Journal of Hospitality Financial Management Journal of Hospitality Financial Management
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Abstract
ABSTRACT This paper analyzes the performance of five real estate sub-sectors (office, retail, industrial, apartment, and hotel) over a 10-year (historical) period, 1992 to 2001, to assess the impact the hotel sub-sector would have on investment performance when constructing a multi-property investment portfolio. The research was built on the foundation of modern portfolio theory, and data were analyzed using correlation analysis, Sharpe ratio, and a portfolio simulation model. Research results suggest that, at least during the study period, the hotel sub-sector outperformed all other sub-sectors in terms of total returns and produced the second best risk-adjusted returns. The results also suggest that the inclusion of hotels in the real estate investment portfolio had a significant impact on the efficient frontier, offering several “higher risk–higher return” target options for an investor. As such, the significance of the hotel sub-sector within a multi-property real estate investment portfolio is better understood.