scholarly journals Cap rates and risk: a spatial analysis of commercial real estate

2018 ◽  
Vol 35 (1) ◽  
pp. 25-43
Author(s):  
Florian Unbehaun ◽  
Franz Fuerst
Keyword(s):  
Real Estate ◽  
Risk Perceptions ◽  
Large Scale ◽  
Risk Premia ◽  
Real Estate Market ◽  
Commercial Real Estate ◽  
Data Series ◽  
Large Set ◽  
Content Type ◽  
The Impact

Purpose This study aims to assess the impact of location on capitalization rates and risk premia. Design/methodology/approach Using a transaction-based data series for the five largest office markets in Germany from 2005 to 2015, regression analysis is performed to account for a large set of asset-level drivers such as location, age and size and time-varying macro-level drivers. Findings Location is found to be a key determinant of cap rates and risk premia. CBD locations are found to attract lower cap rates and lower risk premia in three of the five largest markets in Germany. Interestingly, this effect is not found in the non-CBD locations of these markets, suggesting that the lower perceived risk associated with these large markets is restricted to a relatively small area within these markets that are reputed to be safe investments. Research limitations/implications The findings imply that investors view properties in peripheral urban locations as imperfect substitutes for CBD properties. Further analysis also shows that these risk premia are not uniformly applied across real estate asset types. The CBD risk effect is particularly pronounced for office and retail assets, apparently considered “prime” investments within the central locations. Originality/value This is one of the first empirical studies of the risk implications of peripheral commercial real estate locations. It is also one of the first large-scale cap rate analyses of the German commercial real estate market. The results demonstrate that risk perceptions of investors have a distinct spatial dimension.

A post-global financial crisis (GFC) framework for strategic planning, assessment and management decision making for US sustainable commercial real estate

2017 ◽  
Vol 35 (6) ◽  
pp. 589-618 ◽  
Author(s):  
Pernille Hoy Christensen
Keyword(s):  
Decision Making ◽  
Financial Crisis ◽  
Real Estate ◽  
Performance Indicators ◽  
Institutional Investors ◽  
Global Financial Crisis ◽  
Real Estate Market ◽  
Commercial Real Estate ◽  
Content Type ◽  
Sustainability Initiatives

Purpose The purpose of this paper is to understand both the facts and the values associated with the breadth of issues, and the principles related to sustainable real estate for institutional investors. Sustainable real estate is a growing sector within the commercial real estate industry, and yet, the decision-making practices of institutional investors related to sustainability are still not well understood. In an effort to fill that gap, this research investigates the post-global financial crisis (GFC) motivations driving the implementation of sustainability initiatives, the implementation strategies used, and the predominant eco-indicators and measures used by institutional investors. Design/methodology/approach This paper presents the results of a three-round modified Delphi study conducted in the USA in 2011-2012 investigating the nature of performance measurements and reporting requirements in sustainable commercial real estate and their impact on the real estate decision-making process used by institutional investors. Two rounds of in-depth interviews were conducted with 14 expert panelists. An e-questionnaire was used in the third round to verify qualitative findings. Findings The key industry drivers and performance indicators influencing institutional investor decision making were associated with risk management of assets and whether initiatives can improve competitive market advantage. Industry leaders advocate for simple key performance indicators, which is in contrast to the literature which argues for the need to adopt common criteria and metrics. Key barriers to the adoption of sustainability initiatives are discussed and a decision framework is presented. Practical implications This research aims to help industry partners understand the drivers motivating institutional investors to uptake sustainability initiatives with the aim of improving decision making, assessment, and management of sustainable commercial office buildings. Originality/value Building on the four generations of the sustainability framework presented by Simons et al. (2001), this research argues that the US real estate market has yet again adjusted its relationship with sustainability and revises their framework to include a new, post-GFC generation for decision making, assessment, and management of sustainable real estate.

scholarly journals An Assessment of the Functioning of Shopping Centres in Central‑Eastern Europe on the Example of “Posnania Mall” in Poznań (Poland) and “Grand Mall” in Varna

2021 ◽  
Vol 15 (3) ◽  
pp. 99-113
Author(s):  
Sławomir Palicki ◽  
Stoyan Stoyanov ◽  
Ivo Kostov ◽  
Tsvetelina Atanasova ◽  
Patrycjusz Ostrowski
Keyword(s):  
Real Estate ◽  
Large Scale ◽  
Local Development ◽  
Real Estate Market ◽  
The European Union ◽  
Market Reactions ◽  
Shopping Centre ◽  
Shopping Centres ◽  
Central Eastern ◽  
The Impact

