bluuebunny/crossref_metadata_2025 huggingface dataset:
The Economics of Architecture and Urban Design: Some Preliminary Findings
Authors: Vandell Kerry D. , Lane Jonathan S.
Published: October 2003

This paper makes a preliminary attempt to evaluate empirically the nature of the contribution of architectural quality to the value of buildings. An economic model is postulated that predicts equilibrium rent and vacancy behavior as a function of both design and non‐design characteristics. Vacancies are created in equilibrium as a result of search and information costs and tenant heterogeneity and are observed by the landlord as price‐inelastic demand behavior. Design quality is seen to influence both rent and vacancy behavior. Its effect, however, is dependent on characteristics both of the production and operating cost functions and of tenant demand for the design vs. non‐design amenity. An important characteristic of the design amenity is that it is not, in general, independent of the production function for non‐design amenities. The model is tested using disaggregate cross‐sectional and longitudinal operating performance and amenity data from a set of 102 class A office buildings in Boston and Cambridge. Data on design quality for the set of buildings were provided by a detailed evaluation of each structure by a panel of architects. Results confirm a strong influence of design on rents; structures rated in the top 20% for design quality were predicted to extract almost 22% higher rents than those rated in the bottom 20%. In contrast, the data showed a weak relationship between vacancy behavior and design quality. Finally, good design was shown to cost more to produce on average, but not necessarily in every case. The magnitude of the point estimates of the rent, vacancy, and construction cost effects suggest that good design may not in fact be more profitable on average, but as with a lottery, may provide a small probability of a high return to the developer.
The Optimal Duration of Real Estate Listing Contracts
Authors: Miceli Thomas J.
Published: October 2003

The length of the real estate listing contract is examined as a means of providing an incentive for brokers to act in the best interest of home sellers. A limitation on the duration of the contract accomplishes this objective by imposing a cost (namely, the foregone commission) on brokers who fail to complete a sale before the contract expires. The seller's optimal contract duration balances the benefits of improved incentives against the expected cost of renegotiating a new contract in the event of a failure bv the broker.
Optimal Mortgage Refinancing with Stochastic Interest Rates
Authors: Chen Andrew H. , Ling David C.
Published: October 2003

The purpose of this paper is to develop a dynamic model of mortgage refinancing in a contingent claim framework that simultaneously solves for the borrower's optimal mortgage refinancing strategy, the value of the refinancing call option, the value of the mortgage liability to the borrower, and the market (lender) value of the fixed‐rate contract. We also calculate the minimum differential between the contract rate on the existing mortgage and the current interest rate that is required to trigger an optimal mortgage refinancing.
The Impact of Unseasonable Weather on Housing Starts
Authors: Cammarota Mark T.
Published: October 2003

This study tests the effects of unseasonable weather on housing starts at the national and regional level. Goodman [1] examined this issue and concluded that abnormal weather conditions have little or no effect on the pace of housing starts. The models presented in this study allow the impact of unseasonable weather on starts to vary over each month of the year whereas the specification in Goodman constrained these effects to vary between only the summer and winter. In addition, lagged weather deviations are included in the model to determine if unseasonable weather affects the demand for housing or merely the timing of housing starts. The results suggest that unseasonable weather does affect the pace of housing starts in the months of the first quarter. Oddly enough, however, the results indicate that the effects of weather on starts are not offset in following months.
Tax Reform and Organizational Forms for Holding Investment Real Estate: Corporation vs. Partnership
Authors: Lentz George H. , Fisher Jeffrey D.
Published: October 2003

Following the ERTA of 1981, partnership ownership of real estate dominated corporate ownership. This study concludes that the Tax Reform Act of 1986 provides incentive for holding real estate investments that produce sizable tax losses and/or that are eligible for large tax credits in corporate rather than partnership form. Perpetuity cash flow models are employed initially to identify key tax and cash flow variables favorable to each organizational form. The perpetuity assumption is then relaxed to consider a more representative real estate investment. A sensitivity analysis examines the extent to which the base case results are dependent on the assumed values of selected model parameters.
Bias in Appraisal‐Based Returns
Authors: Geltner David
Published: October 2003

