Commercial Real Estate Analysis and Investments

Note: Supplemental materials are not guaranteed with Rental or Used book purchases.

ISBN: 9780324136760 | 0324136765
Cover: Hardcover
Copyright: 9/1/2000

Buy New

Currently Available, Usually Ships in 24-48 Hours

$217.04

This comprehensive book is ideal for graduate-level/MBA or anyone interested in learning more about real estate. The content presents the essential concepts, principles, and tools for the analysis of commercial Real Estate (income producing) from an investment perspective. This book integrates relevant aspects of urban and financial economics to provide learners with a fundamental analytical understanding of Real Estate investments. It bridges the gap between mainstream finance and the current cutting edge of professional Real Estate practice, in order to address the implications of their key difference.

Preface

xxiii

Acknowledgments

xxix

PART I INTRODUCTION TO REAL ESTATE ECONOMICS

(40)

Real Estate Space and Asset Markets

(20)

Space Market

(9)

Segmentation of Space Markets

(1)

Supply, Demand, and Rent in the Space Market

(2)

Supply Is ``Kinked''

(1)

Relation among Supply, Development Cost, and Rent

(1)

Forecasting the Future Direction of Rents

(1)

Is the Supply Function Rising, Level, or Falling?

(2)

Asset Market

(8)

Capital Markets

(3)

Pricing of Real Estate Assets

(2)

Is the Asset Market Segmented Like the Space Market?

(2)

Magnitude of Real Estate Assets in the Overall Capital Market

(1)

Chapter Summary

(3)

Key Terms

(1)

Study Questions

(2)

Real Estate System

(18)

Commercial Property Development Industry

(2)

Overview of the Real Estate System

(2)

Four-Quadrant Model

(4)

Using the 4Q Diagram to Help Understand Boom and Bust in Real Estate Markets

(6)

Chapter Summary

(4)

Key Terms

(1)

Study Questions

(2)

References and Additional Reading

(2)

PART II URBAN ECONOMICS AND REAL ESTATE MARKET ANALYSIS

(84)

Central Place Theory and the System of Cities

(20)

Pattern of City Size

(1)

Pattern of City Location

(2)

Factors Underlying the Pattern: Centripetal and Centrifugal Forces

(6)

Centripetal Forces

(1)

Centrifugal Forces

(1)

Balances of Forces

(1)

Central Place Theory and the Urban Hierarchy

(3)

Why Does CPT Matter?

(1)

Economic Base and the Growth of Cities and Regions

(7)

Definition of Economic Base

(1)

Export Base

(1)

Location Quotients and SICs

(1)

Service Sector and Export Multiplier

(2)

Classification of Cities by Economic Base

(2)

Classification of Cities for Real Estate Investment Analysis

(2)

Chapter Summary

(2)

Key Terms

(1)

Study Questions

(2)

Inside the City 1: Some Basic Urban Economics

(20)

A Threshold Concept: Urban Form

(1)

Some Basic Economic Principles of Urban Land Value and Use

(6)

Location and the Residual Nature of Land Value

(2)

Competition, Equilibrium, and Highest and Best Use

(2)

Role of Transport Costs: The Bid-Rent Curve

(2)

Summary of Basic Urban Land Value and Land Use Principles

(1)

Classic Monocentric City Model

(11)

Circlopolis, the Quintessential Monocentric City

(1)

Using the Model: Some Principles about How Rents and City Size Change

(8)

Summarizing the Monocentric Model

(1)

Chapter Summary

(2)

Key Terms

(1)

Study Questions

(2)

Inside the City II: A Closer Look

(21)

From Land Rent to Land Value: The Effect of Rent Growth Expectations

(1)

Effect of Uncertainty on Speculative Land Value

(2)

Let's Get Real: New Twists to the Old Model

(10)

Density Variations and Heterogeneous Land Use

(4)

Effect of Land Use Boundaries

(1)

Polycentric Cities

(1)

Neighborhood Dynamics and Life Cycle

(3)

Property Life Cycle and the Effect of Structural Depreciation

(4)

Chapter Summary

101

(3)

Key Terms

102

(1)

Study Questions

102

(2)

Real Estate Market Analysis

104

(21)

General Features of Real Estate Market Analysis

105

(10)

