THE VALUE OF AWARDED DESIGN IN REAL ESTATE ASSET PRICING

The Value of Awarded Design in Real Estate Development Minkoo Kang 1 abstract Awarded design is based on the achievement of This study investigates the architect/architecture firm receiving prestigious the financial performance awards from the industry. To measure financial performance, I use several datasets, RCA, of awarded architectural Compstak, and NYC public data for New York design for commercial City. To identify awarded design and compare it to non-awarded design, I employ a matched-pair office buildings in analysis. I find 846 building transactions with 89 Manhattan, New York. awarded design transactions that are matched geographically to 757 nonawarded design transactions within a quarter mile radius over the 2000 to 2017 period. The results of the multivariate hedonic analysis suggest that, office buildings designed by awarded architects have a statistically and economically significant transaction premium of 23.1 percent, ceteris paribus, with a model that explains just under 90 percent of the variation in transaction price. Results of this analysis are intended as way for designers to have agency in the design build development practice and for developers and investors to understand the value of engaging in awarded design effects ■

The Value of Awarded Design in Real Estate Development 2 Table of Contents iii studying the value of design methods

i SETTING THE ARCHITECTURAL data STAGE identifying awarded obstacle & intention architects & firms

ii why (still) ny? control group data

why now: descriptive statistics current climate of design in the built environment methodology

money & design: results: how finance/economics awarded designs and define design transaction prices

stepping stone conclusion

The Value of Awarded Design in Real Estate Development 3 01 SETTING THE ARCHITECTURAL STAGE

The Value of Awarded Design in Real Estate Development New York 2020: a sea of design

As part of its latest development report, real estate agency Cityrealty reported while fewer devel- opers in 2016 are signing on to build sky-grazing towers, condominium prices are still on an upward trajectory with antic- ipated sales totaling roughly $30 billion through 2019.

Source: A look into the future: a render of Manhattan. Photograph: CityRealty

The Value of Awarded Design in Real Estate Development Setting the Architectural Stage 5 w

OBSTACLES From Single Discipline Set of Understandings

REAL ESTATE ARCHITECTURE INVESTMENT DESIGN DESIGN DEVELOPMENT DESIGN

Design is no longer The real estate development Design is multi-faceted, a foreign concept for industry is actively re-inventing highly specialized, investors. their relationship with design. and interdisciplinary

The Value of Awarded Design in Real Estate Development Setting the Architectural Stage 6 w

Intention To a Shared Knowledge Platform

INVESTMENT

& DESIGN

REAL ESTATE ARCHITECTURE DEVELOPMENT

This study intend to broaden the scope of understanding the value of design by adding substantially more driving factors in the real estate transaction pricing process.

The Value of Awarded Design in Real Estate Development Setting the Architectural Stage 7 OBSTACLES & intention In recent years, due to increased market educa- From Single Discipline tion and growth in number of leading examples, Set of Understandings investing in high quality design became a stan- dard for the real estate market in New York City. To a Shared Knowledge Despite the growing interest, however, a limited Platform number of studies and discussions have been generated to help create a shared value sur- rounding the subject of design.

INVESTMENT To resolve this issue, we find and measure the architectural legacy of the architects of New York City buildings and pair that with financial data. This study intend to broaden the scope of under- standing the value of design by adding substan- tially more driving factors in the real estate trans- DESIGN action pricing process by incorporating buyer and seller decisions for all of the transactions over time, specifying the type of awards, and adding information on architects to every building in the REAL ESTATE ARCHITECTURE sample data set. The added measures improved DEVELOPMENT our model's ability to explain the variation in trans- action price ■

The Value of Awarded Design in Real Estate Development Setting the Architectural Stage 8 02 WHY (STILL) NEW YORK?

The Value of Awarded Design in Real Estate Development The year 2018, marked the highest construction spending New York has ever witnessed in its history.

The Value of Awarded Design in Real Estate Development Why (Still) New York? 10 w

figure 1 Annual Construction Spending in New York City, 2001-2020 (in billion)

60 Government

40

30

Non-residential 20

10 Residential

5 Source: Dodge Data & Analyt- ics, NYS Department of Laber, public sec- tor capital budgets. 0 U.S. Census Bureau, Urbanomics 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

The Value of Awarded Design in Real Estate Development Why (Still) New York? MSRED 2019 11 As of June 2018, buyers of the condominiums designed by Pritzker prize laureates paid an average $3,126 / SF

The Value of Awarded Design in Real Estate Development Why (Still) New York? 12 w

figure 2 Star-Architect Condo Price Change Summary During Past 5 Years

Current Price Avg. Price/Ft2 based on 138 closings in the past 12 months

3000 3015 3097

2782 2787 2500 2517

2000 1969

Source: 1500 CityRealty Starchitect Condo Index (https:// www.cityrealty.com/ nyc/building-indices/ 0 starchitect-condos/ building-list/112) 2013 2014 2015 2016 2017 2018

The Value of Awarded Design in Real Estate Development Why (Still) New York? MSRED 2019 2019 13 NYC Open data law The continuing effort to open the city’s database encouraged and boosted researchers to better understand the built environment, as demonstrat- ed in “Open Data Law”, NYC’s recent endeavor to consolidate all public data into a single, eas- ily-accessible platform. The database and the advanced data processing technology available today is opening a new horizon in understanding the price dynamics of the building industry in any given time ■

Analytics

Analytics

Source: Twitter, https://twitter. com/mikebloomberg/ status/44375346548 8367617?lang=en

The Value of Awarded Design in Real Estate Development Why (Still) New York? 14 03 WHY NOW: CURRENT CLIMATE OF DESIGN IN THE BUILT- ENVIRONMENT

The Value of Awarded Design in Real Estate Development design development companies in new york

The real estate development industry is actively re-inventing their relationship with design. The two most well known design development companies in New York are Alloy Development and ddg, established in 2006 and 2009 respectively, have archi- tects as owners/partners of the Mortar Arch + Dev ALLOY Development LLC DDG Partners business. Similar to the role of (2003) (2006) (2009) creative directors in the fash- ion industry, they take charge in managing the design from its inception to completion on behalf CEO Chairman CEO President of the development company’s (Architecture) (Finance) (Finance) (Development) interest.

Founder (Architecture & Development) President COO Chief Creative Officer (Architecture & Construction) (Development & (CCO, Architecture) Finance)

Source: Design Development Firms in New York 167 Eagle Street N/A One John Street 130,000sf 8 Octavia 71,000sf (The diagram shows the interdisciplinary 91 Diamond Street N/A Dumbo Townhouses 18,000sf 400 Grove 36,070sf management struc- 873 Pacifc Street N/A 185 Plymouth Street 24,000sf 450 Hayes 80,000sf ture of design devel- opment companies in 585 Union Ave N/A 192 Water Street 19,600sf 235 Valencia 20,000sf New York City) 356 Baltic Street N/A 459 West 18th Street 31,000sf 3550 South Ocean 90,000sf 167 Devoe Street N/A 450 Hudson Boulevard 39,518sf 41 Bond St 22,000sf 764 Metropolitan Ave N/A Glenmore Gardens 22,000sf 345 Meatpacking 8,000sf The Value of Awarded Design in Real Estate Development245 Manhattan Ave N/A Why Now: Current Climate of DEsign in the12 Built Warren Environment N/A 16 324 East 4th Street N/A XOCO 325 N/A Ironwood N/A 100 Franklin N/A 504 Humboldt Street N/A 180 East 88th N/A 139 Meserole Street N/A 532 West 20th N/A 292 Manhattan N/A The Standish N/A 100 Gold N/A 294 Ainsle Street N/A design development companies in new york The Business

Design is no longer a foreign Value of Design concept for the investors as well. Investors have been witnessing the appreciation of design from the market and how that trans- lates into additional profit for their investment. Since 1982, few ac- ademic studies from real estate finance and economics have attempted to uncover the in- "Design is more than a feeling: vestment premiums related with well-designed buildings. There it is a CEO-level priority for growth are some differences in the sub- ject market, building product, and and long-term performance." the methods used to measure the value of design, however, the results unequivocally show on average 20% sales premium for well-designed buildings.

Source: Twitter, https://twitter. com/mikebloomberg/ status/44375346548 8367617?lang=en

The Value of Awarded Design in Real Estate Development Why Now: Current Climate of DEsign in the Built Environment 17 w

Figure 3 Annual Compensation for All Architectural Staff Position Over Time (in 2015 Dollars)

Note 120K 6% According to the 2015 AIA Compensation Survey, the average compensation for architectural staff positions is still 100K 5% recovering from the Great Recession. The report, found that average compensa- 79,400 tion for staff positions 75,000 76,700 rose 3.5 percent 80K 4% since early 2013 (or 73,400 1.75 percent per year). This growth is up from 62,600 the Great Recession, 56,800 during which annu- 60K 3% al compensation 48,900 increased an average of less than 1 per- cent, but moderate 41,900 compared to the past two decades, when 40K 36,500 2% annual compensation increases ranged between 4 and 5 Compensation (in USD) Average

percent. Compensation Rate Growth Average 20K 1% Source AIA Compensation Report 2015 0 0% 1993 1996 1999 2002 2005 2008 2011 2013 2015 Year

: Average Compensation Growth Rate (in 2015 Dollars) : Average Compensation for All Architectural Staff Postitions Over Time (in 2015 Dollars)

The Value of Awarded Design in Real Estate Development Why Now: Current Climate of DEsign in the Built Environment MSRED 2019 18 Media depiction of design The Limited Public Discourse on the Current Climate of Design in the Built Environment

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The Value of Awarded Design in Real Estate Development Why Now: Current Climate of DEsign in the Built Environment 19

27 SHARES

https://www.6sqft.com/did-ariana-grande-just-drop-16m-on-a-condo-in-zaha-hadids-chelsea-building/ 1/7 https://www.forbes.com/sites/keithflamer/2017/09/30/another-soaring-starchitect-tower-ascends-over-revitalized-downtown-manhattan/#184535e74b33 1/11 04 MONEY & DESIGN: HOW FINANCE/ ECONOMICS DEFINE DESIGN

The Value of Awarded Design in Real Estate Development The hedonic pricing methodology The Hedonic Pricing Method is an asset pricing method that starts from the premise that the price of a property is determined both by internal characteristics and external factors that affect the property’s transaction price. $ : External Factors + Internal Characteristics External Factors: Location, Transaction Time, Building Age, Size, Parcel Area, LEED Status, etc.

