Real Estate Market Fundamentals and Asset Pricing
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The Valuation of Apartments
THE VALUATION OF APARTMENTS By Tim Klein & Dan Blonigen Goals of this course Introduction to the basic concepts of Apartment Valuation You will leave with the ability to value an apartment in your jurisdiction! Outline What is an apartment The Inspection Valuation Sales Verification & Comparison Income Capitalization Mass Appraisal Techniques Case Study Q & A Current Market 32% of US Households are Renters – NMHC 30% of Apartment renters are under age 30, 58% under age 44 -NMHC Represents 38% of new housing starts – US Census, May 2014 “Minneapolis-St. Paul, one of the strongest rental markets in the nation.” – Marcus Millichap 2014 4th in the Nation – Marcus Millichap Cap Rates National Korpacz 1Q ’13: Average 5.73% Korpacz 1Q ’14: Average 5.79% Minneapolis RERC 1Q ‘13: Average 6.0% Consumer Life Cycle What is an Apartment What is an Apartment An Apartment is a housing unit of one or more rooms, designed to provide complete living facilities for one or more occupants. An Apartment Building is a structure containing four or more dwelling units with common areas and facilities. Common Area includes entrances, lobby, elevators or stairs, mechanical space, grounds, pool, etc… Apt Styles– Low Rise Typically 1 -3 stories No elevators 12-50 units Intermediate density Apt Styles– Mid Rise Usually steel or reinforced concrete 4-10 stories Elevator service Intermediate density Apt Styles– High Rise Steel or reinforced concrete More than 10 stories Elevator service High density Usually in urban core Apt Styles– -
A Bundle of Confusion for the Income Tax: What It Means to Own Something Stephanie H
University of Cincinnati College of Law University of Cincinnati College of Law Scholarship and Publications Faculty Articles and Other Publications College of Law Faculty Scholarship 2014 A Bundle of Confusion for the Income Tax: What It Means to Own Something Stephanie H. McMahon University of Cincinnati College of Law, [email protected] Follow this and additional works at: http://scholarship.law.uc.edu/fac_pubs Part of the Property Law and Real Estate Commons, and the Taxation-Federal Commons Recommended Citation Stephanie Hunter McMahon, A Bundle of Confusion for the Income Tax: What It Means to Own Something, 108 Nw. U. L. Rev. 959 (2014) This Article is brought to you for free and open access by the College of Law Faculty Scholarship at University of Cincinnati College of Law Scholarship and Publications. It has been accepted for inclusion in Faculty Articles and Other Publications by an authorized administrator of University of Cincinnati College of Law Scholarship and Publications. For more information, please contact [email protected]. Copyright 2014 by Stephanie Hunter McMahon Printed in U.S.A. Vol. 108, No. 3 A BUNDLE OF CONFUSION FOR THE INCOME TAX: WHAT IT MEANS TO OWN SOMETHING Stephanie Hunter McMahon ABSTRACT-Conceptions of property exist on a spectrum between the Blackstonian absolute dominion over an object to a bundle of rights and obligations that recognizes, if not encourages, the splitting of property interests among different people. The development of the bundle of rights conception of property occurred in roughly the same era as the enactment of the modem federal income tax. -
Commercial Invest Real Estate September-October
How do investors determine ROI in an unsteady market? byy Eric B. Garfi eld,, MAI, MRICS,, and Matthew T. VanEck capitalization rate is the overall or non- As a reminder, it is noteworthy that cap ers commonly were using physical residual financed return on a real estate invest- rates and discount rates, or internal rates techniques such as land and buildings. In ment, akin to the return on total assets in of return, are not mutually exclusive. A 1959, Ellwood published “Ellwood Tables accounting terms. A cap rate is calculated discount rate is a measure of investment for Real Estate Appraising and Financing,” as a mathematical relationship between net performance over a holding period that which showed that by analyzing market operating income and an asset’s value. Most accounts for risk and return on capital. Cap mortgage terms and equity yields for a par- commonly cap rates are extracted from rates not only account for return on capital, ticular property, an appraiser could identify transactions of buyers and sellers compet- but also return of capital. A discount rate a suitable cap rate and thus property value. ing in a marketplace; but they are related to can be built up from a cap rate if income and This valuation technique became known the current state of capital markets as well growth both change at a constant rate. The as mortgage-equity analysis. Ellwood’s as the future growth outlook. So how can buildup is derived by the formula Y = R + method allowed appraisers to incorporate real estate professionals extract cap rates in CR, where Y = discount (yield) rate, R = cap and explain fi nancing’s impact on value. -
A Sublette County Profile: Socioeconomics