The article explores the issue of the function of shopping centres, in particular the analysis of the impact of their presence on society and the local development of cities and regions. Regarding the empirical aspect, the examples of Poznań (Poland) and Varna (Bulgaria) will be presented. As a result of similar socio‑economic conditions and joining the European Union at almost the same moment, all comparative studies reflecting preferences and market reactions seem both viable and interesting. In addition, the two cities chosen for the studies occupy a similar place in the hierarchy of the settlement network in their countries. They are large, well‑developed centres that attract the attention of investors from various segments of the real estate market. The research is part of the modelling of preferences of shopping centre customers areas, which in particular supports the investment decisions of developers operating in the analysed real estate market, and at the same time permits a diagnosis of social satisfaction. A derivative of the research is also the reconstruction of the effects of the functioning of large‑scale shopping malls in two Central‑Eastern European countries.

scholarly journals What sells in a crisis? Determinants of sale probability over a cycle and through a crash

2017 ◽  
Vol 35 (6) ◽  
pp. 619-637 ◽  
Author(s):  
David Scofield ◽  
Steven Devaney
Keyword(s):  
Real Estate ◽  
Sample Selection ◽  
Sampling Technique ◽  
Real Estate Market ◽  
Commercial Real Estate ◽  
Content Type ◽  
Asset Selection ◽  
The Uk ◽  
Real Estate Cycle ◽  
Over Time

Purpose The purpose of this paper is to understand what affects the liquidity of individual commercial real estate assets over the course of the economic cycle by exploring a range of variables and a number of time periods to identify key determinants of sale probability. Design/methodology/approach Analyzing 12,000 UK commercial real estate transactions (2003 to 2013) the authors use an innovative sampling technique akin to a perpetual inventory approach to generate a sample of held assets for each 12 month interval. Next, the authors use probit models to test how market, owner and property factors affect sale probability in different market environments. Findings The types of properties that are most likely to sell changes between strong and weak markets. Office and retail assets were more likely to sell than industrial both overall and in better market conditions, but were less likely to sell than industrial properties during the downturn from mid-2007 to mid-2009. Assets located in the City of London more likely to sell in both strong and weak markets. The behavior of different groups of owners changed over time, and this indicates that the type of owner might have implications for the liquidity of individual assets over and above their physical and locational attributes. Practical implications Variation in sale probability over time and across assets has implications for real estate investment management both in terms of asset selection and the ability to rebalance portfolios over the course of the cycle. Results also suggest that sample selection may be an issue for commercial real estate price indices around the globe and imply that indices based on a limited group of owners/sellers might be susceptible to further biases when tracking market performance through time. Originality/value The study differs from the existing literature on sale probability as the authors analyzed samples of transactions drawn from all investor types, a significant advantage over studies based on data restricted to samples of domestic institutional investors. As well, information on country of origin for buyers and sellers allows us to explore the influence of foreign ownership on the probability of sale. Finally, the authors not only analyze all transactions together, but the authors also look at transactions in five distinct periods that correspond with different phases of the UK commercial real estate cycle. This paper considers the UK real estate market, but it is likely that many of the findings hold for other major commercial real estate markets.

Foreign investment in Australian residential properties

2019 ◽  
Vol 12 (2) ◽  
pp. 166-180 ◽  
Author(s):  
Hassan F. Gholipour ◽  
Hooi Hooi Lean ◽  
Reza Tajaddini ◽  
Anh Khoi Pham
Keyword(s):  
Real Estate ◽  
Foreign Investment ◽  
House Prices ◽  
Real Estate Market ◽  
Housing Development ◽  
Housing Construction ◽  
Annual Data ◽  
Content Type ◽  
Residential Properties ◽  
The Impact

Purpose The purpose of this study is to examine the impact that foreign investment in existing houses and new housing development has on residential house prices and the growth of the housing construction sector. Design/methodology/approach The analysis is based on a panel cointegration method, estimated using annual data for all Australian states and territories spanning the period of 1990-2013. Findings The results indicate that increases in foreign investment in existing houses do not significantly lead to increases in house prices. On the other hand, a 10 per cent increase in foreign investment for housing development decreases house prices by 1.95 per cent. We also find that foreign real estate investments have a positive impact on housing construction activities in the long run. Originality/value Existing studies used aggregate foreign real estate investment in their analyses. As foreign investment in existing houses and foreign investment for housing development have different impacts on the demand and supply sides of housing market, it is crucial that the analysis of the effects of foreign investment in residential properties on real estate market is conducted for each type differently.

Does the commercial real estate industry need “more pussy on the block?”

