Risk management and the corporate real estate portfolio

In a global business economy, firms have a broad range of corporate real estate needs. During the past decade, multiple strategies and tactics have emerged in the corporate real estate community for meeting those needs. We propose here a framework for analysing and prioritising the various types of risk inherent in corporate real estate decisions. From a business strategy perspective, corporate real estate must serve needs beyond the simple one of shelter for the workforce and production process. Certain uses are strategic in that they allow access to externalities, embody the business strategy, or provide entrée to new markets. Other uses may be tactical, in that they arise from business activities of relatively short duration or provide an opportunity to pre-empt competitors. Still other corporate real estate uses can be considered “core” to the existence of the business enterprise. These might be special use properties or may be generic buildings that have become embodiments of the organisation’s culture. We argue that a multi-dimensional matrix approach organised around three broad themes and nine sub-categories allow the decision-maker to organise and evaluate choices with an acceptable degree of rigor and thoroughness. The three broad themes are Use (divided into Core, Cyclical or Casual) – Asset Type (which can be Strategic, Specialty or Generic) and Market Environment (which ranges from Mature Domestic to Emerging Economy). Proper understanding of each of these groupings brings critical variables to the fore and allows for efficient resource allocation and enhanced risk management.

Significance of dietary antioxidants for health

Since evidence became available that free radicals were involved in mechanisms for the development of major diseases, including cardiovascular disease and cancer, there has been considerable research into the properties of natural dietary antioxidants. However, it has become clear that dietary antioxidants can only have beneficial effects in vivo by radical scavenging or effects on redox potential if they are present in tissues or bodily fluids at sufficient concentrations. For many dietary components, absorption is limited or metabolism into derivatives reduces the antioxidant capacity. For many dietary phytochemicals, direct antioxidant effects may be less important for health than other effects including effects on cell signalling or gene expression in vivo.

Modulation of neuroinflammation by dietary flavonoids

There is increasing evidence to suggest neuroinflammatory processes contribute to the cascade of events that lead to the progressive neuronal damage observed in neurodegenerative disorders such as Parkinson’s disease and Alzheimer’s disease. The molecular mechanisms underlying such neurodegenerative processes are rather complex and involve modulation of the mitogen-activated protein kinase (MAPK) and NF-κB pathways leading to the generation of nitric oxide (NO). Such a small molecule may diffuse to the neighbouring neurons and trigger neuronal death through the inhibition of mitochondrial respiration and increases in the reactive oxygen and nitrogen species. Recently, attention has focused on the neuroprotective effects of flavonoids which have been effective in protecting against both age-related cognitive and motor decline in vivo. Although, the precise mechanisms by which flavonoids may exert their neuroprotective effects remain unclear, accumulating evidence suggest that they may exert their neuroprotective effects through the modulation of the MAP Kinase and PI3 Kinase signaling pathways. The aim of the present chapter is to highlight the potential neuroprotective role of dietary flavonoids in terms of their ability to modulate neuroinflammation in the central nervous system. We will provide an outline of the role glial cells play in neuroinflammation and describe the involvement of inflammatory mediators, produced by glia, in the cascade of events leading to neuronal degeneration. We will then present the evidence that flavonoids may modulate neuroinflammation by inhibiting the production of these inflammatory agents and summarise their potential mechanisms of action.

SATgene dietary model to implement diets of differing fat composition in prospectively genotyped groups (apoE) using commercially available foods

esponse to dietary fat manipulation is highly heterogeneous, yet generic population-based recommendations aimed at reducing the burden of CVD are given. The APOE epsilon genotype has been proposed to be an important determinant of this response. The present study reports on the dietary strategy employed in the SATgenɛ (SATurated fat and gene APOE) study, to assess the impact of altered fat content and composition on the blood lipid profile according to the APOE genotype. A flexible dietary exchange model was developed to implement three isoenergetic diets: a low-fat (LF) diet (target composition: 24 % of energy (%E) as fat, 8 %E SFA and 59 %E carbohydrate), a high-saturated fat (HSF) diet (38 %E fat, 18 %E SFA and 45 %E carbohydrate) and a HSF-DHA diet (HSF diet with 3 g DHA/d). Free-living participants (n 88; n 44 E3/E3 and n 44 E3/E4) followed the diets in a sequential design for 8 weeks, each using commercially available spreads, oils and snacks with specific fatty acid profiles. Dietary compositional targets were broadly met with significantly higher total fat (42·8 %E and 41·0 %E v. 25·1 %E, P ≤ 0·0011) and SFA (19·3 %E and 18·6 %E v. 8·33 %E, P ≤ 0·0011) intakes during the HSF and HSF-DHA diets compared with the LF diet, in addition to significantly higher DHA intake during the HSF-DHA diet (P ≤ 0·0011). Plasma phospholipid fatty acid analysis revealed a 2-fold increase in the proportion of DHA after consumption of the HSF-DHA diet for 8 weeks, which was independent of the APOE genotype. In summary, the dietary strategy was successfully implemented in a free-living population resulting in well-tolerated diets which broadly met the dietary targets set.