Purpose of Market Analysis

105

(1)

Market Supply and Demand Variables and Indicators

106

(4)

Defining the Scope of the Analysis

110

(1)

Trend Extrapolation versus Structural Analysis

110

(2)

Major General Tasks in Conducting a Basic Short-Term Structural Market Analysis

112

(3)

Formal Model of Space Market Equilibrium Dynamics and Cyclicality

115

(4)

Chapter Summary

119

(6)

Key Terms

120

(1)

Study Questions

120

(2)

References and Additional Reading

122

(3)

PART III BASIC FINANCIAL ECONOMIC CONCEPTS AND TOOLS

125

(84)

Real Estate as an Investment: Some Background Information

127

(26)

Investment Industry, and Real Estate's Role Therein

128

(11)

Investor Objectives and Concerns

128

(3)

Implications of Investor Heterogeneity

131

(1)

General Structure of Investment Products and Vehicles

131

(8)

Real Estate as an Asset Class

139

(11)

Four Major Investment Asset Classes

140

(2)

Historical Investment Performance

142

(4)

Brief History of Commercial Real Estate Investment during the Last Quarter of the 20th Century

146

(4)

Chapter Summary

150

(3)

Key Terms

150

(1)

Study Questions

151

(2)

Present Value Mathematics for Real Estate

153

(27)

Single-Sum Formulas

154

(7)

Single-Period Discounting and Growing

154

(2)

Single-Sums over Multiple Periods of Time

156

(1)

Simple versus Compound Interest

157

(1)

Effective versus Nominal Rates

157

(2)

Bond Equivalent and Mortgage Equivalent Rates

159

(1)

Continuously Compounded Interest Rates

160

(1)

Multiperiod Problems

161

(14)

Geometric Series Formula

161

(1)

Present value of a Level Annuity in Arrears

162

(2)

Present Value of a Level Annuity in Advance

164

(1)

Present Value of a Constant-Growth Annuity in Arrears

165

(1)

Present Value of a Constant-Growth Perpetuity

166

(1)

Some Basic Economic Implications of the Perpetuity Formula

167

(1)

Introducing Long-Term Leases

167

(2)

Summarizing the Present Value of Geometric Cash Flow Streams

169

(1)

How to Convert Annuities to Future Values

169

(1)

Solving for the Cash Flows

170

(1)

Solving for the Number of Payments

171

(1)

Combining the Single Lump Sum and the Level Annuity Stream: Classical Mortgage Mathematics

171

(1)

How the Present Value Keys on a Business Calculator Work

172

(1)

IRR and Multiperiod DCF Formula

173

(2)

Chapter Summary

175

(5)

Key Terms

175

(1)

Study Questions

175

(5)

Measuring Investment Performance: The Concept of Returns

180

(29)

Investment Returns: Basic Definitions and Classification

181

(2)

Two Fundamental Types of Return Measures

181

(1)

Advantages and Disadvantages of Periodic and Multiperiod Return Measures

182

(1)

Periodic Returns

183

(15)

Formal Definition of the Periodic Return

184

(3)

Time-Weighted Investment

187

(1)

NCREIF Index Return Formula

188

(1)

Real versus Nominal Returns

189

(2)

Measuring Risk in Returns

191

(4)

Relationship between Risk and Return

195

(2)

Summarizing Periodic Returns: Synthesizing the Three Ways to Break Down the Total Return

197

(1)

Multiperiod and Dollar-Weighted Returns

198

(5)

Time-Weighted Average Return

198

(2)

Internal Rate of Return (IRR)

200

(3)

Chapter Summary

203

(6)

Key Terms

203

(1)

Study Questions

203

(5)

References and Additional Readings

208

(1)

PART IV REAL ESTATE VALUATION AND INVESTMENT ANALYSIS AT THE MICROLEVEL

209

(94)

The Basic Idea: DCF and NPV

211

(29)

Relation between Return Expectations and Property Values in the Asset Market

212

(1)

Discounted Cash Flow Valuation Procedure

213

(6)

Match the Discount Rate to the Risk

215

(1)

Intralease and Interlease Discount Rates

216

(1)

Blended IRR: A Single Discount Rate

217

(1)

Unbundling Cash Flows: An Example

217

(2)

Ratio Valuation Procedures: Direct Capitalization and GIM as Shortcuts

219

(3)

Relationship of the Cap Rate to the Total Return

220

(1)

Empirical Cap Rates and Market Values

221

(1)

Typical Mistakes in DCF Application to Commercial Property

222

(3)

If Your Case Lacks Merit, Dazzle Them with Numbers

223

(1)

Excessive Laziness

223

(2)

Is DCF Really Useful in the Real World?

