Question

1. If Willis Tower in Chicago is the only real estate investment for it’s owner:

a) Would you consider the owner to be well diversified in their general overall portfolio?

b) Is their real estate portion of their total investment portfolio well diversified?

c) What ideas would you suggest for the owner to improve their diversification if they can alter things in the real estate portion of their portfolio? (i.e., if they can make changes and/or invest additional funds into real estate).

d) If they can NOT make any changes in the real estate portfolio is there anything they can do with just holding this one building?

Answer 1

a) No, the owner is not well diversified in his general overall portfolio because there are many other options available for investment and real estate does not alwats give back the best return on investments.
b) No, In my perspective the real estate portion of their total investment portifolio is not well diversified as the funds to be invested in this department are invested in a single building whereas it should have been invested in various real estates like houses, stores, land etc.
c) Some ideas I would suggest the owner to improve his diversification is that he should prefer investing in various types of real estates rather investing in a single building. The only way he can get a return on investment is by subleting the building to company or reselling it at a higher price. He should buy a number of houses or stores and can sublet all of them and has chance of reselling them at higher price in future. This way all of his money in the real estate department may not stay stucked for a long time and can be more liquid rather than when it is invested in a single building.
d) If the owner is not able to make any changes in the real estate portfolio, the only way he can make money from that builiding is by subletting it to a company or reselling it or using it for personal uses such as operating his own business.