The real estate markets : Players, institutions and territories

Revealing the parties, the processes and the institutions and, consequently, both the diversity and contingency of the real estate markets, the existing increasing literature emphasises the contemporary numerous links and interdependencies between real estate, land value, planning and town planning policy and even the financial system. This paper is an attempt to understand all the real estate markets, from the most peripheral ones, where the urban rent is the lowest, to the most dense city centres. To gain a better understanding of the real estate market, a process of firstly deconstruction and then reconstruction is used. The process of deconstruction involves identifying various market trends according to property type (principally residential buildings), players and institutions, territorial situations and temporalities based on research conducted in Switzerland. We then developed a meta-synthesis inspired by Fernand Braudel whose works put as much emphasis on day-to-day economic activity as on long-term activity, and on local as well as global issues.

Densification & affordability : comparative real estate projects across Montreal

Montréal, Québec se construit vers une forme urbaine compacte, mais il en relève des questionnements quant aux effets sur l’abordabilité et l’accession à la propriété. En tenant compte du processus de la densification urbaine, une enquête sur une série de projets de condominiums immobiliers à travers la ville est menée afin de divulguer les prix des projets nouveaux ou en construction. Au préalable, ceci survole la littérature et les études actuelles portant sur la planification urbaine, notamment celles qui sont reliées au Smart Growth, études dans lesquelles le contexte de densification et de tendances consuméristes à préférer les formes urbaines étalées est mis en évidence. Essentiellement, Moroni (2010) souligne l’approche dichotomique en planification urbaine entre les perspectives «teleocratic» et «nomocratic». La densification montréalaise actuelle contemporaine s’exprime par une multitude de modèles de condos conformes aux nouvelles tendances démographiques et des modes de vie. En s’appuyant sur les critères du programme Accès Condos, sur les critères du SCHL (32% du revenu) et sur le revenu médian des ménages, le niveau d’accessibilité à la propriété d’un condominium peut être mesuré. Les résultats indiquent que selon ces critères, les logements de style condominium, neufs et en construction, sont abordables. L’analyse contribue empiriquement à la littérature en exposant les liens entre les stratégies actuelles de densification urbaine avec l’abordabilité des logements condos. La recherche porte un regard nouveau sur le phénomène condo à Montréal et ses tendances démographiques. La ville est divisée selon le modèle Burgess et la recherche mène un sondage comparatif des prix pour déterminer l’abordabilité. Les résultats suggèrent que les projets condos actuels sont relativement abordables pour les ménages avec un revenu médian et plus, selon Accès Condos.

Value added KPI service delivery with quality function deployment: Multiple case study in asset & real estate management

The aim of this study is to investigate value added service concept for an asset and real estate management case company. The initial purpose was to recognize the most value adding key performance indicators (KPIs) information delivered for its customers, real estate investors with value added service. The multiple case study strategy included two focus group interviews with five case interviews in total. Additionally, quality function deployment (QFD) was used in order to form up the service process. The study starts with introduction and methodology explaining the demand for the thesis study. The subsequent chapter presents the theoretical background on real estate management KPIs in four main points of views and quality function deployment from the service development point of view. The chapter also defines research gap for the case study. According to the case study interviews, the most favored KPIs to deliver for the clients are income maturity of lease agreements and leasing activity. These KPIs and quality characteristics are translated into the QFD. In total, the service QFD explains the service planning, process control, and action plan phases.

Comparing Predictive Accuracy of Real Estate Pricing Models: An Applied Study for the City of Montreal.

Rapport de recherche

Les pratiques des usagers dans les friches urbaines végétalisées et leurs facteurs d’influence : analyse de deux cas montréalais.