225

(1)

Capital Budgeting and the NPV Investment Decision Rule

226

(5)

NPV Rule Corollary: Zero-NPV Deals Are OK

228

(4)

Hurdle Rate Version of the Decision Rule

232

Chapter Summary

231

(9)

Microlevel Investment Performance Attribution: Parsing the IRR

232

(4)

Key Terms

236

(1)

Study Questions

236

(4)

Nuts and Bolts for Real Estate Valuation: Cash Flow Proformas and Discount Rates

240

(28)

Proformas and Cash Flow Projection

241

(13)

PGI and Market Rent Projection

241

(4)

Vacancy Allowance and EGI

245

(1)

Operating Expenses

246

(1)

Net Operating Income

247

(1)

Capital Improvement Expenditures

248

(1)

The Bottom Line: PBTCF

249

(1)

Reversion Cash Flows

249

(1)

Numerical Example

250

(4)

Discount Rates: The Opportunity Cost of Capital

254

(11)

General Observations about Real Estate Discount Rates

255

(1)

Putting in Some Numbers: Historical Evidence on the OCC for Institutional Commercial Property

256

(2)

Another Perspective: Survey Evidence

258

(2)

Getting an Indication of Total Return Expectations by Observing Current Cap Rates in the Property Market

260

(2)

Variation in Return Expectations for Different Types of Property

262

(3)

Chapter Summary

265

(3)

Key Terms

265

(1)

Study Questions

266

(2)

Advanced Microlevel Valuation

268

(35)

Market Value and Investment Value

269

(8)

How to Measure Investment Value

271

(1)

Joint Use of IV and MV in Decision Making

272

(3)

Watch Out for the IV Sales Pitch

275

(1)

Marginal and Intramarginal Investors: How to Get Positive NPV

275

(2)

Danger and Opportunity in Market Inefficiency

277

(5)

Valuation Noise

278

(2)

Asset Market Predictability

280

(2)

Dueling Asset Markets: The REIT Market versus the Property Market

282

(11)

Valuation at the Microlevel

283

(3)

Microlevel Differential Valuation: Cash Flow Expectations

286

(2)

Microlevel Differential Valuation: Opportunity Cost of Capital

288

(2)

What about Informational Efficiency?

290

(1)

Microlevel Risk Is in the Property, Not in the REIT

291

(1)

Summarizing the Dueling Markets: Going from the Micro to the Macro Perspective

292

(1)

Chapter Summary

293

(10)

Basic Valuation Concepts: Transaction Prices and Market Values

293

(5)

Key Terms

298

(1)

Study Questions

298

(3)

References and Additional Reading

301

(2)

PART V COMPLETING THE BASIC INVESTMENT ANALYSIS PICTURE

303

(78)

Use of Debt in Real Estate Investment (Part I): The Effect of Leverage

305

(22)

The Big Picture

306

(1)

Basic Definitions and Mechanics of Leverage

307

(3)

Effect of Leverage on the Risk and Return to Equity

310

(6)

Effect on the Expected Return

310

(1)

Effect on the Risk in the Return

311

(3)

Risk and Return: Putting the Two Effects Together

314

(2)

A Useful Formula: The WACC

316

(3)

The WACC and REIT Cost of Capital

317

(1)

Use of the WACC in Direct Property Investment

318

(1)

The WACC and Return Components

318

(1)

The WACC and Risk

319

(1)

Positive and Negative Leverage

319

(1)

Effect of Leverage on Growth and Yield

320

(3)

Chapter Summary

323

(4)

Key Terms

324

(1)

Study Questions

324

(3)

Income Tax Considerations and After-Tax Cash Flows for the Equity Investor

327

(23)

General Effects of Income Taxes and Debt

328

(2)

Numerical Example of After-Tax Proforma

330

(6)

Basic Equity Cash Flow Calculations

330

(2)