2019 ◽  
Vol 37 (5) ◽  
pp. 627-637 ◽  
Author(s):  
Dustin C. Read
Keyword(s):  
Real Estate ◽  
Gender Bias ◽  
Second Generation ◽  
Commercial Real Estate ◽  
Real Estate Industry ◽  
Structured Interviews ◽  
Content Type ◽  
Local Chapter ◽  
Professional Credibility ◽  
The Impact

Purpose In a controversial 2018 interview, commercial real estate mogul Sam Zell insinuated that companies should promote their employees based exclusively on merit and avoid purposefully taking steps to get “more pussy on the block” in the name of gender equality. The comment was criticized not only for its crassness, but also for its failure to recognize the challenges many women working in the commercial real estate industry face in their efforts to obtain the same opportunities, compensation and status as similarly-qualified men. In an effort to overcome these disparities, the purpose of this paper is to focus on the pervasiveness of second-generation gender bias and stereotyping in the field through a qualitative analysis. Design/methodology/approach Semi-structured interviews were conducted with 39 women serving as local chapter presidents of a prominent commercial real estate trade group to explore the impact of gender on their career advancement and their experiences with second-generation gender bias. Findings The findings suggest unintentional discrimination often influences women’s careers by drawing their communication skills, professional credibility and commitment to the organizations for whom they work into question. Originality/value The research contributes to the existing literature by offering additional evidence that unintentional discrimination is common in male-dominated industries, such as commercial real estate. It also provides clear examples of social cues women perceive to heighten tension along gender lines and impinge upon their ability to ascend to leadership positions.

Do cross-border investors benchmark commercial real estate markets?

2020 ◽  
Vol 13 (1) ◽  
pp. 83-103
Author(s):  
Cay Oertel ◽  
Jonas Willwersch ◽  
Marcelo Cajias
Keyword(s):  
Relative Risk ◽  
Real Estate ◽  
Risk Premia ◽  
Commercial Real Estate ◽  
Target Market ◽  
Nonlinear Relationship ◽  
Content Type ◽  
Real Estate Markets ◽  
Cross Border ◽  
Relative Attractiveness

Purpose The purpose of this study is to introduce a new perspective on determinants of cross-border investments in commercial real estate, namely, the relative attractiveness of a target market. So far, the literature has analyzed only absolute measures of investment attractiveness as determinants of cross-border investment flows. Design/methodology/approach The empirical study uses a classic ordinary least squares estimation for a European panel data set containing 28 cities in 18 countries, with quarterly observations from Q1/2008 to Q3/2018. After controlling for empirically proven explanatory covariates, the model is extended by the new relative measurement based on relative yields/cap rates and relative risk premia. Additionally, the study applies a generalized additive mixed model (GAMM) to investigate a potentially nonlinear relationship. Findings The study finds on average a ceteris paribus, statistically significant lagged influence of the proxy for relative attractiveness. Nonetheless, a differentiation is needed; relative risk premia are statistically significant, whereas relative yields are not. Moreover, the GAMM confirms a nonlinear relationship for relative risk premia and cross-border transaction volumes. Practical implications The results are of interest for both academia and market participants as a means of explaining cross-border capital flows. The existing knowledge on determinants is expanded by relative market attractiveness, as well as an awareness of nonlinear relationships. Both insights help to comprehend the underlying transaction dynamics in commercial real estate markets. Originality/value Whereas the existing body of literature focuses on absolute attractiveness to explain cross-border transaction activity, this study introduces relative attractiveness as an explanatory variable.

scholarly journals The impact of lease structures on the optimal holding period for a commercial real estate portfolio

2015 ◽  
Vol 33 (2) ◽  
pp. 121-139 ◽  
Author(s):  
Charles-Olivier Amédée-Manesme ◽  
Michel Baroni ◽  
Fabrice Barthélémy ◽  
Mahdi Mokrane
Keyword(s):  
Real Estate ◽  
Portfolio Management ◽  
Cash Flows ◽  
Commercial Real Estate ◽  
Content Type ◽  
Holding Period ◽  
Specific Risk ◽  
The Impact ◽  
Real Estate Assets ◽  
Rental Value

