Private Real Estate Market Research Articles

An Empirical Evaluation of Normative Commercial Real Estate Swap Pricing

Despite the fact that commercial real estate is composed of a large proportion of investable assets, a functioning derivatives market for private real estate has only existed since early 2005 when swap contracts began to be traded in the U.K. in significant amounts. Among other concerns about commercial real estate derivatives, the pricing issue is a major obstacle for the development of the market due to the specific characteristics of appraisal-based indices used as the underlying of these derivatives. In this article, Rehring and Steininger empirically evaluate a model of normative commercial real estate swap pricing, based on private real estate market indices, by estimating future appraisal-based index returns and accounting for time-varying equilibrium risk premia. The authors analyze the differences between the U.S. and the U.K. They interpret the development of actual commercial real estate swap prices in recent years in light of calculated “fair” swap prices. Qualitatively, the estimated swap prices track actual market developments quite well, indicating that the modeled swap prices enhance our understanding of the pricing of commercial real estate swaps.

Dynamic Interactions Between Private and Public Real Estate Markets: Some International Evidence

This study evaluates long-run relationships and short-run linkages between the private (unsecuritized) and the public (securitized) real estate markets of Australia, Netherlands, United Kingdom and the United States. Results indicate the existence of long-run relationships between the public and private real estate markets of each of the countries under consideration. This implies that for all countries, investors would not have realized long-term portfolio diversification benefits from allocating funds in both the private and public real estate markets since these assets are substitutable over the long run. Short-run analyses also reveal significant causal relationships between private and public markets of all countries under consideration. As expected, it was found that price discovery occurred in the public real estate market in that it leads but is not led by its private real estate market counterpart.

Definition of occupant behaviour patterns with respect to ventilation for apartments from the real estate market in Santiago de Chile

A survey of perception of thermal comfort and occupant behaviour was carried out in Santiago de Chile from December 2009 to January 2010. The survey was applied in an apartment building of the private real estate market. This paper proposes a methodology based on the systematic application of multivariate statistical techniques (principal component analysis, multivariate logistic regression and cluster analysis) which were applied to the collected data of the survey. The results of the statistical analyses show that daytime ventilation is not strongly correlated to the perception of thermal comfort in summer, probably since it is mainly oriented to hygienic purposes. On the contrary, both night ventilation and solar protection appear as very significant predictors for the same dependent variable. The objective of these models corresponds to the definition of occupant behaviour profiles which in combination with meteorological information can be used as input data in energy building simulations. Therefore, these results form a framework that can be implemented to make calculations of energy performance of dwellings more accurate, reliable and representative of the real estate market.

Thermal comfort and market niches for apartment buildings: impact of the current thermal regulation in the private real estate market in Santiago de Chile

Almost a decade has passed since Chile begins to implement a Thermal Regulation for
 dwellings, which established a minimum requirement for each building component, according to
 different climatic zones. This article proposes a series of dynamic simulations, in order to
 assess the thermal comfort (during winter and summer) of apartments in Santiago de Chile for
 lower and upper middle class. Some building typologies were defined by means of the twostage
 clustering methodology. These were built using the properties for sale database of
 Portalinmobiliario.com (2003-2009). The results of thermal simulations show that the Thermal
 Regulation has a positive impact in the thermal behaviour of these typologies during the heating
 season. However, at the same time, there is an important risk of overheating in summer. A principis d’aquesta dècada, a Xile es posa en marxa una reglamentació tèrmica per edificacions, que estableix requeriments mínims pels edificis d’habitatges plurifamiliars segons cada zona climàtica del país. Aquest article proposa una sèrie de simulacions d’eficiència energètica en règim dinàmic, per avaluar el confort tèrmic d’hivern i estiu dels habitatges plurifamiliars de Xile. Es defineixen tipologies d’habitatge aplicant la tècnica Cluster en dues etapes, sobre les dades d’oferta d’habitatge de Portalinmobiliario.com (2003-2009). De les simulacions, s’obté que l’aplicació de la Reglamentació Tèrmica presenta un impacte positiu en el comportament d’hivern d’aquestes tipologies. No obstant, apareix un risc important de sobreescalfament a l’estiu. A principios de esta década, en Chile se pone en marcha una reglamentación térmica para edificaciones, que establece requerimientos mínimos para los paramentos de viviendas, según cada zona climática del país. Este artículo propone una serie de simulaciones de desempeño energético en régimen dinámico, para evaluar el confort térmico de invierno y verano de departamentos en Santiago de Chile, para estratos socioeconómicos medios y medios altos. Se definieron tipologías de vivienda, aplicando una técnica de Clúster en dos etapas, sobre los datos de oferta de vivienda del Portalinmobiliario.com (2003-2009). De las simulaciones, se obtiene que la aplicación de la Reglamentación térmica presenta un impacto positivo en el comportamiento de invierno de estas tipologías. Sin embargo, se presenta un riesgo importante de sobrecalentamiento en verano.

Dynamics of Asset Prices and Transaction Activity in Illiquid Markets: the Case of Private Commercial Real Estate

This paper investigates the relationship between capital flows, turnover and returns for the UK private real estate market. We examine a number of possible implications of capital flows and turnover on capital returns testing for evidence of a price pressure effect, ‘return chasing’ behaviour and information revelation. The main tool of analysis is a panel vector autoregressive (VAR) regression model in which institutional capital flows, turnover and returns are specified as endogenous variables in a two equation system in which we also control for macro-economic variables. Data on flows, turnover and returns are obtained for the ten market segments covering the main UK commercial real estate sectors. Our results do not support the widely-held belief among practitioners that capital flows have a ‘price pressure’ effect on property prices. However, we do find a significant positive relationship between lagged turnover and contemporaneous capital returns, suggesting that asset turnover provides increased price revelation which, in turn, reduces investment risk and increases property values.