Accrual-Based Income and Tax Shelter

332

(1)

After-Tax Operating Cash Flow

333

(1)

After-Tax Reversion Cash Flow

334

(2)

Projected Total Return Calculations

336

(1)

Note on the Value of Leverage and Tax Shelter

336

(2)

After-Tax Equity Valuation and Capital Budgeting

338

(8)

After-Tax DCF in General

338

(1)

Shortcut for Marginal Investors

339

(1)

Value Additivity and the APV Decision Rule

340

(1)

Evaluating Subsidized Financing

341

(3)

Another Implication of the APV Rule: Discovering Market Returns to Equity

344

(1)

Implications for the After-Tax Levered OCC and the ``Art of the Deal''

345

(1)

Chapter Summary

346

(4)

Key Terms

347

(1)

Study Questions

347

(3)

Use of Debt in Real Estate Investment (Part II): Capital Structure

350

(31)

Debt When There Is an Equity Capital Constraint

352

(3)

Debt to Obtain Positive Equity NPV

352

(1)

Debt and Diversification

353

(1)

Limitations on the Equity Constraint Argument for the Use of Debt

354

(1)

Debt and Taxes in the Real Estate Context

355

(9)

Neutrality of Taxes for Most Real Estate Borrowers

355

(1)

Investor Heterogeneity with Respect to Taxes

356

(2)

The Case of Pension Funds

358

(1)

Numerical Example of the Tax Effects of Debt

358

(6)

Other Considerations Regarding the Role of Debt in Real Estate Investments

364

(8)

Debt as an Incentive and Disciplinary Tool for Management

365

(1)

Debt and Liquidity

366

(1)

Cost of Financial Distress

367

(2)

Debt and Inflation

369

(3)

Chapter Summary

372

(9)

Key Terms

372

(1)

Study Questions

373

(2)

Appendix: Practical Mechanics for Calculating After-Tax NPVs, and OCCs

375

(4)

References and Additional Reading

379

(2)

PART VI MORTGAGES FROM AN INVESTMENT PERSPECTIVE

381

(132)

Mortgage Basics I: An Introduction and Overview

383

(22)

Basic Typology of Mortgages and Overview of the U.S. Mortgage Industry

384

(3)

Basic Legal Concepts and Terminology for Mortgages

387

(7)

Legal Structure of Mortgages

387

(2)

Priority of Claims in Foreclosure

389

(2)

Typical Mortgage Covenants

391

(3)

Default, Foreclosure, and Bankruptcy

394

(2)

Nonlitigious Actions and Workouts

396

(2)

Costs of Foreclosure

396

(1)

Nonlitigious Actions

397

(1)

Workouts

397

(1)

Limited Liability and Foreclosure Costs: The Borrower's Put Option and Strategic Default

398

(4)

Limited Liability and the Borrower's Put

398

(1)

Foreclosure Costs and Strategic Default

399

(3)

Chapter Summary

402

(3)

Key Terms

402

(1)

Study Questions

402

(3)

Mortgage Basics II: Payments, Yields, and Values

405

(33)

Calculating Loan Payments and Balances

405

(14)

Four Basic Rules

406

(1)

Applying the Rules to Design Loans

407

(12)

Loan Yields and Mortgage Valuation

419

(6)

Computing Mortgage Yields

419

(4)

Why Points and Fees Exist

423

(1)

Using Yields to Value Mortgages

424

(1)

Refinancing Decision

425

(7)

Traditional Refinancing Calculation

426

(3)

What Is Left Out of the Traditional Calculation: Prepayment Option Value

429

(3)

Chapter Summary

432

(6)

Key Terms

433

(1)

Study Questions

433

(5)

Commercial Mortgage Analysis and Underwriting

438

(26)

Expected Returns versus Stated Yields: Measuring the Impact of Default Risk

439

(9)

Yield Degradation and Conditional Cash Flows

439

(1)

Hazard Functions and the Timing of Default

440

(2)

Yield Degradation in Typical Commercial Mortgages

442

(6)

Commercial Mortgage Underwriting

448

(10)

Basic Property-Level Underwriting Criteria

449

(4)

Variables and Loan Terms to Negotiate

453

(1)

Numerical Example of the Underwriting Process

454

(4)