This note quantifies and extends Giliberto's [AREUEA Journal 16(1)] analysis of bias in appraisal‐based returns. An important clarification and distinction is made, defining two different perspectives from which one may view appraisal return bias. The Giliberto analysis addressed bias in the holding period return only. Here, after reviewing and extending Giliberto's analysis in this regard, bias is considered from another perspective, that of the arithmetic mean of a time‐series of appraisal‐based returns. The two types of bias are likely to be of opposite sign, thereby possibly offsetting one another, so that we may often observe very little bias in the means of empirical appraisal‐based returns time‐series.
The Effect of Historic District Designation on Single‐Family Home Prices
Authors: Ford Deborah Ann
Published: October 2003

The designation and regulation of local historic districts in Baltimore, Maryland started in 1964. Structures within these districts are required to maintain exteriors in the style of the historical significance of the neighborhoods. Prior studies in other cities have shown that the designation did not always lead to an increase in restoration activities in these areas. This paper analyzes the effect of the designation on transaction prices and finds historic districts do have higher prices than identical non‐historic districts.
The Demand for Federal Home Loan. Bank Advances by Thrift Institutions: Some Recent Evidence
Authors: Mays Elizabeth , DeMarco Edward J.
Published: October 2003

This paper develops a model of the demand for Federal Home Loan Bank (FHLB) advances by thrift institutions. It expands on a model developed in Kent [1983] by accounting for net worth in the balance sheet constraint and for borrowing in excess of the “advances limit.” The demand equation is estimated using pooled time‐series and cross‐sectional data for individual thrift institutions over the period 1979–1986. The results indicate that in addition to the traditional use of advances as a source of liquidity, advances are a particularly attractive source of funds for poorly capitalized institutions. Further, thrifts' demand for advances is responsive to the price of advances, mortgage interest rates, the dividend rate on FHLB stock, and rates on substitute sources of funds.
The Impacts of Borrowing Constraints on Homeownership
Authors: Linneman Peter , Wachter Susan
Published: October 2003

This paper utilizes microdata to directly quantify the impact of mortgage underwriting criteria on individual homeownership propensities. To determine whether a family is constrained by these criteria, the optimal home purchase price is estimated. The results indicate that wealth and income constraints both reduce homeownership propensities, with a stronger impact for wealth constraints. Mortgage market innovations of the early 1980s seem to have reduced these effects. The research indicates, however, that even in well‐developed capital markets, the presence of borrowing constraints adversely affects homeownership propensities.
Housing Rental Contracts and Adverse Selection with an Application to the Rent‐Own Decision
Authors: Miceli Thomas J.
Published: October 2003

A model of rental housing is developed in which landlords cannot observe the utilization rate of their tenants. As a result of this imperfect information, an adverse selection problem exists where high utilization households have an incentive to conceal their type in order to obtain more favorable contract terms. Consequently, the market equilibrium must satisfy a self‐selection constraint, which imposes certain restrictions on the set of contracts that will be offered by landlords. These restrictions are examined in detail, and their implications for a household's decision to rent or own its housing are derived.
Non‐Uniform Percentage Brokerage Commissions and Real Estate Market Performance
Authors: Larsen James E. , Park Won J.
Published: October 2003

The effect of non‐uniform commissions on the market duration of residential properties is ambiguous. While the broker's search effort is positively related to the size of the percentage commission, so is the seller's reservation price. Each of these relationships imply a time‐on‐market effect in the opposite direction of the other. A powerful statistical technique, survival regression, is employed to determine which relationship dominates. Because the probability that a property will sell at any given point in time is inversely related to the size of the percentage commission, we conclude that the negative search effects associated with low commission rates are more than offset by the positive reservation price effects.
Income and Appraised Values: A Reexamination of the FRC Returns Data
Authors: Wheaton William C. , Torto Raymond G.
Published: October 2003