Internal Characteristics: Building Amenities, Mechanical, Electrical, and Plumbing Quality, Building Occupants Use, etc.

: External Factors : Internal Characteristics

The Value of Awarded Design in Real Estate Development Money And Design: How Finance/Economics Define Design 21 data providers for information on The information on architects who are responsi- architects ble for the overall design quality of the building is often omitted.

In fact, Emporis and New York City Department of Buildings (DoB) are the only two sources of data among all the private and public data providers that include such information.

Emporis is a real estate data mining company The New York City Department of Buildings with specializing in high-rise and skyscrapers. Even with these two data providers, the quality

Buildings in Manhattan 83,301 buildings Enforces the city’s building codes and and accessibility of the data are highly limited. Identified in Database (100%) zoning regulations The database of Emporis only includes data on Information on the 7256 buildings Issues building permits the high rise buildings and the coverage is less Architect of building (9% coverage) than 10% of the buildings in Manhattan. On the Design Architect 146 buildings The data base includes detail information of building (0.17% coverage) regarding over 1,000,000 new and exist- other hand, since one of the Department of Build- ing buildings. Landscape Architect 125 buildings ing’s function is to issue building permits, the in- of building (0.15% coverage) Currently the information on architects formation on architects should be available for Interior Designer 201 buildings are only available upon request and per every building that is built, however, such informa- of building (0.24% coverage) buildnig basis. tion is only available by request and by per build- ing basis ■

The Value of Awarded Design in Real Estate Development Money And Design: How Finance/Economics Define Design 22 05 studying the value of design methods

data

The Value of Awarded Design in Real Estate Development table 1 Design Value Studies

Can “Good” Architecture The Economics of D. E. Hough &C. G. Kratz, 1982 K. D. Vandell & J. S. Lane, 1989 Meet the Market Test? Architecture and Urban Design

Data Recognized by “official” authority Conclusion Is $1.85 (or $1.64) per Data 102 Commercial Office building Conclusion The coefficient for DE- LDMK & CAIA, 20 buildings out of 139 square foot truly the value of “good” Rents and Vacancy rates in Boston, SIGN, although positive, is not signif- new architecture? If so, at an average 1979 - 1986 icant. Consists with the notion that rentable area of 844,000 square feet design does not necessarily have to for post-1955 Chicago office buildings, Criteria 139 Commercial Office Survey criteria Survey done by panel cost more to the extent that “overin- the annual return to this attribute would building rents in Chicago CBD in 1978 of architects. Examined in categories such vestment” may contribute to negative be $1.6 million (or $1.4 million, using the as, decorativeness of facade, color and marginal returns to design. $1.64 per square foot premium). texture of surface material, massing

Estimating the Economic Value of Impact of Quality-Led F. Fuerst, P. McAllister & C. B. Murray, 2010 I. Nase, J. Berry & A. Adair, 2016 ‘Signature’ Architecture Design on Real Estate Value

Data CoStar US national database for Conclusion Compared with buildings Data 424 Condominium units in Conclusion Empirical findings indicate commercial office rental (16,932 buildnigs in the same submarket, ODSAs have Belfast city center, 2000 - 2008 that from the seven building quality observed) & sales (9,418 sales observed) rents that are 5% - 7% higher than non- features initially investigated, the ones in 682 submarket clusters ODSAs and sell for prices 12% - 17% mostly valued by end users are those higher. In other words, for the average Survey Criteria Survey done by group that are easily perceived visually. Criteria Pritzker Prize+AIA Gold Medal, structure, movement into the next high- of local experts. Categories include, 499 buildings out of 16,932 er design quintile will increase rents facade material, facade identity, quality from $27.58/SF to $28.96SF. of material used, fenestration, massing, height in floors, building condition

The Value of Awarded Design in Real Estate Development Studying the Value of Design Methods 24 w

D. E. Hough & C. G. Kratz, 1982 Can "Good" Architecture Meet the Market Test?

Significance*** Asterisks in a -1 -0.5 0 ($/SF) 0.5 1 1.5 2 regression table A considerable rent indicate the level of the statistical significance of premium is paid for “good” a regression coefficient. new architecture but not for *** p<0.01, ** p<0.05, chicago aia award * p<0.1 $ 1.85/SF *** “good” old architecture.

Coefficient % The standard error is Chicago AIA award increases our estimate of the standard deviation of the annual rent about $1.85/ the coefficient. landmark status -$ 0.81/SF *** Source SF, however Land Mark Hough D. E. & Kratz C. G., 1982, Can 'Good' Architecture Meet the status decreases the annual Market Test?, Journal of Urban Economics, 14, page 40–54. rent about $0.81/SF.

The Value of Awarded Design in Real Estate Development Studying the Value of Design Methods MSRED 2019 25 w

F. Fuerst, p. mcallister, & c. b. murray, 2010 What is the Economic Value of 'Signature' Architecture?

Significance*** Asterisks in a 0 (%) 2 4 6 8 10 12 14 16 17 18 regression table Compared with buildings in indicate the level of the statistical significance of the same submarket, Office a regression coefficient. Designed by Signature *** p<0.01, ** p<0.05, Transaction Price Premium * p<0.1 14.5% *** Architects have rents that Coefficient % The standard error is are 5% - 7% higher than our estimate of the standard deviation of the coefficient. Office Designed by Non-

Source Rent Premium Signature Architects and sell Fuerst F., McAllister P. & Murray C. B., 2011, 6% ** Designer Buildings: for prices 12% - 17% higher. Estimating the eco- nomic value of 'sig- nature' architecture, Journal of Environ- ment & Planning, 43, page 166–184

The Value of AwardedDesign in Design Real Estate in Real Development Estate Development Studying the Value of Design Methods MSRED 2019 26 w

k. d. vandell & j. s. lane, 1989 Does well designed building rent for more or result in lower vacancy?

Significance*** Asterisks in a 0 (%) 1 2 3 4 5 6 regression table For the average structure, indicate the level of the statistical significance of 5.0% increase in rents with a regression coefficient. every increase of one in the *** p<0.01, ** p<0.05, Rent Premium * p<0.1 5% ** design rating. Coefficient % The standard error is our estimate of the standard deviation of the coefficient. This suggests that, at the

Source Vacancy Rate mean, an increase of one Vandell K. D. & Lane J. S., 1989, The Econom- 1.35% ics of Architecture quintile in design quality and Urban Design, AREUEA Journal, 17, No. 2 would decrease the vacancy rate from 1.7% to 1.0%.

The Value of AwardedDesign in Design Real Estate in Real Development Estate Development Studying the Value of Design Methods MSRED 2019 27 w

i. nase, j. berry, & a. adair, 2016 What is the Impact of Quality Led Design for Real Estate Value?

0 (%) 5 10 15 20 25 30 35

Building Condition 2.14%

Height 3.28%

Significance*** Massing Asterisks in a 7.24% ** regression table Empirical findings indicate indicate the level of the statistical significance of that from the seven building a regression Finishing coefficient. 8.23% ** quality features initially *** p<0.01, ** p<0.05, * p<0.1 investigated, the ones Fenestration Coefficient % 11.02% ** The standard error is mostly valued by end users our estimate of the standard deviation of are those that are easily the coefficient. Identity

Source 11.72% ** perceived visually. Nase I., Berry J. & Adair A., 2016, Impact of quality-led design on real estate value, Material quality Journal of Property Research, 33:4, 31.95% ** page 309–331

The Value of AwardedDesign in Design Real Estate in Real Development Estate Development Studying the Value of Design Methods MSRED 2019 28 typical methods used to measure the effects of Largely two different approaches were found design on the value of the buliding when understanding and measuring the effects of design on the value of the building.

One set of papers examine the quality of design by associating it with the architect’s achievement and the recognition of their peers by looking at a sample of buildings designed by architects who have won important architectural prizes (Hough 1. Examine the Quality of Design by Associating it with Architecture Awards and Kratz, 1982; Fuerst, McAllister, and Murray, 2010; Cheshire and Dericks, 2014).

The other approach chooses to conduct a survey by a group of experts to grade the overall design quality of the sample buildings. The experts score building elements such as façade fenestration, building material, massing composition, etc. of 0 1 2 3 4 5 the sample buildings and the overall design score of the building is derived by averaging the scores

2. Scoring Process for Design Quality Variables of each element (Vandell and Lane, 1989; Nase, ex) Massing, Fenestration, Material Quality, etc. Berry, and Adair, 2016).

The Value of Awarded Design in Real Estate Development Studying the Value of Design Methods 29 our research approach Our research differs from these previous studies. It focuses on different types of awards that can include a broader range of architects, it includes architecture firms as well as individual architects ation on Architec rm ts f nfo or and further elaborates on the estimation by I Bu D il D di A ng incorporating information on architects and s in

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The Value of Awarded Design in Real Estate Development Studying the Value of Design Methods 30 data structure

+ +

PRIMARY DATABASE ADDITIONAL DATABASE ADDITIONAL DATABASE

Variables in Use: Variables in Use: Variables in Use:

Price Building Class Walk Score assigned to Submarket every building in datrabase Transaction Year Built Year DATA ON ARCHITECTS Number of Floors + Building Area (SqFt) Land Parcel Area The information on architects Renovation Year were manually gathered Buyer Type through multiple sources Seller Type such as, firm portfolio web- Lender Type site, media articles, and architectural magazines

The commercial building transaction database used in this empirical study was obtained from the Wide Data Project of MIT Real Estate Innovation Lab, which is a combination of publicly available data from New York government entities, Real Capital Analytics (RCA), and Compstak data. The integrated database provides fundamental hedonic variables that we will be using ■

The Value of Awarded Design in Real Estate Development Data 31 06 IDENTIFYING AWARDED ARCHITECTS & FIRMS

The Value of Awarded Design in Real Estate Development award criteria & awarded architects and firms Lifetime Achievement Awards that Evaluate the Architect’s Accumulated Body of Work.