Participating Mortgages

458

(3)

Chapter Summary

461

(3)

Key Terms

461

(1)

Study Questions

461

(3)

Commercial Mortgage Economics and Investment

464

(28)

Some Basic Characteristics of Bonds

465

(12)

Duration and Maturity

465

(3)

Interest Rate Risk and Preferred Habitat

468

(2)

The Yield Curve

470

(3)

Maturity Matching and the Management of Fixed-Income Portfolios

473

(4)

Commercial Mortgage Returns: Ex Ante and Ex Post

477

(12)

Mortgage Yield: The Components of Ex Ante Returns

477

(5)

Ex Post Performance: The Historical Record

482

(7)

Chapter Summary

489

(3)

Key Terms

489

(1)

Study Questions

490

(2)

Introduction to Commercial Mortgage-Backed Securities

492

(21)

What Are CMBS?

493

(2)

A Brief History: The Birth of an Industry

493

(1)

Conduits, Seasoned Loans, and Risk-Based Capital Requirements

494

(1)

Magnitude of the CMBS Industry

494

(1)

CMBS Structure: Tranching and Subordination

495

(7)

A Simple Numerical Example of Tranching

496

(3)

Allocating the Credit Losses

499

(3)

CMBS Rating and Yields

502

(8)

Bond Credit Rating

502

(1)

Credit Rating and CMBS Structure

503

(2)

Rating CMBS Tranches

505

(1)

Yield Spreads and the Capital Market

506

(2)

CMBS versus Corporate Bond Spreads

508

(2)

Chapter Summary

510

(3)

Key Terms

510

(1)

Study Questions

511

(1)

References and Additional Reading

512

(1)

PART VII MACROLEVEL REAL ESTATE INVESTMENT ISSUES

513

(236)

Real Estate and Portfolio Theory: Strategic Investment Considerations

515

(42)

Numerical Example of the Portfolio Allocation Problem: Real Estate in the Mixed-Asset Portfolio

516

(5)

Basic Mean-Variance Portfolio Theory (MPT)

521

(12)

Investor Preferences and Dominant Portfolios

522

(2)

Portfolio Theory and Diversification

524

(3)

Perceived Role of Real Estate in the Mixed-Asset Portfolio

527

(1)

The Efficient Frontier

528

(3)

Bringing in Investor Preferences

531

(2)

Allowing for a Riskless Asset: The Two-Fund Theorem and the Sharpe-Maximizing Portfolio

533

(7)

Two-Fund Theorem

535

(2)

Sharpe-Maximizing Portfolio

537

(2)

Summary of the Implications of the Riskless Asset Construct

539

(1)

Some Broader Considerations in Portfolio Allocation

540

(6)

Real Estate Allocations in Real World Institutional Portfolios

541

(1)

Reasons for the Low Institutional Allocation to Real Estate

541

(5)

Chapter Summary

546

(11)

A Review of Some Statistics about Portfolio Returns

546

(9)

Key Terms

555

(1)

Study Questions

555

(2)

Equilibrium Asset Valuation and Real Estate's Price of Risk in the Capital Market

557

(33)

Review of Classical Asset Pricing Theory

558

(8)

Practical Uses for Asset Price Theory

558

(2)

From Portfolio Theory to the CAPM

560

(3)

The Main Point in the Basic CAPM

563

(1)

Isn't the CAPM Wrong?

564

(1)

Strengths and Weaknesses in the Basic CAPM

564

(2)

Applying the CAPM to the Private Real Estate Asset Class as a Whole

566

(7)

Brief History

566

(2)

Broadening the Market Portfolio and Correcting for Smoothing

568

(4)

A Caveat: Capital Market Imperfections

572

(1)

Attempting to Quantify Sectoral Risk and Return within the Private Real Estate Asset Class: The Cutting Edge

573

(11)

Can the Basic CAPM Be Applied within the Private Real Estate Asset Class?