This paper compares the income of those office properties that are included in the FRC index, with the appraised values that are used to determine the index's appreciation component. We find that the appraised value of the portfolio was a constant multiple of its current income, over the 1978–1988 period. This seems at odds with what modern valuation theory would suggest, since both nominal interest rates and several measures of real rates varied widely over the sample. An alternate interpretation of our results is that the appraised values were based on a set of expectations about future income growth, that turned out over the period, to be continually at odds with respect to actual income.
The Insolvent Thrifts of 1982: Where Are They Now?
Authors: Rudolph Patricia M.
Published: October 2003

In 1982, 237 thrifts were GAAP (Generally Accepted Accounting Principle) insolvent. By 1987, 92 of these were either merged or closed and 77 remained insolvent. The remaining 68 were GAAP solvent with an average GAAP‐to‐total‐assets ratio of 5.6%. The purpose of this paper is to identify the factors that affected the probability of solvency for the 1982‐insolvent thrifts over the period 1983–1987.

To identify these factors, the probability of insolvency is modeled in each year between 1983 and 1987 using logistic regression. Because a thrift can earn its way out of insolvency or raise outside capital, the probability of solvency is a function of the infusion of outside capital along with balance sheet and income statement ratios reflecting the thrifts earning ability. The only variable consistently significant in each year is the variable reflecting the raising of outside capital.
Estimating Real Estate's Systematic Risk from Aggregate Level Appraisal‐Based Returns
Authors: Geltner David
Published: October 2003

This paper estimates the systematic risk (or “beta”) of unsecuritized investment grade commercial real estate, as represented by the FRC and PRISA indices of institutional real estate holdings. Systematic risk defined with respect to national consumption is compared to systematic risk defined with respect to the stock market. Also, the risk estimates are explicitly adjusted to account for “smoothing” in appraisal‐based aggregate level returns data. The systematic risk of these real estate indices appears to be virtually zero with respect to the stock market, even after correcting for smoothing, but substantially positive with respect to national consumption.
Modeling and Computing Transactions Costs for Purchasers of Housing Services
Authors: Goodman Allen C.
Published: October 2003

This paper models, as equilibrium behavior, buyers' behaviors under transactions costs and market failure constraints. It derives equilibrium conditions and it shows how they differ from unconstrained models. Standard utility and cost parameters are then used to estimate the economic costs of the constraints, which may be interpreted, at the margin, as the transactions costs of moving. If transactions costs are greater than the economic costs of the constraints, the household remains in a residence, even in response to changed price and income expectations. Changes in expected prices and incomes lead to changed housing demand even when the household cannot adjust housing consumption between periods. These findings have implications for empirical work with both cross‐section and panel data sets.
Capital Structure and the Cost of Capital for Untaxed Firms: The Case of REITs
Authors: Marts Brian A. , Elayan Fayez A.
Published: October 2003

REITs offer the opportunity to examine the relationship between capital structure and cost of capital in the absence of corporate earnings taxes. The evidence supports the leverage clientele effect as the motivation for the use of financial leverage by REITs.
A Further Examination of Appraisal Data and the Potential Bias in Real Estate Return Indexes
Authors: Gau George W. , Wang Ko
Published: October 2003

Recent articles by Giliberto [2] and Geltner [1] examine the biases inherent in the use of appraisal data in real estate performance measurement. This note takes another look at the direction and magnitude of any bias in holding period returns. Using appraisal data from a commingled real estate fund, we show that in actual application the size of the holding period return bias can be quite small and this bias may have no appreciable effect on real estate return indexes.
The Composition of the Market Portfolio and Real Estate Investment Performance
Authors: Liu Crocker H. , Hartzell David J. , Grissom Terry V. , Greig Wylie
Published: October 2003