Royal Gold Gold Gold Golden Awarded Architects: Architects who won the lifetime achievement awards and/or innovation awards Medal Medal Medal Lion

Organization Organization Organization Organization Aldo Rossi '90 557 Broadway RIBA AIA UIA Venice 555 Broadway How often How often How often Biennale How often Annual Annual Triennial First awarded First awarded Alvar Alto '63 809 United Nations Plaza First awarded Biennial First awarded 1848 1907 1984 From 1950 From 1950 From 1950 2000 Jean Nouvel '01 '08 45-47 W 53rd St From 1950 69 awarded 59 awarded 26 awarded 12 awarded César Pelli '95 Three World Financial Center Four World Financial Center 900 3rd Avenue NY Mercantile Exchange Innovator National Architecture Pritzker Awards Desgin Award Firm Award Prize Norman Foster '83 '94 '99 610 Lexington Avenue Organization Organization Organization Organization 425 Park Avenue WSJ Cooper Hewitt AIA Pritzker How often How often How often Foundation Fumihiko Maki '11 '93 '93 51 Astor Place Annual Annual Annual How often First awarded First awarded First awarded Annual 2010 2000 1962 First awarded Mies van der Rohe '59 '60 Seagram Building From 1950 From 1950 From 1950 1978 7 awarded 26 awarded 55 awarded From 1950 Philip Johnson '78 '79 5 East 44th Street 41 awarded Sony Plaza Lipstick Building

Walter Gropius '56 '59 200 Park Avenue

The Value of Awarded Design in Real Estate Development Identifying Awarded Architects & Firms 33 award criteria & awarded architects and firms The AIA Architecture Firm Award recognizes the architecture firm that has produced a notable architecture for at least a decade.

Awarded Firms: Architecture firms who won the AIA Architecture Firm Award Royal Gold Gold Gold Golden Medal Medal Medal Lion Davis Brody Bond 100 William Organization Organization Organization Organization '75 Five Manhattan West RIBA AIA UIA Venice How often How often How often Biennale How often Annual Annual Triennial First awarded First awarded First awarded Biennial Gensler '00 233 Spring Street First awarded 1848 1907 1984 161 6th Avenue From 1950 From 1950 From 1950 2000 From 1950 69 awarded 59 awarded 26 awarded 12 awarded Kohn Pedersen Fox '90 745 7th Avenue Five TIme Square One Vanderbilt 111 Murray Street Innovator National Architecture Pritzker 1100 6th Avenue Awards Desgin Award Firm Award Prize 441 8th Avenue 10 Hudson Yards Organization Organization Organization Organization WSJ Cooper Hewitt AIA Pritzker How often How often How often Foundation Murphy / Jahn 425 Lexington Avenue Annual Annual Annual How often 05 First awarded First awarded First awarded Annual 65 East 55th Street 2010 2000 1962 First awarded From 1950 From 1950 From 1950 1978 From 1950 7 awarded 26 awarded 55 awarded Hugh Stubbins '67 Citi Group Center 41 awarded

The Value of Awarded Design in Real Estate Development Identifying Awarded Architects & Firms 34 award criteria & awarded architects and firms Within 18 Awarded Architects/Firms, 4 Firms Have Received More Than 2 Awards From 3 Award Categories

Awarded Architects & Firms: Architects/firms who won both award groups Royal Gold Gold Gold Golden Medal Medal Medal Lion

Organization Organization Organization Edward L. Barnes 499 Park Avenue Organization '07 '80 RIBA AIA UIA Venice 7 Byant Park How often How often How often Biennale How often Annual Annual Triennial First awarded First awarded I.M.Pei '10 '79 '14 '83 JP Morgan Chase HQ First awarded Biennial First awarded Deutsche Bank HQ 1848 1907 1984 From 1950 From 1950 From 1950 31 West 52nd Street 2000 '03 '68 From 1950 69 awarded 59 awarded 26 awarded 750 Seventh Avenue 12 awarded

Kevin Roche '93 '82 '74 125 West 55th Street Avenue of Americas Plaza 787 Seventh Avenue Innovator National Architecture Pritzker Awards Desgin Award Firm Award Prize Skidmore Orell & Merril '57 '83 '88 '96 12 West 57th Street Organization Organization Organization Organization Paine Webber Building WSJ Cooper Hewitt AIA Pritzker Marine Midland Bank How often How often How often Foundation Bertelsmann Building Annual Annual Annual How often 300 Madison Avenue First awarded First awarded First awarded Annual 34-36 East 51st Street 2010 2000 1962 First awarded From 1950 From 1950 From 1950 One Manhattan West 1978 Two Manhattan West 7 awarded 26 awarded 55 awarded From 1950 450 Lexington Avenue 41 awarded 461 5th Avenue 510 5th Avenue Worldwide Plaza 830 3rd Avenue

The Value of Awarded Design in Real Estate Development Identifying Awarded Architects & Firms 35 w

catalogue of treated Architect Skidmore, Orwings & Merrill Skidmore, Orwings & Merrill building transactions (SOM) (SOM) Property Name 875 Third Avenue 300 Madison Ave Sub-Market Midtown East Midtown East Year Built 1982 1910 No. Floors 29 FL 16 FL Building Image Building Area 719,000 SF 490,560 SF Building Class A A

Skidmore, Orwings & Merrill Skidmore, Orwings & Merrill Skidmore, Orwings & Merrill Kevin Roche (SOM) (SOM) (SOM) PaineWebber Building 830 Third Ave 510 5th Ave JP Morgan Chase HQ Midtown West Midtown East Midtown West Downtown 1960 1956 1954 1988 42 FL 13 FL 5 FL 47 FL 1,749,000 SF 144,000 SF 70,000 SF 1,612,000 SF A A B A

Skidmore, Orwings & Merrill Skidmore, Orwings & Merrill Kevin Roche Skidmore, Orwings & Merrill (SOM) (SOM) (SOM) 450 Lexington Bertelsmann Bldg 31 West 52nd Street 461 Fifth Ave Midtown East Midtown West Midtown West Midtown East 1992 1990 1986 1988 32 FL 44 FL 30 FL 26 FL 910,473 SF 1,058,287 SF 729,011 SF 200,000 SF A A A A

The Value of AwardedDesign in Design Real Estate in Real Development Estate Development Identifying Awarded Architects & Firms MSRED 2019 36 w

catalogue of treated Skidmore, Orwings & Merrill I.M.Pei & Partners Skidmore, Orwings & Merrill building transactions (SOM) (SOM) Marine Midland Bank 499 Park Ave 450 Lexington Downtown Midtown East Midtown East 1967 1981 1992 52 FL 28 FL 32 FL 1,200,866 SF 292,966 SF 910,473 SF A A A

Skidmore, Orwings & Merrill Kevin Roche Edward Larrabee Barnes Kevin Roche (SOM) 450 Lexington Deutsche Bank HQ 125 West 55th Street 750 Seventh Avenue Midtown East Downtown Midtown West Midtown West 1992 1988 1989 1989 32 FL 47 FL 23 FL 36 FL 910,473 SF 1,612,000 SF 548,881 SF 591,169 SF A A A A

Skidmore, Orwings & Merrill Kevin Roche Skidmore, Orwings & Merrill Skidmore, Orwings & Merrill (SOM) (SOM) (SOM) Worldwide Plaza 31 West 52nd Street 510 Fifth Avenue 34-36 E 51st St Midtown West Midtown West Midtown West Midtown East 1989 1986 1954 1922 47 FL 30 FL 5 FL 10 FL 2,055,583 SF 729,011 SF 61,159 SF 41,000 SF A A B NA

The Value of AwardedDesign in Design Real Estate in Real Development Estate Development Identifying Awarded Architects & Firms MSRED 2019 37 w

catalogue of treated Skidmore, Orwings & Merrill Skidmore, Orwings & Merrill Kevin Roche building transactions (SOM) (SOM) 919 Third 12 West 57th Street 750 Seventh Avenue Midtown East Midtown West Midtown West 1970 1904 1989 46 FL 11 FL 36 FL 1,316,758 SF 84,000 SF 591,169 SF A A A

Skidmore, Orwings & Merrill Skidmore, Orwings & Merrill Skidmore, Orwings & Merrill Edward Larrabee Barnes (SOM) (SOM) (SOM) 875 Third Avenue 450 Lexington Avenue PaineWebber Building 125 West 55th Street Midtown East Midtown East Midtown West Midtown West 1982 1992 1960 1989 29 FL 32 FL 39 FL 23 FL 719,000 SF 910,473 SF 1,749,000 SF 548,881 SF A A A A

Skidmore, Orwings & Merrill I.M.Pei & Partners Skidmore, Orwings & Merrill Pei Cobb Freed & Partners (SOM) (SOM) 7 Bryant Park 28 Liberty 499 Park Ave Worldwide Plaza Midtown West Downtown Midtown East Midtown West 2015 1963 1981 1989 30 FL 57 FL 28 FL 47 FL 470,000 SF 2,215,030 SF 292,966 SF 2,055,583 SF A NA A A

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catalogue of treated Hugh Stubbins & Associates Skidmore, Orwings & Merrill Kevin Roche building transactions (SOM) Citigroup Center PaineWebber Building 31 West 52nd Street Midtown East Midtown West Midtown West 1977 1960 1986 59 FL 39 FL 30 FL 1,800,000 SF 1,749,000 SF 729,011 SF A A A

Edward Larrabee Barnes Skidmore, Orwings & Merrill Skidmore, Orwings & Merrill Kevin Roche (SOM) (SOM) 787 Seventh Avenue Two Manhattan West One Manhattan West Deutsche Bank HQ Midtown West Midtown West Midtown West Downtown 1985 2020 2019 1988 51 FL 62 FL 67 FL 47 FL 1,706,007 SF 2,000,000 SF 2,000,000 SF 1,612,000 SF A NA NA A