JULY 2015 A Sublette County Profile: Socioeconomics Sublette County Board of County Commissioners Andy Nelson, Chair Joel Bousman Jim Latta INTRODUCTION In a rapidly changing world, timely and accurate information is essential to good decision making. Local officials, state governments, Federal agencies, and the general public need information on the structure and trends within a region’s economy in order to more effectively conduct and participate in public policy decision making processes. Information describing regional economic conditions can aid in the public policy decision making process by providing a perspective on economic structure and changes over time. In addition, the identification of long-term trends can help residents, local official, state government, and Federal agencies plan for the future. This report has been developed to provide baseline information on the structure and trends of the Sublette County economy. Four types of information are discussed in this report, including: 1) Demographics, 2) Land Characteristics, 3) County Government Finances, and 4) Industry Profiles. The Demographic section provides information on the characteristics of the residents of county. The Land Characteristic section provides a perspective on the physical setting of the county. The County Government Finances section considers county government’s ability to meet the needs of residents in terms of public services and public infrastructure. The Industry profile section discusses the economic importance of selected industries in the county. Each type of information is discussed separately in the report. To put Sublette County’s information in perspective, the county data is compared to corresponding data for Wyoming and the United States. A variety of data sources were used to development this socio-economic profile including the Wyoming Department of Administration & Information – Economic Analysis Division’s Wyoming County Profiles. -
Interdependence and Choice in Distributive Justice: the Welfare Conundrum
University of Chicago Law School Chicago Unbound Journal Articles Faculty Scholarship 1994 Interdependence and Choice in Distributive Justice: The Welfare Conundrum Lee Anne Fennell Follow this and additional works at: https://chicagounbound.uchicago.edu/journal_articles Part of the Law Commons Recommended Citation Lee Anne Fennell, "Interdependence and Choice in Distributive Justice: The Welfare Conundrum," 1994 Wisconsin Law Review 235 (1994). This Article is brought to you for free and open access by the Faculty Scholarship at Chicago Unbound. It has been accepted for inclusion in Journal Articles by an authorized administrator of Chicago Unbound. For more information, please contact [email protected]. ARTICLES INTERDEPENDENCE AND CHOICE IN DISTRIBUTIVE JUSTICE: THE WELFARE CONUNDRUM LEE ANNE FENNELL* This Article presents a theoretical model for analyzing welfare policy choices, a model that seeks both to explain the puzzling persistence of welfare in the face of widespread dissatisfaction with it, and to provide a reasoned basis for making more satisfactory policy choices. Drawing on game theory, the author postulates that the poor and the nonpoor are faced with a strategic dilemma as a result of their shared stake in the alleviation of poverty. The author's analysis of this dilemma suggests that the nonpoor react rationally by providing assistance to the poor, but that they are dissatisfied with this outcome insofar as it imposes costs on them. Indeed, the author contends that some of the most troubling of these costs result from decisions made by the poor in reaction to the nonpoor's decision to provide assistance. Having identified the strategic dilemma or "game" that results in society's grudging provision of welfare, the author then explores ways in which society can reduce the costs associated with welfare by changing the way the game is perceived by the poor, the nonpoor, or both. -
Measuring the Impact of COVID-19 on CRE Property Valuations
May 2020 CRE Research Measuring the Impact of COVID-19 on CRE Property Valuations Commercial real estate’s immunity to the COVID-19 • Payment is made in cash or its equivalency pandemic is about to be tested in a multitude of ways. Each of the commercial property sectors: Lodging, Re- • The sales price is not impacted by special or creative tail, Multifamily, Industrial, and Office are going to face financing terms or concessions their own unique set of COVID related challenges. The In summary, market value is representative of a transac- million-dollar question looming for each of the market tion where no exceptional factors influence the parties participants, i.e. owners, brokers, lenders, and apprais- (buyers, sellers, lenders) to the transaction. ers, is straightforward and simple to understand, but not so simple to answer: COVID-19 would be considered an exceptional factor that would influence all parties to a transaction. The market value definitions, nor the additional bullet points above, What is my Property’s Value? provide much clarity or guidance for appraisers to rely on Appraisal of commercial real estate is an interesting en- when appraising a commercial property during this pan- deavor with its share of skeptics, even when the market demic. The concepts of market value as previously de- is stable and operating efficiently. The Uniform Standards fined do not contemplate how short-term occupancy and of Professional Appraisal Practice (USPAP) 2020-2021 revenue declines caused by external forces, beyond the edition defines market value as, “a type of value, stated control of the owner/property manager, should be treated as an opinion, that presumes the transfer of a property by the appraiser. -
Community Land Trust (CLT) FAQ