574

(2)

Implications for Macrolevel Tactical Investment Analysis within the Private Real Estate Class

576

(2)

A More Sophisticated Model of Equilibrium Asset Prices: Multifactor Risk Models

578

(6)

Chapter Summary

584

(6)

Arbitrage Pricing Theory and the Multifactor Model of Equilibrium Ex Ante Risk Premiums in the Capital Market

584

(4)

Key Terms

588

(1)

Study Questions

588

(2)

Macrolevel Valuation I: Static Property Portfolios

590

(33)

Macrolevel Property Valuation: The Basic Idea

591

(1)

Macrolevel Valuation Based on Optimal Microlevel Valuations

592

(20)

Some Microlevel Valuation Issues

592

(4)

The Real World, the Time Dimension, and the Difference between Micro- and Macrolevel Valuation Errors

596

(2)

Optimal Valuation at the Micro- versus Macrolevel: The Problem of Temporal Aggregation

598

(8)

Relationship between Appraised Values and Transaction Prices: Rational Behavior

606

(2)

Market Values and Appraiser Behavior: Broader Considerations and Empirical Evidence

608

(3)

Simple Macrolevel Delagging Procedure

611

(1)

Summarizing Up to Here

611

(1)

Mass Appraisal: The Use of Modern Regression Analysis in Macrolevel Valuation

612

(8)

The Basic Idea: The Hedonic Value Model

613

(1)

The Statistical Tool: Hedonic Regression

614

(1)

Application to Commercial Property

615

(2)

Why Mass Appraisal?

617

(2)

A Final Statistical Consideration: The Trade-Off Is Still with Us

619

(1)

Chapter Summary

620

(3)

Key Terms

621

(1)

Study Questions

621

(2)

Macrolevel Valuation II: REITs

623

(31)

REIT Valuation in the Stock Market

625

(10)

The Gordon Model

625

(4)

Fundamental Growth Opportunities

629

(2)

Are REITs Growth Stocks or Income Stocks?

631

(1)

A Unique Environment: Parallel Asset Markets

632

(3)

REIT Analysis, Terminology, and Issues

635

(5)

Tax and Regulatory Constraints

635

(2)

REIT Earnings Measures

637

(1)

Agency Costs: Conflicts of Interest

638

(2)

Some Considerations of REIT Management Strategy

640

(5)

Fundamental Nature and Value of REITs: Two Models

645

(4)

Chapter Summary: Some REIT Investor Considerations

649

(5)

Key Terms

650

(1)

Study Questions

651

(3)

Data Challenges in Measuring Real Estate Periodic Returns

654

(49)

From Value Levels to Returns: The General Nature of Performance Measurement Errors

656

(11)

The Pure Effect of Random Noise

656

(4)

The Pure Effect of Temporal Lag

660

(4)

Putting the Two Effects Together

664

(3)

What about the Total Return?

667

(1)

What Is Truth? Lags and the Time Line of Price Discovery in Real Estate

667

(7)

What Is Price Discovery?

669

(1)

Multistep Real Estate Time Line of Information Incorporation into Observable Value

669

(4)

So Where Is the ``Truth''?

673

(1)

What Is to Be Done?: Dealing with Temporal Lag Bias in Appraisal-Based Returns

674

(13)

The First Step: Getting Rid of Stale Appraisals

675

(1)

Can We Take a Second Step?

676

(2)

Some Practical Approaches for Delagging Appraisal-Based Returns

678

(9)

Chapter Summary

687

(16)

Introduction to Regression Analysis as a Solution of Simultaneous Equations

688

(4)

Repeated-Measures Regression (RMR) Procedure for Real Estate Return Index Estimation

692

(5)

Zero Autocorrelation Delagging Procedure: A Typical Application

697

(2)

Comparing Reverse-Engineered and Pure Transaction-Price-Based Versions of the NCREIF Appreciation Index

699

(2)

Key Terms

701

(1)

Study Questions

701

(2)

Real Estate Investment Management, Part I: The Institutional Landscape

703

(15)

Real Estate Investment Management

704

(1)

Salient Features of Real Estate Investment Management

705

(1)

Responsibilities and Functions of the Investment Manager

706

(5)

Private Real Estate Investment Products

711

(2)

Real Estate Investment Management Firms: Objectives and Strategic Considerations

713

(3)

Chapter Summary

716

(2)

Key Terms

716

(1)

Study Questions

716

(2)

Real Estate Investment Management, Part II: Performance Attribution and Evaluation

718

(31)

Macrolevel Investment Performance Attribution

719

(8)

Macro Property Level Performance Attribution

719

(2)