Kohn Pedersen Fox Assoc. Gensler Murphy/Jahn Kohn Pedersen Fox Assoc. (KPF) (KPF) 745 Seventh Avenue 233 Spring St 425 Lexington Ave Five Times Square Midtown West Downtown Midtown East Midtown West 2001 1926 1987 2002 38 FL 10 FL 31 FL 39 FL 1,020,000 SF 249,148 SF 750,000 SF 1,101,779 SF A A A A

The Value of AwardedDesign in Design Real Estate in Real Development Estate Development Identifying Awarded Architects & Firms MSRED 2019 39 w

catalogue of treated Hugh Stubbins and Assoc. Davis, Brody & Associates Murphy/Jahn building transactions Citigroup Center 100 William Park Avenue Tower Midtown East Downtown Midtown East 1977 1972 1986 59 FL 21 FL 36 FL 1,800,000 SF 357,000 SF 615,857 SF A A A

Kohn Pedersen Fox Assoc. Kohn Pedersen Fox Assoc. Davis, Brody & Associates Murphy/Jahn (KPF) (KPF) future One Vanderbilt (partial) 111 Murray Street Five Manhattan West 425 Lexington Ave Midtown East Downtown Midtown West Midtown East 1913 1984 1969 1987 17 FL 10 FL 16 FL 31 FL 160,482 SF 145,525 SF 1750,000 SF 750,000 SF B NA A A

Davis, Brody & Associates Kohn Pedersen Fox Assoc. Davis, Brody & Associates Murphy/Jahn (KPF) 100 William Five Times Square Five Manhattan West Park Avenue Tower Downtown Midtown West Midtown West Midtown East 1972 2002 1969 1986 21 FL 39 FL 16 FL 36 FL 357,000 SF 1,101,779 SF 1,750,000 SF 619,631 SF A A A A

The Value of AwardedDesign in Design Real Estate in Real Development Estate Development Identifying Awarded Architects & Firms MSRED 2019 40 w

catalogue of treated Hugh Stubbins & Associates Kohn Pedersen Fox Assoc. Ludwig Mies van der Rohe building transactions (KPF) Citigroup Center Five Times Square Seagram Building Midtown East Midtown West Midtown East 1977 2002 1958 59 FL 39 FL 38 FL 1,800,000 SF 1,132,865 SF 820,000 SF A A A

Gensler Gensler Kohn Pedersen Fox Assoc. Kohn Pedersen Fox Assoc. (KPF) (KPF) One Soho Square One Soho Square HBO HBO Downtown Downtown Midtown West Midtown West 1904 1926 1906 1906 15 FL 10 FL 15 FL 15 FL 450,000 SF 316,000 SF 344,000 SF 344,000 SF B A NA A

Kohn Pedersen Fox Assoc. Kohn Pedersen Fox Assoc. Philip Johnson / Alan Ritchie Philip Johnson (KPF) (KPF) 441 Ninth 10 Hudson Yards 5 E 44th St Lipstick Building Midtown West Midtown West Midtown East Midtown East 1953 2016 1940 1986 8 FL 52 FL 6 FL 34 FL 423,000 SF 1,813,465 SF 15,726 SF 592,000 SF NA A NA A

The Value of Awarded Design in Real Estate Development Identifying Awarded Architects & Firms MSRED 2019 41 w

catalogue of treated Alvar Aalto Foster + Partners Philip Johnson building transactions 809 United Nations Plaza Fmr YMCA Sony Plaza Midtown East Midtown East Midtown East 1964 1926 1984 11 FL 10 FL 36 FL 100,000 SF 81,017 SF 855,000 SF NA NA A

Cesar Pelli & Associates Ludwig Mies van der Rohe Cesar Pelli & Associates Philip Johnson

Three World Financial Center Seagram Building 900 Third Ave Lipstick Building Downtown Midtown East Midtown East Midtown East 1986 1958 1984 1986 52 FL 38 FL 36 FL 34 FL 2,100,000 SF 820,000 SF 595,105 SF 592,000 SF A A A A

Foster + Partners Walter Gropius Ludwig Mies van der Rohe Philip Johnson / Alan Ritchie

Shangri-La hotel project MetLife Building Seagram Building 5 E 44th St Midtown East Midtown East Midtown East Midtown East 1926 1963 1958 1940 10 FL 58 FL 38 FL 6 FL 81,017 SF 2,840,000 SF 820,000 SF 15,726 SF NA A A NA

The Value of Awarded Design in Real Estate Development Identifying Awarded Architects & Firms MSRED 2019 42 w

catalogue of treated Foster + Partners Fumihiko Maki Philip Johnson building transactions Cooper Union Engineering 425 Park Dev Site Lipstick Building Midtown East Midtown South Midtown East 1957 1960 1986 31 FL 9 FL 34 FL 567,340 SF 158,816 SF 592,000 SF A A A

Aldo Rossi Aldo Rossi Cesar Pelli & Associates Cesar Pelli & Associates

Scholastic 555 Broadway 900 Third Ave Four World Financial Center Midtown South Midtown South Midtown East Downtown 1999 1900 1984 1986 10 FL 12 FL 36 FL 34 FL 112,500 SF 216,000 SF 595,105 SF 2,084,079 SF NA B A A

Foster + Partners Cesar Pelli & Associates Ludwig Mies van der Rohe Ateliers Jean Nouvel

425 Park Avenue New York Mercantile Exc. Seagram Building 53W53 Midtown East Downtown Midtown East Midtown West 1957 1997 1958 2000 31 FL 17 FL 38 FL 5 FL 567,340 SF 502,000 SF 820,000 SF 28,291 SF A A A NA

The Value of Awarded Design in Real Estate Development Identifying Awarded Architects & Firms MSRED 2019 43 w

catalogue of treated Philip Johnson Fumihiko Maki building transactions Sony Plaza 51 Astor Place Midtown East Midtown South 1984 2013 36 FL 13 FL 855,000 SF 400,000 SF A A

The Value of Awarded Design in Real Estate Development Identifying Awarded Architects & Firms MSRED 2019 44 07 CONTROL GROUP DATA

The Value of Awarded Design in Real Estate Development Control Group data process In order to understand the effect of the awarded architects and firms on the transaction price, we matched each of the awarded buildings in this sample to nearby commercial buildings in the similar location using the Geographic Information System (GIS).

0.25 Mile Radius 0.25 Mile Radius Out of 2,399 office building transactions identified in the integrated database constructed combin- ing RCA and Compstak, 52 buildings were de- signed by awarded architects/firms. Building Designed by Identify All other Office Buildings Awarded Architect / Firm Create 0.25 Mile Radius in Database within Radius Identification Based on the latitude and longitude of each treat- ed building we created a one quarter mile radius buffer zone to capture all the commercial build- ings that intersect with the integrated database ■

RESULT: 56 AWARDED DESIGN BUILDINGS 89 AWARDED BUILDING TRANSACTIONS 833 OFFICE BUILDINGS 846 TOTAL TRANSACTION OBSERVATIONS

The Value of Awarded Design in Real Estate Development Control Group Data 46 Control Group data process, gis

The series of maps show the Building Designed by Identify All Other Office Buildings location of the treated buildings, Create 0.25 Mile Radius quarter mile radius, and the Awarded Architect / Firm Identification in Database within Radius filtered data points.

The Value of Awarded Design in Real Estate Development Control Group Data 47 08 DESCRIPTIVE STATISTICS

Methodology

The Value of Awarded Design in Real Estate Development w

number of transaction observations

TOTAL TRANSACTION OBSERVATIONS INTEREST VARIABLES (NUMBER OF BUILDING TRANSACTIONS)

Awarded Design Awarded Awarded Architects 89 Architects & Firms 27 38 846

757 24

Non-Awarded Awarded Design Firms

The Value of DesignAwarded in Design Real Estate in Real Development Estate Development Descriptive Statistics MSRED 2019 49 w

transaction price & market characteristics BUILDING TRANSACTION PRICE (AWARDED DESIGNS) BUILDING TRANSACTION PRICE (NON-AWARDED DESIGNS)

N Min Max Mean SD N Min Max Mean SD

Transaction Price 89 $ 4.4 M $ 2.98 B $ 607.8 M $ 618.9 M Transaction Price 757 $ 1 M $ 3.4 B $ 178.8 M $ 339.7 M

Log (Price) 89 6.64 9.47 8.53 0.55 Log (Price) 757 6 9.53 7.79 0.65

Price per SF 89 $ 109 $ 1,951 $ 731 $ 404 Price per SF 757 $ 30.8 $ 6,800 $ 630.6 $ 580.1

Log (PSF) 89 2.04 3.29 2.79 0.26 Log (PSF) 757 1.49 3.83 2.68 0.32

MARKET CHARACTERISTICS TRANSACTION CHARACTERISTICS

Midtown W 350 90 326 84 Midtown E 80 300 74 254 70 68 66 250 61 59 Downtown 60 50 49 200 186 50 44 40 41 40 40 43 150 40 34 33 30 100 Midtown S 58 Upper E 20 50 11 22 10 9 0 0 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

Sub Market Transaction Year

The Value of AwardedDesign in Design Real Estate in Real Development Estate Development Descriptive Statistics MSRED 2019 50 w

AWARDED DESIGN BUILDING characteristics Descriptive Statistics for Awarded Design

BUILDING CHARACTERISTICS (AWARDED DESIGNS) BUILDING CLASS NUMBER OF RENOVATED BULIDINGS

Total : 89 Total : 89

Unknown N Min Max Mean SD Renovated 14 Age 89 0 118 46.27 28.33 Class B 5 27 Number of Floors 89 5 67 30.39 15.71

62 Area SqFt 89 15,726 2,84 M 855,757 666,291 70

Land Area SqFt 89 2,700 150,718 43,574 32,104 Not Renovated Class A Walk Score 89 94 100 99.16 0.95

The Value of AwardedDesign in Design Real Estate in Real Development Estate Development Descriptive Statistics MSRED 2019 51 w

AWARDED DESIGN TOTAL NUMBER OF TRANSACTIONS: 89 transaction characteristics BUYER TYPE SELLER TYPE LENDER TYPE