Liquidity Dynamics in Commercial Real Estate

Executive Summary.This paper examines private real estate market liquidity dynamics using the recently introduced family of Transactions-Based Indices (TBIs) calculated from the NCREIF database. The paper derives a Liquidity Index from a combination of the TBI Price Index and the TBI Supply Index. Liquidity in the private real estate market is shown to comprise more than the traditional bid-ask spread; it includes a term for the probability that eligible buyers and sellers meet. An econometric model calibrates the joint behavior of price and liquidity, and the price adjustment process is shown to be less smooth than the liquidity adjustment process.

Time Variation of Liquidity in the Private Real Estate Market: An Empirical Investigation

This paper characterizes the behavior of and evaluates competing explanations for time variation in private real estate market liquidity. In the first, sellers base their estimates of value on observations of signals from the market. The second incorporates the option value of waiting or the opportunity cost of not transacting into seller’s optimal valuation strategy. In the third, we allow for the possibility of investors who are not fully rational in the sense that they trade on market sentiment and we link market-wide liquidity to investor sentiment. In this model, measures of aggregate liquidity act as an indicator of the relative presence (or absence) of sentiment-based traders in the market and therefore the divergence of asset price from fundamental value. Empirical findings are generally consistent with models of optimal valuation with rational updating and provide support for the opportunity cost approach.

Risks, Returns, and Correlations for Global Private Real Estate Markets

Executive Summary.This paper attempts to provide estimates of the main inputs for constructing a global private real estate portfolio. Existing market sizes are examined in terms of both total and invested stock of real estate, the latter being a measure of the “market” portfolio. Estimates are derived of the risks, returns, and correlations for global real estate across around fifty markets, based on analysis of movements in nominal GDP. Though there are large margins of error in any such exercise, the results are sufficiently robust—on technical and intuitive grounds—to use as an input to real-world investment strategy.

Real Estate Risk Exposure of Equity Real Estate Investment Trusts

This study examines the linkage between equity real estate investment trust (REIT) returns and the private real estate factor. The results reveal a tighter connection between REIT and the private real estate market starting from 1993. In addition, large-cap REITs seem to behave more like real estate than do small-cap REITs. Overall, the results are consistent with three notions: (1) that institutional investors provide information-gathering services (Bradrinath et al., Rev. Financ. Stud., 8:401–430, 1995), (2) that a more sophisticated investor base improves information flow, and (3) that a high degree of participation from institutional investors strengthens the linkage between REIT returns and the underlying real estate factor (Ziering et al., The evolution of public and private market investing in the new real estate capital markets, Prudential Real Estate Investors, Parsippany, NJ, 1997).

International Real Estate Review

In U.S. commercial real estate markets, a single index product produced by the National Council of Real Estate Investment Fiduciaries (NCREIF) has been used for both asset class research and for agent evaluation benchmarking. While the NCREIF Index is an invaluable tool for the U.S. real estate investment industry, in some respects its construction is not optimized for either research or the benchmarking function, though the gap between the reality and the ideal is arguably greatest on the research side. This paper first discusses the purpose of the ideal research index, the optimal depth and breadth of market coverage, and the type of information included in the research index database. This discussion is followed by an analysis of the ideal agent evaluation benchmark index, including the definition, purpose, and uses of evaluation benchmarking, the characteristics of the ideal benchmark index, market coverage and information onsiderations, and a comparison of benchmark indices in the private real estate market to comparable indices used to benchmark public securities.

Housing Prices and Maturing Real Estate Markets: Evidence from Uganda

Uganda, a less developed but rapidly growing East African nation, continues to correct the economic mismanagement of past governments. One important legacy of this mismanagement is the Land Decree of 1975, issued by then President Idi Amin Dada. This decree nationalized all land and made illegal all private real estate market transactions. This paper uses a rich, but little known, dataset to show that real estate markets appear to have continued operating reasonably efficiently in spite of the 1975 Decree. The Land Act of 1998 repealed the 1975 Decree. Our results suggest the recent Act has a high likelihood of success because its primary goal is to codify guarantees of security, transparency, and enforceable property rights in private real estate markets that appear to already exist.

Does Inner City Public Housing Exacerbate the Employment Problems of Its Tenants?

ABSTRACT:This article analyzes whether inner city public housing exacerbates the employment problems of its tenants. Results from two evaluations of public housing demonstrations are used to test the potential impact of location, address discrimination, eligibility criteria, and rent schedules on tenant work behavior. To supplement this analysis, the effects of public housing on tenant employment, including self-employment, are estimated using a unique cross-sectional data set known as the Urban Poverty and Family Life Survey. The results do not support the claim that public housing, independent of tenant characteristics, contributes to employment patterns. While it is true that most public housing residents do not work, their counterparts in the private real estate market are no more likely to be employed or to have ever worked. Overall, these results indicate that the provision of public housing does not inhibit work behavior.

Valuation Techniques for the Private Real Estate Market

The pricing of private real estate is at the mercy of the appraisal process, which is fraught with complications and inadequacies. Appraisers use three methods of determining “probable” market value—the cost, comparable sales, and income approaches—and generally, they base prices on a reconciliation of the three. Improving these reconciliation attempts is a primary challenge for the real estate industry. In addition, as appraisers and analysts come to understand the link between public-market and private-market pricing, a fourth approach will provide a useful addition to real estate appraisal—a security market approach based on daily transaction prices.This presentation comes from the Real Estate: An Alternative or Mainstream Asset? conference held in Chicago, Illinois, on September 13-14, 1994.