In many cases this enhancement should be large enough to induce real estate owners to make property available for component separation. The resulting income component has the investment characteristics of a tax-sheltered corporate bond, and should be sold to taxable investors to realize the value enhancement. An active strategy of investing in the assets, using predicted returns from our model outperforms investing in passive strategies, which are combinations of asset classes with fixed weights for the entire period of the study. Thus our superior performance is not due to diversification alone. This note presents a model of commercial construction activity that incorporates the availability of mortgage funds as well as the mortgage rate.
Empirical tests show that mortgage availability is an important determinant of construction.
This paper develops an optimal portfolio selection technique when short sales on real estate assets are restricted. Our paper provides a simple but powerful tool for portfolio managers to correctly construct mean-variance portfolios under short sale constraints.