1 Corporate 2 Fund 1 Local Bank 1 Government 2 Government 2 Financial 4 REIT 5 REIT 4 Insurance 5 REOC 8 National Bank 6 Corporate 8 Institutional 8 Institutional 15 International Bank 14 Offshore 9 Offshore

22 CMBS 19 Private 15 Private

42 Unknown

37 Unknown 37 Unknown

The Value of AwardedDesign in Design Real Estate in Real Development Estate Development Descriptive Statistics MSRED 2019 52 w

NON-AWARDED DESIGN BUILDING characteristics Descriptive Statistics for Non-Awarded Design

BUILDING CHARACTERISTICS (NON-AWARDED DESIGNS) BUILDING CLASS NUMBER OF RENOVATED BULIDINGS

Total : 757 Total : 757

Class C N Min Max Mean SD

Class B 58 Not Age 757 7 208 86.3 26.64 247 Renovated 341 Number of Floors 757 2 77 18.48 13.21 223 Class A 416 Area SqFt 757 2,365 2.63 M 331,081 455,666 Renovated

Land Area SqFt 757 800 130,680 16,220 19,074 229

Walk Score 757 92 100 99.28 0.96 Unknown

The Value of AwardedDesign in Design Real Estate in Real Development Estate Development Descriptive Statistics MSRED 2019 53 w

non-AWARDED DESIGN TOTAL NUMBER OF TRANSACTIONS: 757 transaction characteristics BUYER TYPE SELLER TYPE LENDER TYPE

1 REOC 2 REOC 2 Government 2 Retailer 4 Retailer 2 Pension Fund 14 Government 14 Government 9 Private 20 Corporate 20 Private 33 Financial 31 Fund 27 Institutional 35 Insurance 33 REIT 33 Corporate 76 International Bank 33 Institutional 34 Fund 41 Offshore 39 Offshore 77 Local Bank 249 Unknown 248 Private

84 National Bank

124 CMBS

330 Private 303 Unknown 315 Unknown

The Value of AwardedDesign in Design Real Estate in Real Development Estate Development Descriptive Statistics MSRED 2019 54 System (GIS). Based on the latitude and longitude of each treated building we created a one quarter mile buffer zone to capture all the commercial buildings that intersect with the integrated System (GIS). Based on the latitude and longitudeSystemSystem ( (GISofGIS each)).. BasedBased treated onon building thethe latitudelatitude we createdandand longitudelongitude a one ofof eacheach treatedtreated buildingbuilding wewe createdcreated aa oneone database. As a result, we created a sample dataset that includes 833System buildings (GIS) .and Based 846 on the latitude and longitude of each treated building we created a one quarter mile buffer zone to capture all theSystemSystemSystem commercialquarterquarter (((GISGISGIS milemile))). .. buildings Based buffBasedBasedbufferer zone zone ononon that thethethe toto intersect latitudecapturelatitudelatitudecapture withallandandandall thethe thelongitudelongitudelongitude commercialcommercial integrated ofofof eacheacheach buildingsbuildings treatedtreatedtreated thatthat buildingbuildingbuilding intersectintersect wewewe withwith createdcreatedcreated thethe integratedintegrated aaa oneoneone transaction observations. System (GISdatabase.). Based As ona result, the latitude we created and longitude a sampledatabase.database. ofdataset eachquarter thattreated AsAs mile aincludesa result,result, buffbuildinger we we833 zone created createdwe buildings to created capture aa sample sampleand a all one 846 the datasetdataset commercial thatthat includesincludes buildings 833833 that buildingsbuildings intersect andand with 846846 the integrated System (GIS). Basedquarterquarterquarter on the milelatitudemilemile buffbuffbuff andererer zone zonezonelongitude tototo capturecapturecapture of each allallall treated thethethe commercialcommercialcommercial building we buildingsbuildingsbuildings created thatthatathat one intersectintersectintersect withwithwith thethethe integratedintegratedintegrated quarter miletransaction buffer zone observations to capture. all the commercialtransactiontransaction buildingsdatabase. observationsobservations that As aintersect result,.. we with created the integrated a sample dataset that includes 833 buildings and 846 quarter mile buffer zonedatabase.database.database. to capture AsAsAsSystem aallaa result,result,result, the (GIS commercial wewewe). Based createdcreatedcreated on buildings the aaa samplesamplesample latitude that datasetanddatasetdataset intersect longitude thatthatthat with ofincludesincludesincludes eachthe integrated treated 833833833 buildingsbuildingbuildingsbuildings we andandand created 846846846 a one transaction observations. (Include GIS map sequencedatabase. to help As understanda result, we createddatabase. the process) a sample As a result, dataset transactiontransactiontransaction we createdthat includes observationsobservationsquarterobservations a sample 833mile datasetbuffbuildings... er zone that and to includes capture 846 all833 the buildings commercial and buildings 846 that intersect with the integrated (Include GIS map sequence to help understand(Include(Include the GIS GISprocess) mapmap sequence sequence toto helphelp understandunderstand thethe process)process) transaction observations. transaction observations . database. As a result, we created a sample dataset that includes 833 buildings and 846 (Include GIS map sequence to help understand the process) (Include(Include(Include GISGISGIStransaction mapmapmap sequencesequencesequence observations tototo helphelphelp. understandunderstandunderstand thethethe process)process)process)

(Include GIS map sequence(Include to help GIS understand map sequence the process) to help understand the process) (Include GIS map sequence to help understand the process)

4 DESCRIPTIVE STATISTICS 44 DESCRIPTIVEDESCRIPTIVE STATISTICSSTATISTICS

4 DESCRIPTIVE STATISTICS 4 DESCRIPTIVE STATISTICS 444 DESCRIPTIVEDESCRIPTIVEDESCRIPTIVE STATISTICSSTATISTICSSTATISTICS The transaction sample data set contains 846TheThe observations transaction transaction samplesample within which datadata setset 89 contains containstransactions 846846 observationsareobservations withinwithin whichwhich 8989 transactionstransactions areare 4 DESCRIPTIVE STATISTICS4 DESCRIPTIVE STATISTICS 4 DESCRIPTIVE STATISTICS buildings designed by either Awarded ArchitectsbuildingsbuildingsThe or Awarded designedtransactiondesigned Firms byby sample eithereither (treated AwardeddataAwarded group) set contains ArchitectsArchitects and 757 846 or or observationsAwardedAwarded FirmsFirms within (treated(treated which group)group) 89 transactions andand 757757 are The transaction sample data set contains 846 observations withinTheTheThe transactionwhichtransactiontransaction 89 samplesampletransactionssample datadatadata setsetset arecontainscontainscontains 846846846 observationsobservationsobservations withinwithinwithin whichwhichwhich 898989 transactionstransactionstransactions areareare transacted buildings designed by non-awardedtransactedtransacted buildingsarchitects buildingsbuildings designed and firms designeddesigned by (control either byby nongroup).Awardednon--awardedawarded The Architects arcarchitectshitects or Awarded andand firmsfirms Firms (control(control (treated group).group). group) TheThe and 757 buildings designed by eitherThe Awardedtransaction sampleArchitects dataThe setor transaction containsAwarded 846sample Firms observationsbuildingsbuildings data (treated set designeddesigned containsThe within transactiongroup) bywhichby 846 eithereither observations and89sample AwardedtransactionsAwarded 757 data set within ArchitectsArchitects contains are which 846 oror 89 Awarded Awardedobservations transactions FirmsFirms within are (treated(treated which 89 group)group) transactions andand 757757 are observed transactions start from 2000 andbuildingsobserved observedendstransacted at designed 2017. transactionstransactions buildings by either startstart designed Awarded fromfrom 20002000 by Architects andnonand - endsawardedends or atat Awarded 2017.2017. architects Firms and (treatedfirms (control group) group). and 757 The buildings designed by eitherbuildings Awarded designed Architects by eitheror Awarded Awardedbuildings Firms Architects designed(treated or bygroup) Awarded either and Awarded Firms 757 (treatedArchitects group) or Awarded and 757 Firms (treated group) and 757 transacted buildings designed by non-awarded architects and firmstransactedtransactedtransacted (controlobserved buildingsbuildingsbuildings group).transactions designeddesigneddesigned The start bybyby nonnon nonfrom---awardedawardedawarded 2000 and arcarcarc endshitectshitectshitects at 2017. andandand firms firmsfirms (control(control(control group).group).group). TheTheThe transacted buildings designedtransacted by non -buildingsawarded designedarchitects by and transactednon firms-awarded (control buildings arc hitectsgroup). designed and The by firms non- awarded(control arcgroup).hitects The and firms (control group). The (Add Descriptive Statistics) observedobservedobserved(Add(Add DescriptiveDescriptive transactionstransactionstransactionsobserved Statistics)Statistics) transactions startstartstart fromfromfrom start 200020002000 from andandand 2000 endsendsends and at atatends 2017.2017.2017. at 2017. observed transactions startobserved from 2000transactions and endsstartobserved from at 2017.2000 transactions and ends atstart 2017. from 2000 and ends at 2017. (Add Descriptive Statistics)

(Add(Add(Add DescriptiveDescriptiveDescriptive (Add Descriptive Statistics)Statistics)Statistics) Statistics) (Add Descriptive Statistics)(Add Descriptive Statistics) (Add Descriptive Statistics) 5 METHODOLOGY 55 METHODOLOGYMETHODOLOGY

5 METHODOLOGY 5 METHODOLOGY We use the MIT Real Estate Innovation5 55Lab METHODOLOGYMETHODOLOGYMETHODOLOGYWeWe NYC useuse Wide thethe MITMIT Data RealReal database EstateEstate to InnovationInnovation estimate LabaLab semi NYCNYC-log WideWide DataData databasedatabase toto estimateestimate aa semisemi--loglog

