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Real Estate Markets Space and Asset Markets Markets A mechanism for exchange of goods and or services Information Cost Efficiency Space Markets The market for the right to use real estate both land and buildings Asset Markets The market for the right to receive cash flows generated by activity in the space market Space Markets User Rental Market Our initial focus in this class Tenants Source of Demand Landlords Source of Supply Rent Negotiation between Demand Supply sources Space Market Segmentation Immutable nature segments markets by Property Type Residential Office Retail Special Use Location CBD Suburban Rural Tenant Type Single tenant vs Multi tenant Type of Occupancy Renter vs Owner ignored in rental market analysis Residential Property Types Single Family Typically Owner Occupied Detached Low Density Planned Development Attached Medium Density Townhouses Multi Family High Density Typically Renter Occupied Garden Apartments Apartment Style Condominium Developments Commercial Property Types Type of Tenancy Single Tenant Free Standing vs Multi Tenant Retail Development Shopping Centers Strip vs Mall Neighborhood Center 100 000 sq ft Community Center 100 000 300 000 sq ft Regional Center 300 000 750 000 sq ft Super Regional 750 000 sq ft Superstore Specialty Factory Outlet Centers Commercial Property Types Office Development Location of Property Downtown Financial Government Center Suburban Decentralization Project Type Garden Mid High Rise Condominium Classes of Property Class A Class B Class C Commercial Property Types Hospitality Development Source of Demand Leisure vs Business Location of Property Highway Airport Downtown Resort Types of Service Budget Limited Service Full Service Convention Industrial Property Types Manufacturing Distribution Office Warehouse vs Service Center Flex Space Bulk Distribution Heavy Manufacturing Research Development High Tech Biomedical Engineering Location Airport Distribution Manufacturing Rural Demand and Supply for Space Demand Typically a function of employment growth Office Industrial Drives Housing and Retail Growth as well Supply Short Run Supply Function Long Run Marginal Cost Kinked at the equilibrium rental rate Vertical at the current quantity of space Inelastic Generally Horizontal at greater quantities Elastic Rising if Land is Scarce Falling due to decentralization Urban Growth Economic Base The primary source of income for a city Allows us to measure growth potential Type and Quantity Export Activity A city s excess consumed in other locations Service Activity Product intended for local consumption Location Quotient Base 1 Asset Market Market for claims on future cash flows Our focus through most of the class Part of the larger Capital Market Real estate competes with stocks and bonds The Capital Asset Market is divided into Public and Private Ownership Equity and Debt Claims Where do these fit in REITs Single property MBSs and Indv Mortgages Asset Market Returns Value Based on three primary components Opportunity Cost of Capital Real estate returns relative to stocks bonds etc Growth Expectations Both Net Income and Asset Appreciation Risk Level Greater certainty of cash flows increases value Linking Space Asset Markets The Four Quadrant Model Developed by DiPasquale Wheaton 1992 A picture of the Real Estate System In Long Run Equilibrium Allows consideration of Systemic Effects Due to changes in the Space Market Levels of Market Analysis Macro Market Study May consist of an entire city or a sub market Focus varies generally with size of the city May focus on market wide absorption rates Micro Market Study Marketability Class of or specific property and potential uses What we will focus on in this class Assists in micro level valuation invest analys Forecasting cash flows lease up Steps in Micro Market Analysis Define the Product property productivity Define Users of the Property Delineation Forecast Demand Factors Forecast Supply Competitive Inventory Analyze Supply Demand Interaction Forecast the property s market capture Define the Product The Physical Attributes Site Improvements size age quality design Legal Attributes Zoning private deed and public restrictions Locational Attributes Analysis of Linkages Transportation Utility at capacity Urban Growth Determinants Growth influencing features reputation services Define the User Delineation of the Market Consider the reach of the property analyzed Regional office complex Neighborhood Shopping Center Single Family Subdivision Commuter or Local Construct a defined boundary for analysis Determine the target sub market Given the subject property characteristics Forecasting Demand Factors Affecting Demand Population Employment Income Sources of Forecast Regional Development Authorities http www atlreg com Analyst Developed Forecast Using trend analysis census chamber data Comparable City Analysis Refine sources to estimate subject demand Include Timing current future Critical Demand Variables Housing Markets Population forecast Income Household Size Age of Residents Rental vs Owner Occupancy Retail Markets Population Disposable Income Household Size Spending Patterns Office Markets Employment forecast by SIC employed in office space Occupied space per employee Forecasting Supply Survey Existing Supply Property name size occupancy level amenities Excess vacancy must be considered Use comparable properties internet guides Research Imminent Additions Demolitions Interview city planners developers Realtors Rank existing future supply Determine the subjects place in the ranking Estimate supply over time current future Equilibrium Analysis Conclusion Reconcile Demand Supply Estimates Provide an equilibrium estimate over time Consider market acceptable vacancy rates Use estimates to indicate market conditions Current undersupply oversupply balanced Future using intervals 6 mo 1 year etc Apply to subject expected market capture Is development feasible What is my cash flow expectation existing

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