This study investigates whether the composition of the market portfolio leads to different inferences on real estate performance. As a point of departure, this paper first explores whether the omission of assets in a market proxy leads to a biased measurement of investment performance. The study finds that ranking investment performance is not meaningless even though investment performance is inaccurately measured. Furthermore, the composition of the market proxy does not necessarily lead to different inferences on real estate investment performance although superior real estate investment performance arises from the omitted asset phenomenon and also from smoothing bias in general.
Workouts, Deep Pockets, and Fire Sales: An Analysis of Distressed Real Estate
Authors: Crockett John H.
Published: October 2003

This paper presents a conceptual analysis of issues that relate to the management of distressed real estate assets. The paper examines the decision implications of the major characteristics of real estate assets and real estate markets in the light of information and incentive problems that emerge when assets fail to perform as anticipated. The paper focuses on the determination of commitments of additional resources to a troubled property, the identification of efficient holders of distressed assets, and the consideration of policies toward the disposition of distressed assets. The paper concludes that in many instances asset sales, rather than causing further destabilization as suggested by the fire sale image, are likely to contribute to reducing the costs associated with distress.
A Lattice Approach to Pricing Fixed‐Rate Mortgages with Default and Prepayment Options
Authors: Leung Wai K. , Sirmans C. F.
Published: October 2003

Existing models on the pricing of default and prepayment options in fixed‐rate mortgages either use numerical methds or they do not consider refinancing or other transaction costs involved in default and prepayment. We provide in this paper an application of the Boyle [1] lattice model to price secured debt with two risky assets. This model is simple, efficient and capable of considering the major types of transaction costs involved in prepayment and default. Using our model, we estimate the option values under a range of assumptions about the underlying parameters. We also provide some comparisons of the lattice model estimates to other models in the literature.
An Analysis of Office Market Rents: Some Empirical Evidence
Authors: Glascock John L. , Jahanian Shirin , Sirmans C. F.
Published: October 2003

This paper provides an empirical analysis of office building rents using data for a five‐year period in a medium‐ sized city. The results indicate that rent levels respond to various factors in the expected manner: rents vary systematically across classes of buildings and locations, overall market conditions have a significant impact on rents, and contract variations are associated with rent differences. We also present the first evidence at the building level on the rent‐vacancy adjustment process. The results show a significant relationship between rent changes and vacancies.
Mortgage Choice†
Authors: Follain James R.
Published: October 2003

Mortgage choice refers to a set of problems faced by a homeowner that includes the choice of a loan‐to‐value ratio, the refinancing and default decisions, and the choice of mortgage instrument. This paper reviews much of the literature that has been written on the topic. It begins with a listing of the major stylized facts the literature seeks to explain. Models used to explain mortgage choice are categorized and discussed. It is argued that the relatively simple certainty model that incorporates liquidity constraints seems capable of explaining some of the stylized facts, but is unable to explain some others. The paper concludes with a discussion of three policy questions that require a better understanding of mortgage choice before they can be answered. The paper is based upon the author's Presidential Address to the American Real Estate and Urban Economics Association, which was delivered in Atlanta, Georgia on December 29, 1989.
Measuring Residential Real Estate Liquidity
Authors: Kluger Brian D. , Miller Norman G.
Published: October 2003

There are many factors, other than price alone, that may affect the liquidity of real estate. This study develops a liquidity measure based on the Cox proportional hazard technique, a statistical model widely used in the epidemiologic and social sciences. The odds ratio, along with an estimate of market value for a home, are used to construct a liquidity measure. This measure can extract from the data a rich statistical profile of the variables that affect liquidity.
Residential Immobility of the Elderly: An Empirical Investigation
Authors: Reschovsky James D.
Published: October 2003

This paper investigates the reasons for the substantially lower residential mobility rates among the elderly than the non‐elderly. Households with low propensities to move are posited to be those that face few benefits from moving—that is, they are near equilibrium with respect to their housing consumption and tenure choice—or those that face large costs to moving. Using household data from the Panel Study of Income Dynamics, measures of housing disequilibrium and tenure disequilibrium were constructed. Elderly renters were found to be largely in equilibrium and would benefit little from moving. In contrast, elderly homeowners are more likely to be in substantial disequilibrium than their younger counterparts. Conclusions as to which costs to moving are most salient could not be made.
Agency Costs in Apartment Property Management Contracts
Authors: Rosenberg Sidney B. , Corgel John B.
Published: October 2003