5 METHODOLOGY 5 METHODOLOGY equationequationWe use relatingrelating the MIT thethe transactiontransactionReal Estate priceprice Innovation toto thethe hedonicLabhedonic NYC characteristicscharacteristics Wide Data database ofof aa building:building: to estimate a semi-log equation relating the transaction price to the hedonicWe characteristics use the MIT Real of aEstate building: Innovation Lab NYC Wide Data database to estimate a semi-log 5 METHODOLOGY equation relating the transaction price to the hedonic characteristics of a building: WeWeWe useuseuse thethethe equationMITMITMIT RealRealReal relating EstateEstateEstate the InnovationInnovationInnovation transaction LabLabLabprice NYCNYC NYCto the WideWide Widehedonic DataDataData characteristics databasedatabasedatabase tooftoto aestimateestimateestimate building: aaa semisemisemi---logloglog We use the MIT Real Estate Innovation Lab NYC Wide Data database to estimate a semi-log We use the MIT Real Estate Innovation Lab NYCequationequationequation= Wide+ Data relatingrelatingrelating + database thethethe+ transactiontransactiontransaction to estimate pricepriceprice a semi tototo the=thethe=- log hedonichedonichedonic++ + +characteristicscharacteristicscharacteristics ++ ofofof aaa building:building:building: equation relating the transaction price to the hedonic characteristics of= a building:+ + + We use the MITsemi Real-log equation Estateequation Innovation relating the Lab transaction NYC Wide price Datato the hedonicdatabase characteristics to estimate of a a building: semi- log = + + + 𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥 𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷 𝜶𝜶𝜶𝜶 The 𝜷𝜷𝜷𝜷𝜷𝜷𝜷𝜷 𝑷𝑷𝑷𝑷dependent𝜹𝜹𝜹𝜹𝜹𝜹𝜹𝜹𝑷𝑷𝑷𝑷 𝜺𝜺𝜺𝜺 𝑷𝑷𝑷𝑷variable is the𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥 logarithm𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷 𝜶𝜶𝜶𝜶𝜶𝜶𝜶𝜶 of𝜷𝜷𝜷𝜷𝜷𝜷𝜷𝜷 𝜷𝜷𝜷𝜷𝜷𝜷𝜷𝜷the𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷 𝜹𝜹𝜹𝜹𝜹𝜹𝜹𝜹𝜹𝜹𝜹𝜹𝜹𝜹𝜹𝜹𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷 𝜺𝜺𝜺𝜺𝜺𝜺𝜺𝜺𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷 The dependent variable is the logarithm ofThe Thethe transaction dependenttransactiondependent pricevariablepricevariable isin isin thecommercial thecommercial logarithmlogarithm== = office office of of the+the++ build transactiontransaction-+++ +++ priceprice inin commercialcommercial officeoffice equation relating the transaction price to the hedonic characteristics ofThe a dependentbuilding:= +variable + is the +logarithm 𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥 𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷 of 𝜶𝜶𝜶𝜶𝜶𝜶𝜶𝜶the transaction𝜷𝜷𝜷𝜷𝜷𝜷𝜷𝜷𝜷𝜷𝜷𝜷𝜷𝜷𝜷𝜷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷 𝜹𝜹𝜹𝜹𝜹𝜹𝜹𝜹𝜹𝜹𝜹𝜹𝜹𝜹𝜹𝜹𝑷𝑷𝑷𝑷 𝑷𝑷𝑷𝑷 price𝜺𝜺𝜺𝜺𝑷𝑷𝑷𝑷𝜺𝜺𝜺𝜺𝑷𝑷𝑷𝑷 in commercial office buildings . is a vector of hedonic= characteristics+ buildingsbuildings+ ings +푖(e.g., The... � dependent is islocation i s aa a vectorvector vecto andvariable ofofr o hedonictime,hedonicf hedoni is thebuilding characteristicslogarithmcharacteristicsc characteris features, of the- transaction (e.g.,(e.g., locationlocation price andand in time,time, commercial buildingbuilding office features,features, buildingsbuildings . . is 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃a is vector a vector of of hedonic hedonic characteristics characteristics (e.g., (e.g., location location𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 and and time, time, building building features, features, and transaction features) for buildings The,TheThe andandand dependentdependentdependent transactionticstransaction is a (e.g., 𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥vector 𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷 variable variablevariablelocation features)offeatures) 𝜶𝜶𝜶𝜶dummy is isisand𝜷𝜷𝜷𝜷𝜷𝜷𝜷𝜷 thethe the forfor 𝑷𝑷𝑷𝑷 variablestime, logarithm logarithmbuildingslogarithmbuildings𝜹𝜹𝜹𝜹𝜹𝜹𝜹𝜹𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥 𝑷𝑷𝑷𝑷building𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷 with𝜺𝜺𝜺𝜺 𝑷𝑷𝑷𝑷 ofof,of, and 𝜶𝜶𝜶𝜶and 𝜶𝜶𝜶𝜶athe𝜶𝜶𝜶𝜶 thethefeatures, value transactiontransactiontransaction𝜷𝜷𝜷𝜷𝜷𝜷𝜷𝜷𝜷𝜷𝜷𝜷𝜷𝜷𝜷𝜷𝜷𝜷𝜷𝜷𝜷𝜷𝜷𝜷 isis 𝑷𝑷𝑷𝑷 of𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷 aa vector1vector 𝜹𝜹𝜹𝜹𝜹𝜹𝜹𝜹𝜹𝜹𝜹𝜹𝜹𝜹𝜹𝜹𝜹𝜹𝜹𝜹𝜹𝜹𝜹𝜹𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷 priceprice price ofof𝜺𝜺𝜺𝜺 𝜺𝜺𝜺𝜺𝜺𝜺𝜺𝜺 dummy𝑷𝑷𝑷𝑷dummy𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷 ininin commercialcommercial variablescommercialvariables withwith officeofficeoffice aa valuevalue ofof 11 𝑃𝑃𝑃𝑃 𝑋𝑋𝑋𝑋𝑃𝑃𝑃𝑃 The dependent𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥 𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷 variable𝜶𝜶𝜶𝜶 𝜷𝜷𝜷𝜷𝜷𝜷𝜷𝜷 is𝑷𝑷𝑷𝑷 the𝜹𝜹𝜹𝜹𝜹𝜹𝜹𝜹and logarithm𝑷𝑷𝑷𝑷 andtransaction𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 𝑋𝑋𝑋𝑋𝜺𝜺𝜺𝜺𝑋𝑋𝑋𝑋 𝑃𝑃𝑃𝑃𝑷𝑷𝑷𝑷transaction𝑃𝑃𝑃𝑃 of the features) transaction features) for for buildings price buildings in ,, commercialandand isis aa vector vector office of of dummy dummy𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 variables variables with with a value a value of 1 of 1 The dependentif building variable= is designed +is the logarithm by+ Awarded of+ the Architects, buildingstransactionbuildingsbuildings ifif buildingbuildingand Awarded .. . transactionprice is isisisis designed adesignedaaFirms, vectorvectorvector in𝑃𝑃𝑃𝑃 𝑋𝑋𝑋𝑋 commercialfeatures) 𝑃𝑃𝑃𝑃or of byof ofbyAwarded hedonic hedonichedonic AwardedAwarded for office buildingsArchitects characteristicscharacteristicscharacteristics Architects,Architects, 푖 ,andan AwardedAwardedd � (e.g.,(e.g.,(e.g., locationlocation Firms,locationFirms, oror andandand AwardedAwarded time,time,time, buildingbuilding ArchitectsbuildingArchitects features,features,features, andand buildings . is a vector𝑃𝑃𝑃𝑃 of𝑔𝑔𝑔𝑔 𝑃𝑃𝑃𝑃hedonicisif abuilding vectorif building characteristics𝑃𝑃𝑃𝑃 of 𝑋𝑋𝑋𝑋is dummy 𝑃𝑃𝑃𝑃 designed is designed variables (e.g., by by Awarded Awardedlocation with𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 a Architects, andArchitects,value𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔 𝑃𝑃𝑃𝑃time,𝑃𝑃𝑃𝑃 of 1 buildingAwardedAwarded features,Firms, Firms, or or Awarded Awarded Architects Architects and and buildings Firms. is and a vector 0 otherwise. of hedonic is acharacteristics constant, andandand FirmsandFirms transactiontransactiontransaction(e.g., andareand location estimated 00 otherwise. otherwise. features)features)features) and coefficientstime, forforfor isis buildingsbuilding buildingsbuildings aa constant,constant, and features, ,,, andand andis 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 an andand 𝑃𝑃𝑃𝑃 error is isis are aareaa 𝑔𝑔𝑔𝑔 vector𝑃𝑃𝑃𝑃vectorvector estimatedestimated ofofof dummydummydummy coefficients𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃coefficients𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 variablesvariablesvariables andand with withwith isis a anaaan valuevaluevalue errorerror ofof of 111 𝑃𝑃𝑃𝑃 and transaction features) forif Firmsbuildings buildingFirms𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 and �𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 and,0 iands otherwise. designe0 otherwise. is ad vectorby isAwarde isa aconstant,of constant, dummyd Architects𝑃𝑃𝑃𝑃 variables andand𝑔𝑔𝑔𝑔, 𝑃𝑃𝑃𝑃 areare with estimated estimated a value coefficients ofcoefficients 1 and and is an is error an error and transactionterm. features) for buildings𝑃𝑃𝑃𝑃 𝑋𝑋𝑋𝑋,𝑃𝑃𝑃𝑃 and is term.aterm. vector 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 𝑋𝑋𝑋𝑋𝑋𝑋𝑋𝑋of𝑋𝑋𝑋𝑋𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 dummy𝑃𝑃𝑃𝑃 variables with a value of 1 𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥𝐥 𝑷𝑷𝑷𝑷𝑷𝑷𝑷𝑷 𝜶𝜶𝜶𝜶 if𝜷𝜷𝜷𝜷𝜷𝜷𝜷𝜷 building𝑷𝑷𝑷𝑷 𝜹𝜹𝜹𝜹𝜹𝜹𝜹𝜹 is 𝑷𝑷𝑷𝑷designed𝜺𝜺𝜺𝜺𝑷𝑷𝑷𝑷ififif buildingbuildingbuilding by AwardedAwarded isisterm.is designeddesigneddesigned Architects, Firms, 𝑃𝑃𝑃𝑃 or by bybyAwarded 𝛼𝛼𝛼𝛼Awarded 𝛼𝛼𝛼𝛼 AwardedAwardedAwarded Architects Firms, Architects,Architects,Architects, 𝛽𝛽𝛽𝛽or𝛽𝛽𝛽𝛽 and Awarded Firms AwardedAwarded𝛿𝛿𝛿𝛿Awarded𝛿𝛿𝛿𝛿 Architects Firms,Firms,Firms, and ororor AwardedAwardedAwarded ArchitectsArchitectsArchitects𝜀𝜀𝜀𝜀𝜀𝜀𝜀𝜀𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 andandand The dependent variable is the logarithm 𝑃𝑃𝑃𝑃 𝑋𝑋𝑋𝑋𝑃𝑃𝑃𝑃 of the transaction𝛼𝛼𝛼𝛼 price 𝛽𝛽𝛽𝛽 in𝛿𝛿𝛿𝛿 term.commercial office 𝛼𝛼𝛼𝛼 𝑃𝑃𝑃𝑃𝜀𝜀𝜀𝜀𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝛽𝛽𝛽𝛽 𝛿𝛿𝛿𝛿 𝜀𝜀𝜀𝜀𝑃𝑃𝑃𝑃 if building is designed by AwardedFirms and Architects, 0 otherwise.Firms FirmsFirmsAwarded is and andandaand constant, Firms, 0000 otherwise. otherwise.otherwise.otherwise. 