Portfolio-Level Performance Attribution

721

(3)

Use of a Benchmark in Performance Attribution

724

(2)

The Case for Using Manager Allocation Weights in the Benchmark

726

(1)

Investment Performance Evaluation and Benchmarking

727

(12)

The Basic Idea

727

(2)

Benchmarks in the Private Real Estate Asset Class

729

(2)

Matching Evaluation, Responsibility, and Authority

731

(2)

The Problem of Statistical Significance

733

(2)

Implications of the Lack of Statistical Significance: Will the Real Purpose of Performance Evaluation Please Stand Up

735

(1)

Adjusting for Risk

736

(3)

Chapter Summary

739

(10)

Key Terms

740

(1)

Study Questions

740

(3)

References and Additional Reading

743

(6)

PART VIII REAL ESTATE DEVELOPMENT AND OTHER SELECTED TOPICS

749

(90)

Real Options and Land Value

751

(22)

Call Options: Some Basic Background and Definitions

752

(2)

Simple Real World Example: Time, Uncertainty, and a Microsoft Call Option

752

(1)

Option Premium

753

(1)

Real Options: The Call Option Model of Land Value

754

(7)

New Insight into the NPV Rule

756

(1)

Land Development Option Contrasted with Financial Options: Some Implications for Overbuilding

757

(2)

Using Option Theory to Understand Overbuilding

759

(2)

Simple Numerical Example of OVT Applied to Land Valuation and the Development Timing Decision

761

(3)

Samuelson-McKean Formula Applied to Land Value as a Development Option

764

(6)

Chapter Summary

770

(3)

Key Terms

770

(1)

Study Questions

771

(2)

Financial Analysis of Real Estate Development Projects

773

(30)

Overview of the Development Decision-Making Process

774

(1)

Basic Information: Enumerating Project Costs and Benefits

775

(3)

Construction Budget Mechanics

778

(2)

Simple Financial Feasibility Analysis in Current Practice

780

(6)

Simple Feasibility Analysis Explained

780

(4)

Problems with the Simple Approach

784

(2)

Applying the NPV Rule to Development Projects

786

(14)

Recommended General Procedure

786

(3)

Estimating the OCC for the Development and Lease-Up Phases

789

(4)

Simple Numerical Example

793

(4)

Summarizing the Advantages of the Recommended Procedure

797

(3)

Chapter Summary

800

(3)

Key Terms

800

(1)

Study Questions

801

(2)

Leases and Leasing Strategy

803

(36)

Commercial Property Lease Terminology and Typology

804

(3)

Basic Lease Typology: The Responsibility for Expenses

804

(1)

Types of Rent Changes in Leases

805

(2)

Lease Characteristics Affecting Value or Rent

807

(2)

Effective Rent

809

(4)

Discount Rate in the Effective Rent

810

(1)

Effective Rent Numerical Examples

811

(2)

Summarizing Effective Rent

813

(1)

Broader Leasing Strategy Considerations: Term Length and the Space Market Term Structure of Rent

813

(4)

Interlease Risk

813

(1)

Releasing Costs

814

(1)

Flexibility (Option Value) in Leases

814

(2)

Staggered Lease Expirations and Releasing Risk

816

(1)

Summary: Rent Term Structure and Optimal Lease Term Length

816

(1)

Other Leasing and Rent Issues

817

(4)

Microspatial Trade-Offs and Synergies

818

(1)

Why Percentage Rents? (Consideration of Optimal Rent Structure)

819

(1)

Why Concessions?

820

(1)

Optimal Asking Rent and Optimal Vacancy

820

(1)

Chapter Summary

821

(18)

Valuing a Lease Renewal Option

821

(4)

Numerical Example of Landlord Lease Term Indifference Rent

825

(4)

Simple Model of Optimal Landlord Search for Tenants

829

(4)

Key Terms

833

(1)

Study Questions

833

(4)

References and Additional Reading

837

(2)

Appendix: Real Estate Transaction Price Indices Based on Regression Analysis

839

(8)

Answers to Selected Study Questions

847

(34)

Index

881

Please wait while the item is added to your bag...

FREE SHIPPING

Amazon no longer offers textbook rentals. We do!

Commercial Real Estate Analysis and Investments

Summary

Table of Contents

Supplemental Materials