Regulation of NF-κB activity in astrocytes: effects of flavonoids at dietary-relevant concentrations

Neuroinflammation plays an important role in the progression of neurodegenerative disorders such as Alzheimer’s disease and Parkinson’s disease. Sustained activation of nuclear transcription factor κB (NF-κB) is thought to play an important role in the pathogenesis of neurodegenerative disorders. Flavonoids have been shown to possess antioxidant and anti-inflammatory properties and we investigated whether flavonoids, at submicromolar concentrations relevant to their bioavailability from the diet, were able to modulate NF-κB signalling in astrocytes. Using luciferase reporter assays, we found that tumour necrosis factor (TNFα, 150 ng/ml) increased NF-κB-mediated transcription in primary cultures of mouse cortical astrocytes, which was abolished on co-transfection of a dominant-negative IκBα construct. In addition, TNFα increased nuclear localisation of p65 as shown by immunocytochemistry. To investigate potential flavonoid modulation of NF-κB activity, astrocytes were treated with flavonoids from different classes; flavan-3-ols ((−)-epicatechin and (+)-catechin), flavones (luteolin and chrysin), a flavonol (kaempferol) or the flavanones (naringenin and hesperetin) at dietary-relevant concentrations (0.1–1 μM) for 18 h. None of the flavonoids modulated constitutive or TNFα-induced NF-κB activity. Therefore, we conclude that NF-κB signalling in astrocytes is not a major target for flavonoids.

Nutritional biomarkers for objective dietary assessment

The accurate assessment of dietary exposure is important in investigating associations between diet and disease. Research in nutritional epidemiology, which has resulted in a large amount of information on associations between diet and chronic diseases in the last decade, relies on accurate assessment methods to identify these associations. However, most dietary assessment instruments rely to some extent on self-reporting, which is prone to systematic bias affected by factors such as age, gender, social desirability and approval. Nutritional biomarkers are not affected by these and therefore provide an additional, alternative method to estimate intake. However, there are also some limitations in their application: they are affected by inter-individual variations in metabolism and other physiological factors, and they are often limited to estimating intake of specific compounds and not entire foods. It is therefore important to validate nutritional biomarkers to determine specific strengths and limitations. In this perspective paper, criteria for the validation of nutritional markers and future developments are discussed.

Correlation shifts and real estate portfolio management

The success of any diversification strategy depends upon the quality of the estimated correlation between assets. It is well known, however, that there is a tendency for the average correlation among assets to increase when the market falls and vice-versa. Thus, assuming that the correlation between assets is a constant over time seems unrealistic. Nonetheless, these changes in the correlation structure as a consequence of changes in the market’s return suggests that correlation shifts can be modelled as a function of the market return. This is the idea behind the model of Spurgin et al (2000), which models the beta or systematic risk, of the asset as a function of the returns in the market. This is an approach that offers particular attractions to fund managers as it suggest ways by which they can adjust their portfolios to benefit from changes in overall market conditions. In this paper the Spurgin et al (2000) model is applied to 31 real estate market segments in the UK using monthly data over the period 1987:1 to 2000:12. The results show that a number of market segments display significant negative correlation shifts, while others show significantly positive correlation shifts. Using this information fund managers can make strategic and tactical portfolio allocation decisions based on expectations of market volatility alone and so help them achieve greater portfolio performance overall and especially during different phases of the real estate cycle.

Time weighted portfolio optimisation

In estimating the inputs into the Modern Portfolio Theory (MPT) portfolio optimisation problem, it is usual to use equal weighted historic data. Equal weighting of the data, however, does not take account of the current state of the market. Consequently this approach is unlikely to perform well in any subsequent period as the data is still reflecting market conditions that are no longer valid. The need for some return-weighting scheme that gives greater weight to the most recent data would seem desirable. Therefore, this study uses returns data which are weighted to give greater weight to the most recent observations to see if such a weighting scheme can offer improved ex-ante performance over that based on un-weighted data.

