Homburg Institute
Program: Real Estate Development, and Project and Construction Management
2021 | Instructor-Led Program |


Creating Reliable Valuations

Course ID: REFN0101

Category: Business

This course anchors valuation methodology and outcomes in a broader framework, namely the one of risk, return, and portfolios. This framework creates the ultimate guideline for creating reliable valuations.

self-taught course
Duration: 10 Hours




Course Summary

This course anchors valuation methodology and outcomes in a broader framework, namely the one of risk, return, and portfolios. This framework creates the ultimate guideline for creating reliable valuations. Hence, this course will help you to describe and quantify that multi-faceted companion to reward: Risk. This course will outline principles of portfolio investment strategy, and compare the concepts and processes of sourcing and underwriting. It will describe the nature of real estate in diversified portfolios, and show you how to identify real estate correlations. You will understand the concepts and methods for due diligence, and compare the operation of internal risk rating systems. By the end of the course, you will be able to describe portfolio management techniques and instruments, including risk and return, and diversification, securitization, hedging, and derivatives. You will also be better able to understand and explain the interaction between the property market and the investment market;

Course Rationale

Valuations cannot be made in isolation. Indeed, real estate is typically held within a well-diversified portfolio and although the real estate might have been valued appropriately using the traditional methods, which were discussed in “The Commercial Real Estate Appraisal Process”, the ultimate decision whether or not to invest is made within a strategic portfolio framework. Only when a student understands this broader framework he or she can evaluate and use the outcomes of the valuation, provide feedback to the person doing the valuation, which in turn leads to more reliable valuations.

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About the instructor
Tom Geurts

Dr. Tom Geurts


Professor Tom Geurts, of George Washington University, holds a PhD in Real Estate and Finance from Pennsylvania State University (1998); an M.S., Economics, University of Amsterdam (1991); an M ...

View other courses from Dr. Tom Geurts


This course provides an overview of the framework within reliable valuations should take place, namely Portfolio Management and Asset Management.

Creating Reliable Valuations provides participants with an understanding how valuations serve a strategic and tactical role from a firm-wide perspective. A valuation should be done within this logical context, otherwise the results are rather useless.

A real estate firm, whether it operates locally or globally, adds real estate properties on a regular basis to its portfolio and which requires asset management once added. Consequently the real estate professional needs to understand the impact of a newly acquired asset on Portfolio Management and Asset Management as a requirement for creating more reliable valuations. This is especially important in those global markets with limited comparable sales data. The ability of the Real Estate professional to provide reasonable and logically obtained asset value data will foster confidence in the portfolio and asset management decisions made using the valuations.

Lecture 1 - Reliable Valuations as a Strategic Pre-Requisite for Portfolio Management

It is essential to understand the bigger picture within which an appraisal is being done, namely the firm-specific portfolio within which the real estate being valued will be placed. Specific topics:

  • Introducing the Investment Problem that a Firm Faces
  • Introducing Portfolio Management
  • Potential Problems associated with Valuations from a Portfolio Management Viewpoint
  • Why do Portfolio Managers care about Reliable Valuations?

Lecture 2 - Reliable Valuations as a Tactical Pre-Requisite for Asset Management

Just like portfolio managers need reliable valuations, asset managers are also involved in the process of creating reliable valuations. This lecture explains how the asset manager, who will have to manage the property being acquired, is involved in the valuation process. Specific topics:

  • Introducing Asset Management
  • Asset Management Characteristics of Different Types of Real Estate: Office, Residential, Retail, Industrial, and Hotel
  • Potential Problems associated with Valuations from an Asset Management Viewpoint
  • Why do Asset Managers care about Reliable Valuations?
  • Reliability Issues surrounding Valuing Stabilized Real Estate versus Value-Add Real Estate

Lecture 3 - Portfolio, Asset, Property, Facility, and Project Management

Besides portfolio managers and asset managers, there are others in the firm who get involved with the outcome of the valuation process, namely property managers, facility managers, and project managers. Although they are much less affected by the outcome of the valuations, it is important to review their roles and why reliable valuations are important for them. Specific topics:

  • Introducing Property, Facility, and Project Management
  • The Activities of these Managers within the Firm
  • How and Why do these Managers use Valuations
  • How are Real Estate Valuations affected by the Activities of these Managers?