Purpose – The purpose of this paper is to demonstrate the impact of lease duration and lease break options on the optimal holding period for a real estate asset or portfolio. Design/methodology/approach – The authors use a Monte Carlo simulation framework to simulate a real estate asset’s cash flows in which lease structures (rent, indexation pattern, overall lease duration and break options) are explicitly taken into account. The authors assume that a tenant exercises his/her option to break a lease if the rent paid is higher than the market rental value (MRV) of similar properties. The authors also model vacancy duration stochastically. Finally, capital values and MRVs, assumed to be correlated, are simulated using specific stochastic processes. The authors derive the optimal holding period for the asset as the value that maximizes its discounted value. Findings – The authors demonstrate that, consistent with existing capital markets literature and real estate business practice, break options in leases can dramatically alter optimal holding periods for real estate assets and, by extension, portfolios. The paper shows that, everything else being equal, shorter lease durations, higher MRV volatility, increasing negative rental reversion, higher vacancy duration, more break options, all tend to decrease the optimal holding period of a real estate asset. The converse is also true. Practical implications – Practitioners are offered insights as well as a practical methodology for determining the ex-ante optimal holding period for an asset or a portfolio based on a number of market and asset-specific parameters including the lease structure. Originality/value – The originality of the paper derives from its taking an explicit modelling approach to lease duration and lease breaks as additional sources of asset-specific risk alongside market risk. This is critical in real estate portfolio management because such specific risk is usually difficult to diversify.

A prolonged financial crisis: adjustments and prospects in Eurozone's southern markets

2014 ◽  
Vol 32 (1) ◽  
pp. 94-102 ◽  
Author(s):  
Sotiris Tsolacos
Keyword(s):  
Real Estate ◽  
Risk Premium ◽  
Real Estate Market ◽  
Growth Potential ◽  
Data Series ◽  
Structural Reforms ◽  
Investment Activity ◽  
Content Type ◽  
The Future ◽  
Business Confidence

Purpose – The economic slump in the southern member states of the Eurozone has brought real estate market activity to a standstill and has raised questions about the future of these markets. Will they rebound and will they command a higher risk premium? This paper aims to assess the outlook for these markets as the crisis continues and analyses the conditions that are a prerequisite to restore investment activity and a healthy occupier market. Design/methodology/approach – Within a portfolio allocation framework, the paper examines the conditions for the revival of investor interest in these markets and the uncertainties that should be resolved. Through the analysis of selected data, the paper assesses the emerging state of these markets. Findings – The economic slump in peripheral Eurozone economies gives way to a period of slow growth and ongoing structural reforms. The latter are necessary to restore confidence in the respective economies and investment markets. Sentiment indicators contain the first signs of a rebound in business confidence. With confidence returning and mitigated macroeconomic risks investors will seek value in the markets of the southern region on a selective basis. Price corrections and yield differentials with core markets could prove attractive. It is, however, argued that a risk premium will remain to reflect progress with structural reforms that will make the economies more competitive and less prone to a similar crisis in the future. It is only when such reforms will firmly be put in place that pricing in the southern Eurozone markets will reflect cyclical risks and diversification contributions. Practical implications – The article provides a structured approach to assess the outlook for peripheral markets. It identifies the key risks affecting investor confidence. The analysis proceeds to stress conditions that should be satisfied for a rebound in the investment market. Signals from selected data series are extracted to assess sentiment and adjustment in the market and assist in the assessment of real estate market prospects in these economies. Originality/value – The paper examines conditions for investing in the hard hit markets of the Eurozone. It illustrates the path for the recovery in these markets and the conditions for the rebound in investment volumes. It contributes to the analysis of the growth potential and risk of these markets for investment purposes.

Loss Aversion and Market Liquidity in the Real Estate Market

2014 ◽  
Vol 22 (2) ◽  
pp. 223-249
Author(s):  
Sun Young Park
Keyword(s):  
Real Estate ◽  
Loss Aversion ◽  
Real Estate Market ◽  
Commercial Real Estate ◽  
Market Liquidity ◽  
The Real Estate ◽  
The Real Estate Market ◽  
Expectation Hypothesis ◽  
Property Sales ◽  
The Impact

The most commonly observed risk averse behavior in the commercial real estate market is loss aversion on the part of investors; i.e., investors are more sensitive to prospective losses than to prospective gains. This observation leads to the natural question : Does the market rationally anticipate investors' loss aversion? If not, then does loss aversion become stronger in a relatively illiquid market? The answer to these questions provides strategically important implications to institutional investors. We propose to explore the impact of loss aversion on the commercial real estate market by testing two competing hypotheses : (1) the rational market expectation hypothesis and (2) the liquidity spiral hypothesis. The rational market expectation hypothesis holds that the market rationally anticipates investors' behavioral loss aversion. As a result, the interaction between lagged market liquidity and loss aversion does not have an impact on the probability of property sales. On the other hand, the liquidity spiral hypothesis holds that the interaction between market liquidity and loss aversion has an impact on the probability of property sales due to the self-fulfilling feedback effect between loss aversion and market liquidity. In the context of REITs' property transactions, we find partial evidence for the liquidity spiral hypothesis : private market liquidity and stock market liquidity each has an additional impact on the sale probability of property.

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