Investment Theories

Unlike their colleagues in the stock and bond markets,
institutional real estate investors have been slow to use Modern Portfolio Theory (MPT)
 in their decisionmaking processes. Surveys by Wiley, (1976), Webb (1984), Louargand (1992),
and Worzala and Bajelsmit (1997) have shown that diversification has slowly entered into the lexicon
and decision-making processes of institutional real estate investors, but those that used the
quantitative methods espoused by MPT were in the minority. See examples of commercial real estate listings. To be sure, not all stock and bond
managers use MPT to construct or analyze their portfolios, but the real estate practitioners’
unwillingness to use these quantitative tools was due to their discomfort with MPTs reliance on
data they saw as unrepresentative and MPTs abstraction from the traditional real estate
decision-making process, which has been concernedwith the details and specifics of “doing the deal.”