Dans l’ère post-industrielle, où la densification apparaît comme une solution afin de freiner l’étalement urbain, la question de l’avenir des terrains en friche devient incontournable. En effet, ceux-ci deviennent hautement convoités par les acteurs du redéveloppement urbain puisqu’ils détiennent un potentiel foncier important. Face à ces pressions, cette recherche s’intéresse à la complexité des terrains en friche, puisqu’il existe une diversité de potentiels, outre le foncier. Parmi ces potentiels, les friches peuvent être utilisées comme des espaces verts urbains. Effectivement, il arrive qu’on retrouve sur ces sites des usagers qui les fréquentent, à différents desseins. L’étude tente ainsi de répertorier et de comprendre les pratiques faites par les usagers, pour deux cas étudiés à Montréal : le Boisé Jean-Milot et le Champ des possibles. L’objectif est non seulement de qualifier ces pratiques, mais également de mettre en évidence les facteurs d’influence qui les sous-tendent. La recherche s’inscrit dans les approches personnes-environnement. D’un point de vue méthodologique, des entretiens in situ ont été menés avec les usagers afin qu’ils puissent expliquer leur expérience vécue de la friche. Les facteurs d’influence ont émergé des discours tenus en entrevue. Les cas étudiés montrent que la friche est un espace d’exception en ville : les friches urbaines végétalisées sont le cadre de pratiques exclusives, en plus de faire vivre une variété d’ambiances à l’usager. Les résultats permettent ainsi de placer la friche comme un espace vert complémentaire au parc urbain. La friche fait partie d’un portfolio d’espaces disponibles, utilisés au moment présent. En relevant les facteurs qui influencent les usagers à fréquenter les friches, on met en lumière des qualités qui pourraient être utiles dans la planification des espaces verts urbains et dans le développement d’une vision innovante pour l’avenir des friches.

Capturing UK real estate volitility

Volatility, or the variability of the underlying asset, is one of the key fundamental components of property derivative pricing and in the application of real option models in development analysis. There has been relatively little work on volatility in real terms of its application to property derivatives and the real options analysis. Most research on volatility stems from investment performance (Nathakumaran & Newell (1995), Brown & Matysiak 2000, Booth & Matysiak 2001). Historic standard deviation is often used as a proxy for volatility and there has been a reliance on indices, which are subject to valuation smoothing effects. Transaction prices are considered to be more volatile than the traditional standard deviations of appraisal based indices. This could lead, arguably, to inefficiencies and mis-pricing, particularly if it is also accepted that changes evolve randomly over time and where future volatility and not an ex-post measure is the key (Sing 1998). If history does not repeat, or provides an unreliable measure, then estimating model based (implied) volatility is an alternative approach (Patel & Sing 2000). This paper is the first of two that employ alternative approaches to calculating and capturing volatility in UK real estate for the purposes of applying the measure to derivative pricing and real option models. It draws on a uniquely constructed IPD/Gerald Eve transactions database, containing over 21,000 properties over the period 1983-2005. In this first paper the magnitude of historic amplification associated with asset returns by sector and geographic spread is looked at. In the subsequent paper the focus will be upon model based (implied) volatility.

The production and consumption of commercial real estate market forecasts

Whilst the vast majority of the research on property market forecasting has concentrated on statistical methods of forecasting future rents, this report investigates the process of property market forecast production with particular reference to the level and effect of judgemental intervention in this process. Expectations of future investment performance at the levels of individual asset, sector, region, country and asset class are crucial to stock selection and tactical and strategic asset allocation decisions. Given their centrality to investment performance, we focus on the process by which forecasts of rents and yields are generated and expectations formed. A review of the wider literature on forecasting suggests that there are strong grounds to expect that forecast outcomes are not the result of purely mechanical calculations.

The transition of the Polish real estate market within a Central and Eastern European context

The real estate market in Poland is a relatively immature market, but one that has been experiencing substantial transformation. The development of the market has been encouraged by a number of factors, including changes arising as a result of new legislation and the migration of capital between capital markets. The progress of the real estate sector towards a western style competitive market has taken place within the gradual transformation of the Polish economy into a free market economy. As investment grade property is in relatively short supply in Poland, investors consider opportunities within the wider CEE block. An analysis of the risk-return characteristics of the three largest CEE real estate markets namely, Poland, Hungary and Czech Republic, shows that the returns in these markets have been negatively correlated with the UK. As these economies and markets evolve, and being part of the wider EU trading block, their economic performance will slowly converge and become more synchronized with their western counterparts. However, the catch-up of the CEE markets to western European performance cycles will be protracted and consequently there are likely to be significant ongoing portfolio risk reduction opportunities

Risk management and the corporate real estate portfolio

In a global business economy, firms have a broad range of corporate real estate needs. During the past decade, multiple strategies and tactics have emerged in the corporate real estate community for meeting those needs. We propose here a framework for analysing and prioritising the various types of risk inherent in corporate real estate decisions. From a business strategy perspective, corporate real estate must serve needs beyond the simple one of shelter for the workforce and production process. Certain uses are strategic in that they allow access to externalities, embody the business strategy, or provide entrée to new markets. Other uses may be tactical, in that they arise from business activities of relatively short duration or provide an opportunity to pre-empt competitors. Still other corporate real estate uses can be considered “core” to the existence of the business enterprise. These might be special use properties or may be generic buildings that have become embodiments of the organisation’s culture. We argue that a multi-dimensional matrix approach organised around three broad themes and nine sub-categories allow the decision-maker to organise and evaluate choices with an acceptable degree of rigor and thoroughness. The three broad themes are Use (divided into Core, Cyclical or Casual) – Asset Type (which can be Strategic, Specialty or Generic) and Market Environment (which ranges from Mature Domestic to Emerging Economy). Proper understanding of each of these groupings brings critical variables to the fore and allows for efficient resource allocation and enhanced risk management.

