RISK MANAGEMENT IN THE REAL ESTATE INDUSTRY

Risk Management In The Real Estate Industry

Real Estate Risk Management

Introduction

The practice of investing is mainly all in relation to weighing prospective return and the risk related with it. That easy definition demotes investing in monetary instruments such as bonds and stocks as well as hard assets such as commodities, rare works of art, vintage cars, and Real Estate. From this viewpoint, investors are and have forever been "Return Generators" and "Risk Managers". So long as investors have just their own capital to spend, their double identity is practicable.We could saythat Managers weigh the risk; they make the investment decision. The judgment is mine and so are the consequences. In the more complex real world, where investment managers make investment decisions on behalf of others, the dual identity is less workable. In the jargon of finance research, this is a "principal-agent" problem. Decisions are made by investment managers (agents) but the consequences are shouldered by investors (principals).

Over the years, the executive structure of real estate investment management companies has normally become larger and more complex including executive hard work to line up the interests of investors and managers. Improved performance reporting, auditing, "pay for performance" compensation programs, and research tasks are all division of those endeavors. The adding of risk managers is the next wave of improvement. Risk managers are alike research specialists in sensibility and skill-set; they are different from research workers in their spotlight on the risk part of the risk-return investment equation.

Discussion

In the parts that pursue, This paper discusses the sources of risk management and sketch out the role of risk managers in real estate investment organizations by dissecting the risks that are embedded in day-to-day real estate investing. The content draws from real estate organizations' data developing the responsibilities and role of risk managers for real estate in businesses. (Chichilnisky 1998)

Risk Management Development

Over the years, many processes, tools and guidelines have been produced to provide investors guarantee that asset managers are evaluating potential returns and considering risks in a way that is suitable to investors. A large amount of these method involve government rule which enforces and describes rules for controlled monetary businesses. (Clark 2008)

Thrifts, Commercial banks, mutual fund companies, broker-dealer organizations, and insurance companies all have their own authoritarian bodies and rules. On the inside, these businesses uphold staff to observe and guarantee that the rules are followed. In 1980s, the mixture of spreadsheet software, desktop computers and pioneering monetary products based on Black-Scholes alternative pricing theory pushed the day-to-day risks connected to monetary businesses beyond the grip of the rulebooks. This was brilliantly expressd in the consequences of the "Black Monday" 22.7% fall down in the Dow in 1987. That disaster was drawn to "program trading" and "Portfolio Insurance" which were new complicated trading processes that few understood and no one managed. The next July, the first "Basel Capital Accord" was issued; it introduced the openings of regulated bank capital requirements across member countries with connection ...