The Institute’s research is entirely structured upon measuring investment yield differences compared to Benchmark Indices. These differences translate to pricing premium spreads over “safe” investments, yielding “risk” premiums for various types funding instruments and property types. Information covering current markets along with commentary is posted monthly, or more often, via The Real Estate Capital Scoreboard.
As with all types of investments, real estate capital markets are driven by risk and reward. The risk/reward spectrum in real estate investments are translated into various types of debt and equity yields. The conservative side of the spectrum reflects the debt markets (Mortgage Rates); entrepreneurial profits span realty equities (Capitalization Rates). In all instances, yields quantify risks.
Although all spread measurements for debt and equity yields are static — reflecting a given point in time, sequentially plotting these points establishes investor risk tolerance behavior patterns. These patterns help to understand future capital market behavior. Tightening spreads, for instance, indicate investors are more tolerant of risk and lead to the conclusion of more liquidity and competitive pricing. Conversely, loosening spreads indicate capital outflow patterns from the sector. The Real Estate Capital Market Cycles section covers spread behavior and provides forecasts on market direction.
Statistical probability cash flow modeling (e.g., Monte Carlo Simulation), discounted cash flow analysis and a host of other sophisticated investment risk modeling tools also measure future direction of realty profitability built upon risk tolerances. However these techniques ultimately revert to rate spread differences for formulating any forecasts.