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Journal of Education for Business
ISSN: 0883-2323 (Print) 1940-3356 (Online) Journal homepage: http://www.tandfonline.com/loi/vjeb20
A Review of “Global Property Investment:
Strategies, Structures, Decisions”
James L. Morrison
To cite this article: James L. Morrison (2014) A Review of “Global Property Investment: Strategies, Structures, Decisions”, Journal of Education for Business, 89:4, 213-214, DOI: 10.1080/08832323.2013.845545
To link to this article: http://dx.doi.org/10.1080/08832323.2013.845545
Published online: 02 May 2014.
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JOURNAL OF EDUCATION FOR BUSINESS, 89: 213–214, 2014 CopyrightC Taylor & Francis Group, LLC
ISSN: 0883-2323 print / 1940-3356 online DOI: 10.1080/08832323.2013.845545
Book Review
Baum, Andrew, & Hartzell, David.Global Property Invest-ment: Strategies, Structures, Decisions. West Sussex, UK: Wiley-Blackwell. (2012). 559 pp. ISBN: 978-1-4443-3528-6.$80.00.
THOROUGH AND CHALLENGING: USING A FORECASTING MODEL TO REDUCE RISK
This text about global real estate investment by Baum and Hartzell integrates important aspects of international and cor-responding capital markets into a cutting edge perspective. They take some of the mystery out of such investments by us-ing their forecastus-ing model to predict asset values for the tim-ing of purchastim-ing and selltim-ing decisions. Baum and Hartzell provide valuable insight that will assist the real estate in-vestor in dealing with economic distortions, such as inflation or leveraging that are characteristic of the real estate market. The fact that property depreciates over time due to deterio-ration or perhaps obsolescence highlights the need to have an investment strategy based on credible information. Baum and Hartzell propose that their forecasting model enhances the likelihood of being successful in the long run. With their intensive analysis of global real estate markets, they provide a scholarly approach for studying varying dimensions of a rather complex industry.
Specifically, the target audience for the text is the graduate master of business administration student seeking to under-stand the real estate investment industry. Although the con-tent of the text would be a challenge, business students at the upper level of undergraduate study could maneuver through the numerous case studies, examples and models integrated into the text. Finally, the text would be useful to profession-als in the field as they attempt to generate global real estate investment portfolios as part of their overall diversification strategy.
The text is divided into four parts. Part I introduces the reader to real estate as an investment opportunity. Baum and Hartzell initially review the performance history of real estate investment by categorizing it as a medium-risk investment. They provide context for addressing the cyclicality of the real estate market as depicted when prices rise due to strong interest among investors and then correspondingly fall when demand decreases. The authors review the history of price
movements through the 1970s, 1980s, 1990s, and the re-cent 2006–2008 period. Important to this discussion is the focus on market fundamentals in regard to how rents relate to forecasting trends in the movement of property prices. In Chapters 1–4, the reader is introduced to the concepts of asset pricing, rate of return, illiquidity management, and capital return. Baum and Hartzell provide an interesting per-spective by illustrating a direct relationship between cap rates and index-linked bonds. This discussion sets the foundation for analyzing finance-based theories of asset pricing, which leads into Part II.
In Part II, Baum and Hartzell focus on forecasting tech-niques that may be used to determine when it is timely to invest in as well as to withdraw from owning property. There-fore, the process of making sound decisions is the essence of the analysis in this part of the text. The message here is the need to maintain adequate cash flow at all times. Included in this decision-making process is the study of risk, as the degree of uncertainty has a great bearing on when to invest. Paying prices for property that are too high relative to a prop-erty’s true value is an investor’s nightmare. Chapters 5–10 focus on the topics of being knowledgeable about discount rates, the leasing process, mortgages, leverage feasibility, and raising capital. An important part of the forecasting model is using discount cash flow analysis as a technique for valuing real estate. Related topics of significance that merit study are learning about impacts of rental leases, debt financing, and taxes on determining asset values. This segment in the text leads the reader to a discussion of property appraisal introduced in Part III.
In Part III, Baum and Hartzell clearly delineate a number of structures that assist investors as they address issues asso-ciated with liquidity. For example, considerable attention is devoted to low levels of diversification and higher levels of risk typically associated with real estate investments. Struc-tures presented for analysis include real estate investment trusts (REITs), unlisted real estate funds, and the property derivatives market. In Chapters 11–14 they build a founda-tion for learning how to enhance real estate liquidity by man-aging debt (specifically mortgage management) to generate returns on investment that are consistent with other forms of investments. This segment of the text ends with a discussion of real estate derivatives, including a clear delineation of their pros and cons.
214 BOOK REVIEW
Part IV illustrates the basic tenet of diversification: com-bining assets that perform differently as prices rise and fall. Controlling volatility today requires a global strategy as there are a number of strategic players competing for a high return on investment. These players include life insurance compa-nies, pension funds, and REITs, among others. These entities often hold properties across different parts of the world, thus impacting upon local decisions made by investors. In Chap-ters 15–18, Baum and Hartzell address economic distortions in the real estate market generated by a variety of global players who are creating international portfolios to maintain a continual stream of income. The challenge here is to level the playing field as economies around the world often dif-fer in the inflationary and recessionary pressures associated with varying capital markets. Being on top of one’s game by adopting a diverse investment strategy based on sound in-formation is exemplified in this part. They conclude the text with a description of the best practice real estate investment strategy.
The strength of the text lies in the examples of problems and solutions associated with real estate investing. A com-parison of a UK property market with that of the United States and other countries brings a worldly perspective to the topic. In this regard, Baum and Hartzell present many cases for analysis to guide the reader through realistic situations. To assist the class instructor, there is a highly informative website available. Correspondingly, PowerPoint slides ac-company the chapters along with additional cases studies and features that focus on specific topics. A weakness in the text is the lack of attention to the effects of online or vir-tual organizations in the private sector. For example, with
organizations attempting to reduce costs, the need for more facilities and/or property may be lessening. As some orga-nizations now provide incentives for employees to telecom-mute, thus spending more time at home, the demand for estate may be reduced considerably in the future. With the Internet and new forms of social media revolutionizing how organizations operate, their effect on asset values is likely to become more significant.
Understanding real estate as a global asset and thus con-trolling property market cycles is the central theme of this text. Asset pricing and forecasting future value in an effort to time purchasing decisions is considered a science by the authors. Reducing the uncertainty related to the decision-making process by adopting the model developed by the authors takes the study of investing to an intriguing new level. Baum and Hartzell reflect on what went wrong in the past as we have just begun to recover from a real es-tate market that got out of balance several years ago. The premise here is that with intelligent risk-averse benchmark-ing tools assistbenchmark-ing in the decision-makbenchmark-ing process, the in-vestor can have more confidence in forecasting future trends and thereby negate some of the illiquidity associated with real estate investment. Therefore, Baum and Hartzell provide the reader with techniques to more effectively value and price real estate as an asset. This text is a must-read for anyone interested in gaining insight into the real estate investment process.
James L. Morrison
University of Delaware Newark, Delaware, USA
