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MSCI launches first global private real estate risk model

IPD, in collaboration with MSCI, has launched the Barra Private Real Estate Model (PRE2), the industry’s first global private real estate multi-factor risk model.

“Until now it has not been possible to measure and compare the risks of global real estate with other asset classes,” says Roveen Bhansali, managing director and head of risk management analytics for MSCI. “This new private real estate model represents a major step forward by expanding coverage to 31 countries and putting it in a global, multi-asset-class context.”
 
The Barra PRE2 model incorporates global private real estate data from IPD, which was acquired by MSCI just over a year ago.
 
PRE2 also provides a consistent methodology for modelling global private real estate and integration within MSCI’s multi-asset class fundamental factor model, Barra Integrated Model (BIM), which includes both public and private real estate.
 
The IPD dataset allows managers to overcome the challenge of using public equity to represent private real estate. It shows that some intuitively appealing relationships between public equity markets and private real estate fail to have explanatory power. For example, the relationships between New York real estate and financial stocks, Houston and energy stocks or San Francisco and technology stocks all have very low statistical significance.
 
Peter Hobbs, managing director of research, IPD, says: “This development provides fund managers unprecedented insight into global real estate risks. The new PRE2 model reflects the changes in private real estate risk forecasts in a more timely fashion than traditional methods.”

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