%0 Journal Article %A Joseph L.. Pagliari, Jr %T The Pricing of Non-Core Real Estate Ventures %D 2007 %R 10.3905/jpm.2007.698911 %J The Journal of Portfolio Management %P 119-133 %V 33 %N 5 %X The last several years have witnessed a significant shift among institutional real estate investors from “core” deals to “non-core” 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' 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's promote, computing the expected value of the promote using the venture'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 %U https://jpm.pm-research.com/content/iijpormgmt/33/5/119.full.pdf