𝑃𝑃𝑃𝑃or Awarded and 𝑔𝑔𝑔𝑔𝛼 𝑃𝑃𝑃𝑃 isisis isare aaaa Architects constant, constant,constant,constant𝛼𝛼𝛼𝛼estimated, 𝛽 andcoefficients andandandand 𝛽𝛽𝛽𝛽 𝛿 areareareare and estimated𝛿𝛿𝛿𝛿estimatedestimated is an coefficientscoefficientscoefficients error andandand isisis an𝜀𝜀𝜀𝜀anan𝑃𝑃𝑃𝑃 errorerrorerror buildings . is a vector of hedonicUsing characteristics the logarithm of transaction (e.g.,𝑃𝑃𝑃𝑃 location price𝑔𝑔𝑔𝑔𝑃𝑃𝑃𝑃 insteadUsing Usingand of thethetime,𝑃𝑃𝑃𝑃 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃the logarithmlogarithm transaction building ofof transaction transactionpric features,e per square priceprice instead insteadfoot may ofof thethe transactiontransaction pricpricee perper squaresquare footfoot maymay Firms and 0 otherwise. isterm. a constant, 𝑃𝑃𝑃𝑃 and term.term.term. are estimatedestimatedUsing coefficients coefficients the logarithm andand of transaction𝜀� isis anan erroerror pricer term. instead of the transaction price per square foot may cause𝑃𝑃𝑃𝑃 measurement error for the size and𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 causeconstructioncauseUsing measurementmeasurementcause the cost logarithmmeasurement may error𝛼𝛼𝛼𝛼error𝛼𝛼𝛼𝛼 vary of forfor transactionover error thethe thefor sizesize thesize and𝛽𝛽𝛽𝛽and 𝛽𝛽𝛽𝛽pricesize of constructionconstruction andthe instead𝛿𝛿𝛿𝛿𝛿𝛿𝛿𝛿 construction of the costcost transactioncost maymay may varyvary vary over overpric over e thethe per the size𝜀𝜀𝜀𝜀size 𝜀𝜀𝜀𝜀 square𝑃𝑃𝑃𝑃size𝑃𝑃𝑃𝑃 ofof of the thethe foot may and transaction features) term.for buildings , and is a vector of dummy 𝛼𝛼𝛼𝛼 variables𝛽𝛽𝛽𝛽 with𝛼𝛼𝛼𝛼𝛿𝛿𝛿𝛿 a value of 1𝛽𝛽𝛽𝛽 𝛿𝛿𝛿𝛿 𝜀𝜀𝜀𝜀𝑃𝑃𝑃𝑃 𝜀𝜀𝜀𝜀𝑃𝑃𝑃𝑃 i building.Commercial However, Office Buildings𝛼𝛼𝛼𝛼 weδ haveEstimated conducted Coefficients𝛽𝛽𝛽𝛽 for 𝛿𝛿𝛿𝛿the building. building.samecause hedonic However,building.However, measurement analysis However, wewe havehave using error we conductedconducted havethe𝜀𝜀𝜀𝜀 for𝑃𝑃𝑃𝑃 transactiontheconducted size thethe sameandsame the price construction same hedonichedonic hedonic analysisanalysis cost analysis may usingusing using vary thethe theover transactiontransaction transaction the size price ofpriceprice the 𝑃𝑃𝑃𝑃 𝑋𝑋𝑋𝑋𝑃𝑃𝑃𝑃 Dummy Variable UsingUsingUsing thethetheUsing logarithmlogarithmlogarithm the logarithm ofofof transactiontransactiontransaction of transaction pricepriceprice price insteadinsteadinstead instead ofofof theofthethe transactiontransactiontransaction pricpricpriceee perperper squaresquaresquare footfootfoot maymaymay if building is designed by Awarded Architects,Using Awarded the logarithm Firms, of ortransactionperper Awarded sfsfbuilding. forfor perevery everyprice sf However, Architects for modelinsteadmodel every and and model ofwe the a a have and substantial substantialand transaction conducted a substantial pricingpricing pric the pricinge diffe perdiffesame square rencedifference hedonicrence was wasfoot was not analysisnotmay not found.found. found. using InIn In addition,addition, theaddition, transaction looking lookinglooking atatpriceat Using thelogPiper logarithmLogarithm sf for of everythe of transaction model and pricea substantial instead pricingof the thetransaction diffe transactionrence was pric price enot per found.per square square In addition,foot foot may may looking cause at Transaction𝑃𝑃𝑃𝑃 Price 𝑔𝑔𝑔𝑔𝑃𝑃𝑃𝑃causegi measurementVector of Dummy Variables causecausecauseerror for measurementmeasurementmeasurement the size and errorconstructionerrorerror forforfor thethethe costsizesizesize mayandandand constructionvaryconstructionconstruction over the cost costcostsize mayofmaymay the varyvaryvary overoverover thethethe sizesizesize ofofof thethethe Firms and 0 otherwise. is a constant,the functional and form of are the results,estimated the coefficients coefficientsthethe functionalfunctionalmeasurementper and sfthe forthe functionaland form formeverystandard error ofof model theisformthe for errors an results,results, theof and theerror size were aresults, thesubstantialthe and comparable. coefficientscoefficients constructionthe coefficients pricing andand diffe theandthe rence standardthestandard standard was errors errorsnot errors found. werewere were In comparable.comparable. comparable.addition, looking at cause measurement error forbuilding. the size(e.g. However, Value and of 1 if buildingconstruction webuilding. building.ibuilding. is have conducted cost However,However,However,This may could thevary wewewe meansame have havehaveover the hedonic conductedtheconductedconducted sample size analysis ofdata thethethe set samesamesame usingcontains hedonic hedonichedonicthe relatively transaction analysisanalysisanalysis similar price usingusingscaleusing of thethethe buildings transactiontransactiontransaction therefore pricepriceprice the 𝑃𝑃𝑃𝑃 α ThisConstant could mean the sampledesigned data by awarded set contains ThisThis costrelatively couldthecould functionalmay meanmean varysimilar the theover form samplescalesample the of thesizeof data databuildings results, of the setset building.contains containsthe therefore coefficients How relativelyrelatively the- and similarsimilar the standard scalescale ofof buildingserrorsbuildings were thereforetherefore comparable. thethe term. building. However, we haveper conducted sf forarchitects every theor firms) model sameperperper and hedonic sfsfsf a forforfor Thissubstantial everyeveryevery analysis differencecould modelmodelmodel meanpricing using in and andandusing the diffethe aaa sample transaction substantialsubstantial substantialtransactionrence datawas price pricingsetpricingnotpricing price and containsfound. transaction diffediffediffe Inrencerence rence relativelyaddition, price waswaswas similar lookingper notnotnot sf found.found.found. diminishes. scale at InIn Inof addition,addition, addition,buildings The regression lookinglooking lookingtherefore atatat the β differenceEstimated Coefficients in using for transaction price and transactiondifferencedifferenceever, we price inin have usingusing per conducted transactiontransactionsf diminishes. the priceprice same The andand hedonicregression transactiontransaction anal - priceprice perper sfsf diminishes.diminishes. TheThe regressionregression 𝛼𝛼𝛼𝛼 per sf for every model𝛽𝛽𝛽𝛽 and 𝛿𝛿𝛿𝛿a substantialεi pricing difference wasanalysis not usingfound.𝜀𝜀𝜀𝜀𝑃𝑃𝑃𝑃 the In transaction addition, pricelooking per atsf can be found in the Appendix section. Hedonic Characteristics the functionalError Term form ofthethethe theanalysis analysis functionalfunctional functionalresults,ysisdifference usingusing usingthe formformform coefficients the thethein ofof of using transaction transactiontransaction thethethe results, results,results,transaction and the pricepriceprice thethethe standard coefficients pricepercoefficientscoefficientsperper sfsf and can canforerrors transaction every bebe andandand foundwerefound thethethe comparable. in instandard standardstandardprice thethe Appendix Appendixper errorserrorssferrors diminishes. section. section. werewerewere comparable.comparable.comparable. The regression analysis using the transaction price per sf can be found in the Appendix section. the functionalXi Vector form of Hedonic of Characteris the results,This- could the coefficientsmean the ThisThissampleThis and couldcouldcould the data standard meanmeanmean set contains thethethe errors samplesamplesample relatively were datadatadata comparable. setsimilarsetset containscontainscontains scale relativelyofrelativelyrelatively buildings similarsimilarsimilar therefore scalescalescale the ofofof buildingsbuildingsbuildings thereforethereforetherefore thethethe Using the logarithm of transaction price instead of the transaction pricmodelanalysise per and squareusing a substantial the foottransaction maypricing price difference per sf canwas be found in the Appendix section. This could meantics(e.g. Location, the Transactionsampledifference data set incontains using transaction relatively similarprice and scale transaction of buildings price therefore per sf diminishes. the The regression Time, Building Features, and differencedifferencedifferencenot infoundinin usingusingusing ■ transactiontransactiontransaction pricepriceprice andandand transactiontransactiontransaction pricepriceprice perperper sfsfsf diminishes.diminishes.diminishes. TheTheThe regressionregressionregression cause measurement errordifference for the sizeinTransaction using and Features) transaction constructionanalysis price using and cost transactionthe may transactionanalysisanalysis vary price usingusingpriceover per per the sfthethe diminishes. sf transactiontransaction sizecan be of found Thethe priceprice inregression pertheper sfAppendixsf cancan bebe foundsection.found inin thethe AppendixAppendix section.section. analysis using6 RESULTS the transaction: AWARDED price DESIGNS per sf can AND be TRANSACTION found in the Appendix PRICES section. building. However, we haveanalysis conducted using the the transaction same hedonicprice per sf analysis can be found using in the the Appendix transaction section. price 6 RESULTS: AWARDED DESIGNS AND 6TRANSACTION6 RESULTSRESULTS :: AWARDEDAWARDED PRICES DESIGNSDESIGNS ANDAND TRANSACTIONTRANSACTION PRICESPRICES per sf for every model and a substantial pricing difference was not found.6 RESULTS In addition,: AWARDED looking DESIGNS at AND TRANSACTION PRICES the functional form of the results, the coefficients and the standard errors were comparable. 55 The Value of Awarded Design in Real Estate Development 6 RESULTS: AWARDED DESIGNSMethodology AND TRANSACTION PRICES This could mean the sample data set contains relatively similar66 6scale RESULTSRESULTSRESULTS of buildings::: AWARDEDAWARDEDAWARDED therefore DESIGNSDESIGNSDESIGNS the ANDANDAND TRANSACTIONTRANSACTIONTRANSACTION PRICESPRICESPRICES 6 RESULTS: AWARDED DESIGNS AND TRANSACTION PRICES difference in using transaction price and transaction price per sf diminishes. The regression analysis using the transaction price per sf can be found in the Appendix section.

