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Book Review

Pub: Emerald Journal: Journal of Property Investment & Finance, 2006, Volume 24, Number 5, p. 464-465

Private Real Estate Investment: Data Analysis and Decision Making, by Roger J. Brown, Elsevier Academic Press (San Diego, 2005), pp. 282, with accompanying CD-ROM.

Imagine a beach in Italy in August 2005. Two real estate academics are sharing a holiday. One, a lecturer in quantitative studies in Italy, the other (this reviewer) an appraiser and valuer from England. One is reading The Da Vinci Code by Dan Brown, the other is reading Private Real Estate Investment by Roger Brown. Coincidentally both books are by authors of the name of Brown, but that is not the only comparison. Both books have a central tenet of challenging conventional thinking and wisdom. The difference is the former does so by taking facts and molding them into a tapestry of fiction whilst the latter expands upon the accepted and suggests that there is a different way of analyzing the market by adopting new (to property) techniques and ideas.

So now imagine a discussion in a mix of bad Italian (on this reviewer's part) and good English about the strengths and weaknesses of each book. Clearly The Da Vinci Code if more accessible, it is a gripping yarn. The literary merits of the book may be questioned but it is a well-crafted story that enthralls the majority of readers. Private Real Estate Investment, however, is not easy to read. It is very well written but the subject matter is difficult and, as with anything that is challenging, it requires perseverance. At one point, the discussion centered upon the concept of non-normality of probability. The conventional wisdom, particularly in real estate, is that data, to a lesser or greater degree, will conform to a normal distribution. Private Real Estate Investment challenges this as the only view and offers an alternative view that draws upon the maths literature and discusses the application of stable distribution other than normal.

In fact this is the central tenet of the Roger Brown's book. Brown takes “advanced” tools from other disciplines (which are provided to the reader on the accompanying CD and/or via his website – and applies them to commercial real estate. He accepts and explains the historic reliance of real estate professionals on the use of “rules of thumb” in the form of capitalization rates and income multipliers but argues that they fail to account for risk in any meaningful way. He then discusses measures of risk and uncertainty and distinguishes the risk analysis of simple systems (coin toss) with that of complex systems (marriage) and argues that real estate is complex and thus should not be analyzed using probability based models that are based on the linear observations of a simple system.

This reviewer has a reasonable understanding of maths and statistics but is not a trained statistician. Thus to move to an analysis that non-linear in construction is a leap of faith. The argument is well made by Roger Brown but it is still difficult for the mind of a trained appraiser to comprehend. So much so that our discussion got slightly heated and vocal. English is not a language normally heard on an Italian beach, let alone a debate about appropriate probability distribution functions. It was therefore with some amazement that our discussion was interrupted by another Italian, speaking perfect English, arguing against the use of non-normal distributions. He was, coincidentally, a lecturer in statistics from Boconni University in Milan and could not help overhearing our debate. He was familiar with the concept of non-normal distributions but was not convinced with the use of non-symmetrical distributions. His counter argument was simple, that whilst it was possible to undertake such an analysis, it was beyond the understanding of the majority of users and thus its usefulness was impaired. He reminded us that for models to be accepted it should fulfill a number of criteria; axiomatic basis, lack of counter examples, feasibility, robust, transparency, and compatible with a wider philosophy. If a model is not fully understood (transparent) then it use is limited until such time that market understanding increases. And with that, our arbiter returned to reading his book, which equally coincidentally, was an Italian translation of Angels and Demons also by Dan Brown.

So, should you read Private Real Estate Investment? The answer is an unequivocal yes. The book is well written and is very challenging. Conceptually, it is clear and the ideas benefit from useful analogies and clear exposition. I have to admit that the mathematics loses this reviewer in places but that is more a criticism of me than of the book. Although, I would be surprised if real estate undergraduates would find this book as accessible as the author claims. But if you are involved in real estate investment in any form then this is definitely a book for your bookshelf. I am not convinced that the models have universal application yet; the words of the unnamed Italian statistician still ring true. This will still be a leap of faith for most readers but the book is part of an ongoing process of (re)educating the real estate professional in the tools and methods of other professions. Roger Brown should be commended for this contribution; if only the readership was as extensive and as accepting as that of his namesake.

Nick French
Professor in Real Estate, DTZ Fellow in Commercial Property
Department of Real Estate and Construction
Oxford Brookes University