Because fees for property management services are based on gross rental collections rather than on net operating incomes, property managers may not always act in the best interest of property owners. This study is an examination of the agency costs that result from the conflict of interests between owners and managers. A nationwide proprietary sample of 242 apartment properties is analyzed to compare agency costs of four distinct types of ownership structures. Agency costs, measured as operating expenses per square foot, are found to be significantly higher for institutional owners than for noninstitutional owners, but not significantly higher in cases where no competition for property management services exists. We conclude that agency costs of property management contracts are significant and the fee provisions of standard property management contracts should be changed to better align the interests of managers and owners.
A Note on Mortgage Risk: Default vs. Loss Rates
Authors: Clauretie Terrence M.
Published: October 2003

This note reexamines the role of the loan‐to‐value ratio on mortgage risk. Whereas previous studies have focused on the default rate as a function of this term, this study considers the additional effect on the loss rate of defaulted loans. Because the dollar loss per amount originated is the product of the default rate and the loss rate on defaulted loans, the impact of the loan‐to‐value ratio on both the default and loss rates is crucial to explaining the impact of the loan‐to‐value ratio on mortgage risk. I find that both rates are significantly positively related to loan‐to‐value ratio and that the loss rate accounts for between 13% and 20% of total loan‐to‐value impact.
Mean Reversions in GNMA Returns
Authors: Ma Christopher K.
Published: October 2003

The random‐walk hypothesis is tested in the prices of mortgage‐backed securities traded in the secondary market. Using the variance ratio test, the random‐walk hypothesis is rejected for the daily GNMA bond return. We identify two components in the return series: a systematic component reflecting the market pricing on the expected information, and a noise term that represents the pricing on the unexpected information. After adjusting for the impact of bid‐ask spread and thin trading on the price quotations, the evidence suggests that the short‐horizon, weekly realized return, being dominated by the negative serial correlation of the random component, exhibits a mean‐reverting process. However, it is also found that the noise term demonstrates significant positive serial correlation for holding periods of over two weeks. Thus, for longer‐term returns, the realized return exhibits positive dependence. The implication is that the price of GNMA bonds did not react to unexpected information in a rational fashion in that the adjustment process is not instantaneous.
Efficiency in the Mortgage Market: The Borrower's Perspective
Authors: Quigley John M. , Van Order Robert
Published: October 2003

This paper uses mortgage history data from the Federal Home Loan Mortgage Corporation to analyze the prepayment behavior of homeowners and to test whether borrowers exercise their prepayment options in a manner consistent with contingent claims models. A variety of hazard models are estimated from individual data on more than 6000 mortgages issued during the 1976–1980 period. In these models, it is clear that the extent to which the prepayment option is “in the money” has a strong effect on behavior. However, it is less clear that the option is exercised quite as ruthlessly as the theory predicts.
Forecasting Prices and Excess Returns in the Housing Market
Authors: Case Karl E. , Shiller Robert J.
Published: October 2003

The paper uses quarterly indexes of existing single‐family home prices estimated with microdata on properties that sold more than once to estimate excess returns to investment in owner‐occupied housing. Housing prices and excess returns are estimated over the period 1970:1 to 1986:3 for Atlanta, Chicago, Dallas, San Francisco. Using time‐series cross‐section regressions we test for the forecastability of prices and excess returns using a number of independent variables. Price changes in one year tend to continue for more than one year in the same direction. The ratio of construction costs to price, changes in adult population and increases in real per capita income all are positively related to excess returns or price changes over the subsequent year. The results add weight to the argument that the market for single‐family homes is inefficient.
A Methodology for Constructing Vacant Land Price Indices
Authors: Clapp John M.
Published: October 2003