6 RESULTS: AWARDED DESIGNS AND TRANSACTION PRICES

09 RESULTS: AWARDED DESIGNS AND TRANSACTION PRICES

ROBUSTNESS: ALL ARCHITECTS & FIRMS AND TRANSACTION PRICES

The Value of Awarded Design in Real Estate Development awarded design, base case no award Ceteris Paribus, Awarded Designs are Transacted with a 23.1% Premium Compared to Non-Awarded Buildings.

Regression Fixed Effects (1) (2) (3) Log (Price) Model 1 Model 2 Model 3 List of Varialbles

Awarded Designs 1.530*** 0.171*** 0.231*** [0.144] [0.059] [0.059] Location & Transaction Time FE: Submarket Transaction Year Constant 17.721*** 6.757** 8.525*** Building Characteristics FE: Age [0.239] [2.625] [2.960] Age Squared Number of Floors Location & Transaction Time FE YES YES YES Log (SF) Building Features FE NO YES YES Log (Land SF) Building Class Transaction Features FE NO NO YES Renovated Walk Score Observations 846 846 846 R-squared 0.229 0.899 0.906 Transaction Characteristics FE: Buyer Type Seller Type F Adj R-Squared 0.21 0.90 0.90 Lender Type

Robust standard errors in brackets *** p<0.01, ** p<0.05, * p<0.1

The Value of Awarded Design in Real Estate Development Results: Awarded Designs And Transaction Prices 57 awarded architects & awarded firms, base case no award Ceteris Paribus, Awarded Architects, Firms, and Laureates of Both Awards

ShowRegression Fixed Effects 17.7%, 32.1%,(1) (2) and(3) 20.9% Premium. Log (Price) Model 1 Model 2 Model 3

AwardedRegression Architects Fixed Effects 1.124***(1) 0.089(2) 0.177*(3) Log (Price) Model[0.293] 1 Model[0.095] 2 Model[0.102] 3 List of Varialbles Awarded Firms 1.670*** 0.248** 0.321*** Awarded Architects 1.124***[0.227] [0.113]0.089 [0.100]0.177* Awarded Architects & Firms 1.729***[0.293] 0.182***[0.095] 0.209***[0.102] Awarded Firms 1.670***[0.186] 0.248**[0.062] 0.321***[0.069] Location & Transaction Time FE: Submarket [0.227] [0.113] [0.100] Transaction Year Awarded Architects & Firms 1.729*** 0.182*** 0.209*** Constant 17.704*** 6.836*** 8.494*** Building Characteristics FE: Age [0.243][0.186] [2.635][0.062] [2.962][0.069] Age Squared Number of Floors LocationConstant & Transaction Time FE 17.704***YES 6.836***YES 8.494***YES Log (SF) [0.243] [2.635] [2.962] Log (Land SF) Building Features FE NO YES YES Building Class Transaction Features FE NO NO YES Renovated Location & Transaction Time FE YES YES YES Walk Score ObservationsBuilding Features FE 846NO YES846 YES846 RTransaction-squared Features FE 0.232NO 0.900NO 0.906YES Transaction Characteristics FE: Buyer Type Seller Type F Adj R-Squared 0.21 0.90 0.90 Lender Type Observations 846 846 846 R-squared Robust standard errors 0.232in brackets 0.900 0.906 F Adj R-Squared *** p<0.01, ** p<0.05,0.21 * p<0.1 0.90 0.90

Robust standard errors in brackets *** p<0.01, ** p<0.05, * p<0.1 The Value of Awarded Design in Real Estate Development Results: Awarded Designs And Transaction Prices 58 w

regression analysis 35 result comparison Ceteris paribus, the hedonic analysis result shown 32.1% *** in diagram indicates that buildings designed by awarded architects/firms are transacted with a 30 23.1% premium relating to buildings that are designed by non-awarded architects.

25 23.1% *** We further specified the study by looking into 20.9% *** different type of awards with three categorical 20 variables, Awarded Architects, Awarded Firms, 17.7% * and Awarded Architects & Firms. The result

Significance*** suggests that ceteris paribus, Awarded Architects, Asterisks in a regression table 15 indicate the level Awarded Firms, and Awarded Architects and Firms of the statistical significance of a regression show 17.7%, 32.1%, and 20.9% transaction price coefficient. premium respectively compared to non-awarded *** p<0.01, ** p<0.05, 10 * p<0.1 buildings. Coefficient % The standard error is our estimate of the standard deviation of the coefficient. 5 NOTE: The regression model controls for location and transaction time, building features (age, number of floors, building area, land parcel area, building 0 (%) class, renovation, and walk score), and transaction features Awarded Awarded Awarded Awarded (buyer type, seller type, and lender type) Designs Architects Firms Architects & Firms

The Value of Awarded Design in Real Estate Development Results: Awarded Designs And Transaction Prices MSRED 2019 59 robustness check Ludwig Mies Van der Rohe As a robustness check, we specified the Awarded Design category by expanding the categorical variable to include data on individual architects/firms to ensure that no one designer was driving the result 60.6%*** of one building.

Kohn Pederson & Fox (KPF) Ceteris paribus, the results mainly have a low statistical significance, but some with a cautionary threshold indicate that compared to buildings designed by non-awarded architects. The architect Ludwig Mies van der Rohe achieved the most trans- 51.4%*** action premium of 60.6% with a p-value less than 0.001. Followed by KPF (51.4%), and Hugh Stubbins Hugh Stubbins and Associates and Associates (27.4%). Positively awarded design- ers represent one-third of the transaction sample, the others are not statistically significantly different from 27.4%** zero. However, these designers have small samples. However, the result should be considered with extreme caution. There is a probability of measure- ment error due to the small number of differentiating samples related to each architect ■

The Value of Awarded Design in Real Estate Development Robustness: All Architects & Firms And Transaction Prices 60 10 CONCLUSION

The Value of Awarded Design in Real Estate Development THE CITY OF THE CAPTIVE GLOBE Despite the growing interest, a limited number of studies and discussions have been generated to help create a shared better value surrounding the subject of design.

In this study, we have identified that the difficulty of obtaining data related to design performance be- ing one of the biggest hurdles in enabling further studies to disentangle the value of design. As a first step, a creative approach in gathering a new set of data related to the design performance is needed.

We believe combining the new measurements with the accumulated knowledge on design gener- ated by architects will enable us to open up a sub- stantial area for future research and moreover will help create an agency for design in the realm of fi- nance and economics ■

SOURCE: Rem Koolhaas & Madelon Vriesendorp, 1972, The CIty of the Captive Globe, Delir- ious New York, page 294-295

The Value of Awarded Design in Real Estate Development Conclusion 62 APPENDIX

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The Value of Awarded Design in Real Estate Development Appendix 64 lead author Minkoo Kang Minkoo Kang is a MIT MSRED graduate and a researcher at the MIT Real Estate Innovation Lab. He joined MIT after 6 years of experience as an architect and urban researcher. Until re- cently he worked as an architect at OMA (Office for Metropolitan Architecture), focusing on the realization of innovative ideas in the built envi- ronment. OMA’s multidisciplinary approach to architecture inspired Minkoo to explore and study the built environment outside the realm of design. advising author Dr. Andrea Chegut Dr. Andrea Chegut is a Research Scientist at MIT that uncovers innovation in the built envi- ronment. She is the co-founder and director of the Real Estate Innovation Lab, an interdisci- plinary team that identifies built environment innovative products, processes and technolo- gies and their financial and economic impact. She teaches classes on innovation, corporate finance and entrepreneurship at MIT. Andrea is the Head of Research and a co-founder of MITdesignX.

The Value of Awarded Design in Real Estate Development Appendix 65 about the project The overarching research questions the limitations This project is published of the existing real estate asset pricing framework. as part of an on-going A team of researchers are developing a catalog of hypothesis for new metrics related with design, research, "Value of Design" as well as seeking and creating new data sources from the MIT Real Estate to identify design as a metric in the existing building Innovation Lab. and urban fabric. The goal of the research is to give credence and agency to the work of designers and engineers in the realm of real estate finance and economics ■

The Value of Awarded Design in Real Estate Development Appendix 66 For more information please contact [email protected] +1 917 378 4843

The Value of Awarded Design in Real Estate Development Minkoo Kang 67