{\textquoteright}s expected return understates the expected value of the promote) and benefits involved with the use of joint venture partners-as well as some of the agency costs these partners introduce. Finally, a preliminary examination of the NCREIF data suggests that the joint-ventured office and industrial properties possibly provided investors with improved risk-adjusted rates of return. However, these conclusions are quite preliminary.TOPICS: Real estate, risk management, volatility measures}, issn = {0095-4918}, URL = {https://jpm.pm-research.com/content/33/5/119}, eprint = {https://jpm.pm-research.com/content/33/5/119.full.pdf}, journal = {The Journal of Portfolio Management} }