Existing estimates of movements in vacant land prices are limited to a few metropolitan areas and infrequent time intervals. This paper develops a new methodology for estimating vacant land price trends for subareas within states and metropolitan areas. It utilizes data from a sales ratio study, a large database available in most states. The methodology uses assessed value to control for “hedonic characteristics” associated with the property and its location. A model is developed to correct assessed value for measurement errors. Statistical results for forty‐one Connecticut towns indicate that the model provides a reasonable compromise between data availability and accuracy of price trend estimates.
Atypicality and the Natural Vacancy Rate Hypothesis
Authors: Jud G. Donald , Frew James
Published: October 2003

This paper formulates and tests a model of rent change based on the natural vacancy rate hypothesis. It incorporates the Haurin [6] hypothesis in which the natural rate for particular units is determined by their atypicality. Estimates of the model indicate a natural rate of 6.5%. However, the rate is shown to vary systematically across individual units: the more atypical an apartment unit, the higher the natural rate.
Retail Leasing: The Determinants of Shopping Center Rents
Authors: Benjamin John D. , Boyle Glenn W. , Sirmans C. F.
Published: October 2003

The determinants of lease rentals are of fundamental importance to real estate researchers and practitioners. Retail leases are unique in that they typically have two rental components: a base rent and an “overage” rent equal to a percentage of the tenant's gross sales above some threshold level. In this paper, we develop and test a simple cash flow model of retail lease valuation that predicts that base rents are lower with higher percentage rent rates and are higher with greater threshold levels of sales. Using a sample of shopping center leases, regression analysis indicates that these tradeoffs are observed in the market.
Mortgage Pricing: Some Provisional Empirical Results
Authors: O'Keefe Michael , Van Order Robert
Published: October 2003

We test some of the qualitative properties of mortgage pricing models. The models use option pricing techniques, focusing on prepayment as a call option. They imply a quite nonlinear relationship between mortgage price and coupon, interest rates and volatility. We test for both the first and second derivatives of the effects of these variables using data on Ginnie Mae mortgage backed securities. We find that the model is largely supported by the data.
The Relationship between Median and Constant Quality House Prices: Implications for Setting FHA Loan Limits
Authors: Hendershott Patric H. , Thibodeau Thomas G.
Published: October 2003

This paper examines the relationship between the asset price of housing and median sales price. We demonstrate: (1) median house prices (as reported by the National Association of Realtors) overstate the increase in constant‐quality house prices by about 2% per year over the 1976–1985 period; and (2) regional differences in median house prices and their rates of increase, respectively, are systematically related to regional differences in real incomes and their rates of increase. We use these results to evaluate the recent proposal to raise the FHA maximum loan limit ceiling from the current ceiling of $124,750 to 95% of the area median house price.
Commuting and Congestion: A Simulation Model of a Decentralized Metropolitan Area
Authors: White Michelle J.
Published: October 2003

In this paper, a simulation model of commuting behavior in a metropolitan area with decentralized employment and congestion is developed. The model is used to explore the linkage between the dispersed land use patterns in U.S. cities and long commuting journeys which cause congestion and air pollution. The results show that increasing the number of suburban subcenters in a metropolitan area could reduce commuting by 15% to 50%. However, only about one quarter of total urban travel is for commuting. Therefore the reduction in total urban travel that could be expected to result from even drastic policy measures to decentralize employment would probably be low—perhaps as small as 5%. Data are also presented giving private versus social costs of commuting per mile in central cities and suburbs.
Research on Real Estate Investment
Authors: Hendershott Patric H. , Haurin Donald R.
Published: October 2003

AREUEA is pleased to acknowledge the financial support of the National Council of Real Estate Investment Fiduciaries (NCREIF) whose members are listed on the preceding page. We also thank Mike Miles for his role in maintaining an excellent relationship between NCREIF and AREUEA over the years. Finally, the editors acknowledge the continuing financial support of their colleges at The Ohio State University and of the Homer Hoyt Institute.
Return Risk and Cash Flow Risk with Long‐term Riskless Leases in Commercial Real Estate
Authors: Geltner David
Published: October 2003