Analyzing the performance of non-listed real estate funds: an panel data analysis

The rapid growth of non-listed real estate funds over the last several years has contributed towards establishing this sector as a major investment vehicle for gaining exposure to commercial real estate. Academic research has not kept up with this development, however, as there are still only a few published studies on non-listed real estate funds. This paper aims to identify the factors driving the total return over a seven-year period. Influential factors tested in our analysis include the weighted underlying direct property returns in each country and sector as well as fund size, investment style gearing and the distribution yield. Furthermore, we analyze the interaction of non-listed real estate funds with the performance of the overall economy and that of competing asset classes and found that lagged GDP growth and stock market returns as well as contemporaneous government bond rates are significant and positive predictors of annual fund performance.

Spatial concentration in institutional industrial real estate investment in the England and Wales

In two recent papers Byrne and Lee (2006, 2007) examined the geographical concentration of institutional office and retail investment in England and Wales at two points in time; 1998 and 2003. The findings indicate that commercial office portfolios are concentrated in a very few urban areas, whereas retail holdings correlate more closely with the urban hierarchy of England and Wales and consequently are essentially ubiquitous. Research into the industrial sector is very much less developed, and this paper therefore makes a significant contribution to understanding the structure of industrial property investment in the UK. It shows that industrial investment concentration is between that of retail and office and is focussed on LAs with high levels of manual workers in areas with smaller industrial units. It also shows that during the period studied the structure of the sector changed, with greater emphasis on the distributional element, for which location is a principal consideration.

Correlation shifts and real estate portfolio management

The success of any diversification strategy depends upon the quality of the estimated correlation between assets. It is well known, however, that there is a tendency for the average correlation among assets to increase when the market falls and vice-versa. Thus, assuming that the correlation between assets is a constant over time seems unrealistic. Nonetheless, these changes in the correlation structure as a consequence of changes in the market’s return suggests that correlation shifts can be modelled as a function of the market return. This is the idea behind the model of Spurgin et al (2000), which models the beta or systematic risk, of the asset as a function of the returns in the market. This is an approach that offers particular attractions to fund managers as it suggest ways by which they can adjust their portfolios to benefit from changes in overall market conditions. In this paper the Spurgin et al (2000) model is applied to 31 real estate market segments in the UK using monthly data over the period 1987:1 to 2000:12. The results show that a number of market segments display significant negative correlation shifts, while others show significantly positive correlation shifts. Using this information fund managers can make strategic and tactical portfolio allocation decisions based on expectations of market volatility alone and so help them achieve greater portfolio performance overall and especially during different phases of the real estate cycle.

Aligning asset allocation and real estate investment: some lessons from the last cycle

Asset allocation is concerned with the development of multi--‐asset portfolio strategies that are likely to meet an investor’s objectives based on the interaction of expected returns, risk, correlation and implementation from a range of distinct asset classes or beta sources. Challenges associated with the discipline are often particularly significant in private markets. Specifically, composition differences between the ‘index’ or ‘benchmark’ universe and the investible universe mean that there can often be substantial and meaningful deviations between the investment characteristics implied in asset allocation decisions and those delivered by investment teams. For example, while allocation decisions are often based on relatively low--‐risk diversified real estate ‘equity’ exposure, implementation decisions frequently include exposure to higher risk forms of the asset class as well as investments in debt based instruments. These differences can have a meaningful impact on the contribution of the asset class to the overall portfolio and, therefore, lead to a potential misalignment between asset allocation decisions and implementation. Despite this, the key conclusion from this paper is not that real estate investors should become slaves to a narrowly defined mandate based on IPD / NCREIF or other forms of benchmark replication. The discussion suggests that such an approach would likely lead to the underutilization of real estate in multi--‐asset portfolio strategies. Instead, it is that to achieve asset allocation alignment, real estate exposure should be divided into multiple pools representing distinct forms of the asset class. In addition, the paper suggests that associated investment guidelines and processes should be collaborative and reflect the portfolio wide asset allocation objectives of each pool. Further, where appropriate they should specifically target potential for ‘additional’ beta or, more marginally, ‘alpha’.