Lecture 4 - Including Real Estate in the Portfolio

To better understand the big picture investment objectives of a real estate firm, this lecture will discuss the concept of diversification in more detail, leading to actually recommendations for portfolios. The choice of these investments in the portfolio is determined by correlation coefficients, which reflect the interaction between investments. This shows the big drawback of real estate valuations, putting their reliability in doubt: Real estate valuations look at these investments in isolation, ignoring the interaction with other investments. Specific topics:

  • Two Types of Diversification
  • Correlation Coefficients
  • How a Portfolio that includes Real Estate looks like
  • Global Real Estate Investments
  • Correlation Revisited
  • Why Risk has been Increasing
  • The Probability Distribution of Direct Real Estate Returns
  • Fat Tails Distribution in Real Estate

Lecture 5 - Pitfalls and Plain Mistakes

Estimating the value of real estate is complicated because there are many problems with the data and information that is available. This lecture looks at these problems from the firms' viewpoint, to be more exact the Portfolio Manager, and as such provides an insight into what appraisers typically ignore or don't realize. Clearly this makes valuations less reliable for the user of these valuations, namely the firm. Specific topics:

  • The Impact of Real Estate Cycles
  • Past Performance
  • Autocorrelation
  • The 40 Data Points Requirement: The Impact of the Life Cycle
  • Real Estate is Lumpy
  • Benchmarking and Roll’s Criticism
  • Institutional Investor Allocation
  • Going Abroad
  • Behavioral Real Estate Decisions
  • Non-Normal Distribution of Returns

Lecture 6 - The Importance of Reliable Valuations for REITs

Real Estate Investment Trusts (REITs) are in effect mutual funds owning real estate and they are one of the biggest users of valuations, since every quarter they need to determine the value of their portfolio. This lecture will look in more detail at the typical portfolio issues a REIT faces, so we can better understand the need and use of (reliable) valuations. Specific topics:

  • REIT Diversification versus Investor Diversification
  • REIT Portfolios
  • Example: New Plan/Excel
  • Example: Simon Property Group
  • Does Diversification Still Matter?
  • International Diversification
  • Highest NPV (= Highest and Best Use) is not always the Best Outcome
  • The Winners Curse

Lecture 7 - Global Risk, Portfolio Management and the Impact on Valuation Part One

Real Estate firms are investing in global real estate on an ever increasing scale. This means that firms are buying more and more real estate in a “foreign” country and in order to make smart decisions they seek transparency about the real estate market. One of the tools is the Valuation Report. This lecture explains the reasons behind global real estate investment trend and the need for good information about global real estate investments. Indeed, different laws, regulations, and customs in different countries need to be understood. Specific topics:

  • The Need for Real Estate Market Transparency
  • Global Real Estate Capital Flows
  • Where are Global Real Estate Investors putting their Capital?
  • In what Type of Real Estate are Global Real Estate Investors Putting their Capital?
  • What are the Drivers for Global Investment?
  • Risks Associated with Global Real Estate Investment.
  • A Strategy for Investing in Global Real Estate
  • Global Acquisitions

Lecture 8 - Global Risk, Portfolio Management and the Impact on Valuation Part Two

This lecture builds upon the previous one and tries to identify the particular problems and drawbacks with investing in global real estate. Specific topics:

  • Home Asset Bias
  • Political and Economic Risk
  • Transaction Costs in Different Countries
  • Bribery and Corruption
  • Socio-Cultural Risk
  • Foreign Control and Treatment of Foreigners
  • Exchange Rate Risk
  • Lessons to be Learned

Lecture 9 - Using Critical Market Information

This course has provided a lot of criticism with respect to creating reliable valuations, especially when it comes to valuing international real estate properties. This lecture tries to show an insight on how this problem perhaps can be solved in the future. Specific topics:

  • The International Asset Pricing Model
  • Data: IPD
  • Index: MSCI Index

Lecture 10 - Behavioral Real Estate Decisions

Not all decisions can be considered rational decisions and this lecture takes a look at that. It has an impact on Valuations and its reliability, because if the buyer and seller do not behave rational, while the Appraiser assumes rational behavior, the valuation is not a very reliable guideline for irrational investors. Specific topics:

  • The Importance of “Animal Spirits” on Decision Making
  • Herd Behavior
  • Prospect Theory
  • Familiarity Breeds Investment Theory
  • Overconfidence
  • The Pigou Cycle
  • Cycles Again
  • Hayek versus Keynes: https://www.youtube.com/watch?v=d0nERTFo-Sk&feature=player_embedded
This course includes
  • 10 hours on-demand lectures
  • 365 day access
  • Mobile access
Free Real Estate Finance and Investment Courses

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