Joshua Harris, Ph. D., CAIA Director, Dr. P. Phillips Institute for Research and Education in Real Estate
3 Value of Real Property ◦ Highest and Best Use ◦ Income and/or Economic Utility delivered ◦ Option Component Real Property Options ◦ Option to Expand ◦ Option to Reduce ◦ Option to Change Use ◦ Option to Delay Total Value = Real Value + Option Value
4 Classical Financial Options (i.e. Puts & Calls) ◦ Volatility ◦ Discounting Rates ◦ Time Until Expiration ◦ Dividends Applied to Real Property ◦ Volatility of Demand (Macroeconomics) ◦ Volatility of Supply (Capital Markets/Const. Prices) ◦ Volatility of Regulation Bottom Line – Economy Determines Volatility
Source: Bureau of Economic Analysis
Source: Bureau of Labor Statistics
Source: Census Bureau
Source: Bureau of Economic Analysis
Source: Census Bureau
Source: Bureau of Economic Analysis
Source: Census Bureau
From October 2012 – 1.69%
A Year Ago 2.67% - a 58% Jump
One Year Later 2.26% - a 15% DECLINE
Source: U.S. Census Bureau
Growth of MSA >1 million, 2014 YTD Source: U.S. Bureau of Labor Statistics, Forbes.com
23 Growth of MSA >1 million since 2000 (YE 12) Source: U.S. Census Bureau, Forbes.com
24 Growth of MSA >1 million from Source: U.S. Census Bureau, Forbes.com
25 New construction occurring across the board Banks are desperate to lend Apartment Rental Rates & Home Prices rising Commercial Real Estate Prices at or above prior peak Risk of oversupply, still fairly low
Highest and Best Use may change rapidly Urban Markets are more desirable Infrastructure DID NOT keep pace, or even close Values are tricky, my sympathies to the Appraisers (….Option Values)