Community Land Trust (CLT) FAQ Q1: What are CLTs? CLTs are nonprofit organizations created to increase and maintain the supply of affordable housing by providing homeownership opportunities to low- and moderate-income families. Properties are acquired by the CLT and the homes are sold to borrowers using standard mortgage products. The land under the houses is held by the CLT and leased to the homeowners at very low monthly rates. By eliminating the cost of land ownership, this low monthly lease rate helps keep the home affordable in higher cost areas. To date, more than 6,000 CLT properties have been developed across the United States according to the Institute for Community Economics (ICE). Q2: Are there resale restrictions for CLTs? Yes, the lease includes provisions that require the continued use of the land to assist future eligible borrowers. Q3: If the borrower is in default, does the CLT have the right of first refusal to purchase the property? Yes, the terms of the Fannie Mae ground lease rider give the CLT the right to purchase the subject property from the lender prior to foreclosure. Q4: How can I find out more about setting up a CLT? A national organization called the Grounded Solutions Network (formerly the National Community Land Trust Network) provides training resources, technical assistance, and other information to new and existing CLTs. For more information, visit their website: https://groundedsolutions.org/. Q5: What are the requirements for a CLT mortgage to be eligible for sale to Fannie Mae? The lender must confirm that the CLT is a nonprofit organization or public entity, such as a state or local government, county, school district, university, or college. -
1 I. Introduction Interest Rates, Financial Leverage, and Asset Values Are
I. Introduction Interest rates, financial leverage, and asset values are among the most important variables in the economy. Many economists, policy makers, and investors believe that these variables may affect each other; therefore, manipulation of some variables may cause desired changes in the others. While interest rates are traditionally the variable that the Federal Reserve monitors and tries to influence, research on the recent financial crisis highlights the importance of financial leverage in the economy (see, e.g. Geanakoplos (2009), Acharya and Viswanathan (2011), among others). Recognizing this, Federal Reserve researchers are investigating whether changing requirements for mortgages’ loan-to-value ratios based on the economic environment could improve financial stability.1 The effectiveness of such policies would depend on how the loan to value ratios and property values exactly interact with each other, as well as whether and how they are endogenously determined. For example, if the two variables are only endogenously correlated and do not affect each other, policies that tries to manipulate the loan to value ratios to affect property values would have little effect. A natural starting point to understand the interactions between the loan to value ratios and property values is to understand their long-run equilibrium relationship. However, the existing literature is virtually silent on this very important issue. 1 See the speech by Ben S. Bernanke at the Annual Meeting of the American Economic Association at Philadelphia: http://www.federalreserve.gov/newsevents/speech/bernanke20140103a.htm. 1 This paper develops a very simple theoretical model in which commercial real estate mortgage interest rates, leverage, and property values are jointly determined. -
Investment Strategy, Vacancy and Cap Rates †
INVESTMENT STRATEGY, VACANCY AND CAP RATES † Eli Beracha Associate Professor of Real Estate Director, Hollo School of Real Estate Florida International University, 1101 Brickell Avenue Suite 1100 S, Miami, FL 33131 305-779-7906 [email protected] David H. Downs Professor, Alfred L. Blake Endowed Chair Director, The Kornblau Institute Kornblau Real Estate Program Virginia Commonwealth University School of Business Richmond, VA 23284-4000 804-475-9125 [email protected] Greg MacKinnon Director of Research Pension Real Estate Association 100 Pearl Street, 13th floor Hartford CT 06103 806-785-3847 [email protected] Abstract In this paper we examine whether and to what extent the vacancy of a commercial real estate property is related to its valuation and investment performance. Using data on individual properties, we find that high- vacancy properties are associated with lower cap rates, which suggests the expectation for higher future NOI growth from the potential occupancy of vacant space. Consistent with these expectations, we also find that, on average, high-vacancy properties are associated with higher future NOI growth compared with low-vacancy properties. On the other hand, we find evidence that the investment performance of high-vacancy properties is inferior to the performance of low-vacancy properties, on average. Overall, these results suggest an overvaluation of vacant space. This version: February 22, 2019 † We thank the Real Estate Research Institute for a research grant. We also thank the National Council of Real Estate Investment Fiduciaries and CoStar for providing their commercial real estate data. INVESTMENT STRATEGY, VACANCY AND CAP RATES Introduction: The vacant space associated with commercial real estate (CRE) properties can be viewed by investors as an option for additional revenue in the event the vacant space is occupied. -
A Glossary of Fiscal Terms & Acronyms
