02 18 2016 Chapter 6 Market Research I Structure of market analysis a Market analysis identifies supply and demand for a product i Demand prospective users of the real estate project buyers and renters Need to know there is sufficient demand so we can sell our product ii Supply analyzing competition because that determines prices b Developers most generally consumers of market analysis Sometimes consumed by government officials investors lenders c Market analysis consists of 2 sets of studies i Urban economics skip this ch5 1 Location 2 What are the growth drivers for the city 3 Know within a city determinants of location of activities Want the use of the project in an area to be increasing ii Market segmentation subgroups 1 Differences in preferences or needs among market 2 What is the target market 3 One example condominiums 4 Challenge excluding the irrelevant Focus on your market segment d Think of market analysis as following a cycle a story i What s the product ii Who is the customer target market iii Where is this customer market area iv What are there needs preferences v What is the competition data e First analysis object is to identify range of parameters implied by i Owner market quantities and prices ii Rental market occupancy level growth of occupancy of units being sold over time initial rent and growth rate of the rent f Refining the research Start back and get some more data g Story approach vs Conventional i Story approach begins with project already know what the project is then builds to the larger economy ii Conventional approach goes from the top down Focus on the urban economy Goes from nation to state to city and then to the project Until you get to the level of project h 3 examples of market analysis in chapter look up other 2 i focused on Elysian Forest planned unit development in class 1 PUD planned unit development characteristics a Mixed density single family to townhouse to apartments Whole range of density in 1 subdivision b Smaller individual lots for single family 2 Elysian forest was bold and big for the university city a First PUD in the area b Was very big 900 units c d Competitive norm parade of homes you can go see the newest homes in the area e PUD shared wall cluster homes with a shared wall 3 Market defining story a What s the product Upper income high density ownership residences b Who are the customers Top 30 household income but not top 8 Not traditional families with multiple children c Where are the customers Retirement buyers maybe single parents d What do customers care about Good access to work good recreation and social facilities e What is the competition There are no other PUDS maybe the parade of homes 4 First analysis steps a 1 Estimate number and share of households b 2 Project total housing unit sales in target market segment c 3 Estimate sales to target market segment i Real estate sub markets differ in cyclicality i office demand follows business cycles ii apartments are less so since households must live somewhere loner constriction lead time means more cyclicality j k key indicator used to evaluate where a property is within the cycle is permits l additional tools for real estate market research i geographic information system GIS 1 make a detailed map to show where customers are 2 widely used in store location research 3 WOB doing well in Tampa going to see what other demographics like this and then put a WOB there ii psychographics 1 market segmentation research seeks to relate product preferences to attitudes interests opinions and values to demographics 2 iii survey research 1 potentially a powerful tool if used carefully 2 stated preference vs revealed preference 3 send a survey 4 risk is to end up with meaningless questions or a meaningless sample end up with bad questions and a bad sample Intro to growth rates 1 Simple growth a find the future value FV given present value PV periodic growth rate i and time periods n FV PV PVx1 b find FV in 3 years Ex1 given pv 100 i 10 per year Find FV in one year 100 100 1 100 10 110 100 100 3 1 100 30 130 ex2 find annual growth rate i given present value PV future value FV and time period n FV PV PV n i FV PV PV n i FV PV PV n 1 Given PV 100 FV 130 n 3 find i 130 100 100 30 100 3 30 30 3 10 Computed Growth You will learn 3 methods 1 analytical using a calculating formula 2 financial calculator 3 excel Deriving calculating formula analytically Gimmick instead of property appreciating in value imagine a 100 deposit in a savings account it accumulated interest for 3 years After year 1 Recall example FV1 PV0 PV0 i 100 100 1 110 after year 2 FV2 PV1 PV1 i 100 1 10 1 1 100 1 1 2 121 After year 3 100 1 1 3 Generally FV PV 1 i n FV PV 1 i n 036 12 003 Ex3 a property sold 10 months ago for 98 500 If home prices in the area are increasing by 3 6 a year what would this home sell for today assuming monthly compounding 1 003 10 1 0341 98500 101 495 21 Chapter 7 part 1 Valuation using the sales comparison approach I Intro 3 concepts of value A Market Value a Most probably selling price assuming normal sale conditions B Investment value C Transaction price a Value to a particular investor i Price actually paid for a property ii Transaction is only going to occur if there is a seller and a buyer Roughly investment value for buyers II Why must market value be estimated Simon property group SPG stock A Each share is exactly alike B Many transactions occur hours and there are many active buyers C You can store shares if I buy a share it doesn t have to reside in a and sellers particular place D In a market like this perfect competition all transactions are taking place in market value E In real estate every unit is kind of different i RE markets are illiquid highly segmented and info inefficient III Who uses appraisals A Mortgage lenders B Buyers and sellers i So they know they are getting a good deal C Corporate acquisitions mergers or dissolutions D Courts State Appraisal certification E Registered trainee appraiser 100 classroom hours F Certified residential appraiser i BA degree 200 classroom hours ii 2500 experience hours iii residential national exam G Certified general appraiser i BA degree 300 classroom hours ii 3000 experience hours less than 50 non residential iii general national exam IV Uniform standards of professional appraisal practice USPAP A Quality control and ethics standards B Required by all states and fed regulatory agencies C Maintained by the appraisal foundation i Non