Standard Life Investments has designed a new tool to help institutional investors manage risk and inform their decisions when investing in global real estate.
The Global Real Estate Implementation Risk tool (GREIR) can help investors find the right markets for their level of risk appetite and understand the expected returns in their global real estate portfolios. It provides an easy method for investors to assess and compare the individual risk ratings of 60 different countries.
GREIR produces a risk score for each country that can be converted into a risk adjustment factor, to achieve a more accurate comparison of the ‘at risk’ portion of expected returns from a global real estate portfolio.
The GREIR tool aggregates three categories of global surveys, representing more than 300 data points, to evaluate and assess economic, political and real estate specific risks.
Indices from all three categories are weighted to produce a risk score of between 1 and 10 for each of the 60 countries included in the rankings. The country with the lowest score is the least risky for real estate investment. The seven components of the score are market size, ease of doing business, competitiveness, innovation, public sector corruption, creditdefault swap spreads, and transparency. The rankings will be updated on a quarterly basis.
Anne Breen, Standard Life Investments, Head of Real Estate Research and Strategy, said: “The level of risk in real estate investment varies enormously from country to country, and the historic measures used for these can mean investors miss changes in risk.
“Cross border investment requires a three dimensional assessment of how the mix of risks affects expected returns. The aim of the GREIR tool is to address the need for a robust framework on which to base decisions about global and regional real estate investment strategies. It provides a more coherent measurement of the domestic risks involved, and helps investors find the right markets for their level of risk appetite.”
Over time the GREIR tool will be expanded to include leading cities within each of the countries listed.