AUGUST7,1998VOLUME13,NO .VII A Publication of the House Fiscal Analysis Department on Government Finance Issues A GLOSSARY OF FISCAL TERMS & ACRONYMS 1998 Revised Edition Abstract. This issue of Money Matters is a resource document containing terms and acronyms commonly used by and in legislative fiscal committees and in the discussion of state budget and tax issues. The first section contains terms and abbreviations used in all fiscal committees and divisions. The remaining sections contain terms for particular budget categories and accounts, organized according to fiscal subject areas. This edition has new sections containing economic development, family and early childhood, and housing terms and acronyms. The other sections are revised and updated to reflect changes in terminology, particularly the human services section. For further information, contact the Chief Fiscal Analyst or the fiscal analyst assigned to the respective House fiscal committee or division. A directory of House Fiscal Analysis Department personnel and their committee/division assignments for the 1998 legislative session appears on the next page. Originally issued January 1997 Revised August 1998 House Fiscal Analysis Department Staff Assignments — 1998 Session Committee/Division Fiscal Analyst Telephone Room Chief Fiscal Analyst Bill Marx 296-7176 373 Capital Investment John Walz 296-8236 376 EDIT— Economic Development Finance CJ Eisenbarth Hager 296-5813 428 EDIT— Housing Finance Cynthia Coronado 296-5384 361 Environment & Natural Resources Finance Jim Reinholdz 296-4119 370 Education — Higher Education Finance Doug Berg 296-5346 372 K-12 Education Finance Greg Crowe 296-7165 378 Family & Early Childhood Finance Cynthia Coronado 296-5384 361 Health & Human Services Finance Joe Flores 296-5483 385 Judiciary Finance Gary Karger 296-4181 383 State Government Finance Helen Roberts 296-4117 374 Transportation Finance John Walz 296-8236 376 Taxes — Income, sales, misc. -
What Is a Capitalization Rate?
What is a Capitalization Rate? Gina Wylie (Public Utilities) Lann Waller (Real Property) Definition: a composite rate used for converting property income into a property value Alabama Department of Revenue Property Tax Division How do we determine and apply Public Utility Capitalization Rate the appropriate Capitalization Development Rate in each section of the Property Valuation Process? August 7, 2019 1. Public Utilities… Types of Industry Purpose of developing a Public . Electric Utility cap rate . Natural Gas . Pipeline . Cost Approach and Income Approach . Railroad . To calculate the anticipated future income streams for the . Telephone-land line only income approach. Water Companies-private companies only . Airlines & Electric Coops-no cap rate . Airlines-mileage & time ratio; ground equipment . Coops-income approach only 1 Sources of Data ValueLine . ValueLine . Valueline.com . Risk-Free Rate (Treasury Bond Data) . Search for data by industry type(s) . S&P Bond data . Input data into spreadsheet template . Mergent (Moody’s) Bond Data . Stock price, Beta, Capital Structure, Dividend data, EPS . Standard & Poor’s & Moody’s Long Term Bond Yields Data, Financial Strength Rating, Timeliness Rating, Safety . Industry specific data Ranking, S & P Bond Rate, Moody’s Bond Rate . Association of American Railroads . National Association of Railroad Property Tax Representatives-range ValueLine . Provides financial and statistical data of individual companies included in particular industry type . Determine which companies will be included in cap rate study . Is this a domestic company? . Is there debt rating from both S&P and Moody’s? . Is the primary operations of the company consistent with the industry type? Risk-Free Rate Mergent . https://research.stlouisfed.org/fred2/data/DGS30 Bond . -
Spatial Dependence of Per Capita Property Tax Income in South Africa
Spatial dependence of per capita property tax income in South Africa Kabeya Clement Mulamba and Fiona Tergenna ERSA working paper 801 October 2019 The views expressed are those of the author(s) and do not necessarily represent those of the funder, ERSA or the author’s affiliated institution(s). ERSA shall not be liable to any person for inaccurate information or opinions contained herein. Spatial dependence of per capita property tax income in South Africa Kabeya Clement Mulambaand Fiona Tregennay October 14, 2019 Abstract We investigate spatial dependence of per capita property tax income among South African municipalities. One original contribution of our study is the use of per capita property tax income, rather than the prop- erty tax rate, as the outcome variable. Per capita property tax income is indicative of tax burden on residents. In addition, whilst most studies focus on advanced countries that have had institutionalised fiscal decen- tralisation for many decades, this paper focuses on South Africa, which is a developing country and implemented fiscal decentralisation only 18 years ago. Using Bayesian spatial econometric approach, we establish the presence of spatial dependence. Keywords: municipalities, per capita property tax income, spatial, spatial dependence, South Africa JEL Classification: H70, H77, C31 1 Introduction Property tax is the most significant tax income source assigned to municipali- ties in South Africa (Republic of South Africa, 1996). Local and metropolitan municipalities, particularly in urban areas, generate more than 20 percent of own income through property tax (Department of National Treasury, 2011). Therefore, while it is important to understand the determinants of property tax income, it is also important to examine whether the latter is characterised by spatial dependence.