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The Making of an Asset Class

Working paper #726
Roy Hilton March

With the advent of modern portfolio theory in the 1950s, and its subsequent adoption by institutional investors, commercial real estate went from cottage industry to bona fide asset class. But the obstacles to its ownership made real estate largely inaccessible to all but the largest investors. Twenty years ago, a remarkable transformation occurred: liquidity in real estate brought on by the rise of public REITs, CMBS, real estate private equity funds, and the abundance of capital sources. Today, real estate competes directly with stocks, bonds, currencies, commodities and other financial assets. Understanding the factors that catalyzed the industry’s transformation, and the lessons learned along the way, is the key to preparing for the many exciting challenges and opportunities that lie ahead.

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