Real estate portfolio construction and estimation risk

The use of MPT in the construction real estate portfolios has two serious limitations when used in an ex-ante framework: (1) the intertemporal instability of the portfolio weights and (2) the sharp deterioration in performance of the optimal portfolios outside the sample period used to estimate asset mean returns. Both problems can be traced to wide fluctuations in sample means Jorion (1985). Thus the use of a procedure that ignores the estimation risk due to the uncertain in mean returns is likely to produce sub-optimal results in subsequent periods. This suggests that the consideration of the issue of estimation risk is crucial in the use of MPT in developing a successful real estate portfolio strategy. Therefore, following Eun & Resnick (1988), this study extends previous ex-ante based studies by evaluating optimal portfolio allocations in subsequent test periods by using methods that have been proposed to reduce the effect of measurement error on optimal portfolio allocations.

Portfolio size and the reduction of dispersion: the case of the United Kingdom commercial real estate market

This paper investigates the potential benefits and limitations of equal and value-weighted diversification using as the example the UK institutional property market. To achieve this it uses the largest sample (392) of actual property returns that is currently available, over the period 1981 to 1996. To evaluate these issues two approaches are adopted; first, an analysis of the correlations within the sectors and regions and secondly simulations of property portfolios of increasing size constructed both naively and with value-weighting. Using these methods it is shown that the extent of possible risk reduction is limited because of the high positive correlations between assets in any portfolio, even when naively diversified. It is also shown that portfolios exhibit high levels of variability around the average risk, suggesting that previous work seriously understates the number of properties needed to achieve a satisfactory level of diversification. The results have implications for the development and maintenance of a property portfolio because they indicate that the achievable level of risk reduction depends upon the availability of assets, the weighting system used and the investor’s risk tolerance.

Risk reduction and real estate portfolio size

Despite a number of papers that discuss the advantages of increased size on risk levels in real estate portfolios there is remarkably little empirical evidence based on actual portfolios. The objective of this paper is to remedy this deficiency by examining the portfolio risk of a large sample of actual property data over the period 1981 to 1996. The results show that all that can be said is that portfolios of properties of a large size, on the average, tend to have lower risks than small sized portfolios. More importantly portfolios of a few properties can have very high or very low risk.

Is there a place for property in the multi-asset portfolio?

The case for property has typically rested on the application of modern portfolio theory (MPT), in that property has been shown to offer increased diversification benefits within a multi asset portfolio without hurting portfolio returns especially for lower risk portfolios. However this view is based upon the use of historic, usually appraisal based, data for property. Recent research suggests strongly that such data significantly underestimates the risk characteristics of property, because appraisals explicitly or implicitly smooth out much of the real volatility in property returns. This paper examines the portfolio diversification effects of including property in a multi-asset portfolio, using UK appraisal based (smoothed) data and several derived de-smoothed series. Having considered the effects of de-smoothing, we then consider the inclusion of a further low risk asset (cash) in order to investigate further whether property's place in a low risk portfolio is maintained. The conclusions of this study are that the previous supposed benefits of including property have been overstated. Although property may still have a place in a 'balanced' institutional portfolio, the case for property needs to be reassessed and not be based simplistically on the application of MPT.

Genetic predisposition to type 2 diabetes is associated with impaired insulin secretion but does not modify insulin resistance or secretion in response to an intervention to lower dietary saturated fat

Genome-wide association studies have identified SNPs reproducibly associated with type 2 diabetes (T2D). We examined the effect of genetic predisposition to T2D on insulin sensitivity and secretion using detailed phenotyping in overweight individuals with no diagnosis of T2D. Furthermore, we investigated whether this genetic predisposition modifies the responses in beta-cell function and insulin sensitivity to a 24-week dietary intervention. We genotyped 25 T2D-associated SNPs in 377 white participants from the RISCK study. Participants underwent an IVGTT prior to and following a dietary intervention that aimed to lower saturated fat intake by replacement with monounsaturated fat or carbohydrate. We composed a genetic predisposition score (T2D-GPS) by summing the T2D risk-increasing alleles of the 25 SNPs and tested for association with insulin secretion and sensitivity at baseline, and with the change in response to the dietary intervention. At baseline, a higher T2D-GPS was associated with lower acute insulin secretion (AIRg 4% lower/risk allele, P = 0.006) and lower insulin secretion for a given level of insulin sensitivity, assessed by the disposition index (DI 5% lower/risk allele, P = 0.002), but not with insulin sensitivity (Si). T2D-GPS did not modify changes in insulin secretion, insulin sensitivity or the disposition index in response to the dietary interventions to lower saturated fat. Participants genetically predisposed to T2D have an impaired ability to compensate for peripheral insulin resistance with insulin secretion at baseline, but this does not modify the response to a reduction in dietary saturated fat through iso-energetic replacement with carbohydrate or monounsaturated fat.