This paper presents a conceptual analysis of some of the key fundamentals that underlie the risk characteristics of commercial real estate returns. In particular, the relationship between the property's return risk and its cash flow risk is explored. This relationship is important because it is the return risk that should matter most to investors, yet it is the cash flow risk or market risk about which we may have the most objective information and the most intuition. This is because real estate assets are generally unsecuritized and trade too infrequently to observe time series of returns (including appreciation) that could be used to directly study the risk characteristics of the returns. By explicitly incorporating the possibility of cash flows governed by riskless long‐term leases, this paper also explores the relationship between lease term and both cash flow risk and return risk.
A Different Look at Commercial Real Estate Returns
Authors: Miles Mike , Cole Rebel , Guilkey David
Published: October 2003

Commercial real estate makes up a relatively small percentage of most institutional portfolios, even though the existing literature has consistently reported attractive risk‐return characteristics that would suggest much larger allocations. This discrepancy has been explained by a perceived lack of comparability between return series calculated for real estate and those calculated for other asset classes. Just as investors actively involved in the futures markets do not consider individual common stocks to be traded continuously, those active in the stock market do not consider real estate to be traded continuously. In both cases, adjustments to reported returns are necessary to achieve a degree of comparability. This study makes such adjustments, using sales data from properties that help comprise the National Council of Real Estate Investment Fiduciaries / Frank Russell Company (NCREIF/FRC) Index to generate a “transaction‐driven” commercial real estate return series. Examination of the risk‐return characteristics of this series shows that it is quite different from traditionally reported real estate return series and far more consistent with risk‐return characteristics that have been reported for other asset classes.
Risk and Return on Real Estate: Evidence from Equity REITs
Authors: Chan K. C. , Hendershott Patric H. , Sanders Anthony B.
Published: October 2003

We analyze monthly returns on an equally weighted index of eighteen to twenty‐three equity (real property) real estate investment trusts (REITs) that were traded on major stock exchanges over the 1973–87 period. We employ a multifactor Arbitrage Pricing Model using prespecified macroeconomic factors. We also test whether equity REIT returns are related to changes in the discount on closed‐end stock funds, which seems plausible given the closed‐end nature of REITs.

Three factors, and the percentage change in the discount on closed‐end stock funds, consistently drive equity REIT returns: unexpected inflation and changes in the risk and term structures of interest rates. The impacts of these variables on equity REIT returns is around 60% of the impacts on corporate stock returns generally. As expected, the impacts are greater for more heavily levered REITs than for less levered REITs. Real estate, at least as measured by the return performance of equity REITs, is less risky than stocks generally, but does not offer a superior risk‐adjusted return and is not a hedge against unexpected inflation.
The Impact of Market Imperfections on Real Estate Returns and Optimal Investor Portfolios
Authors: Liu Crocker H. , Grissom Terry V. , Hartzell David J.
Published: October 2003

This study investigates the consequences of several imperfections associated with real estate markets on pricing and optimal investor portfolios from a CAPM context. CAPM assumptions are relaxed to recognize illiquidity, the consumption and investment attributes of owner‐occupied housing, and a mildly segmented market structure. The study finds that relaxing the CAPM assumptions lead to a separate pricing paradigm for financial assets, income‐producing real estate and owner‐occupied housing respectively, that a “dividend effect” arises for real estate as the result of illiquidity, and that illiquidity reduces the extent to which investors hold real estate in their portfolios.
REIT Advisor Performance
Authors: Howe John S. , Shilling James D.
Published: October 2003

In this article, we examine whether the performance of real estate investment trusts (REITs) is correlated with advisor type. Seven categories of advisors are used in the analysis. All categories exhibit zero or negative performance measures and the average abnormal returns across advisor types are significantly different from each other. We conclude that advisor type is an important determinant of the returns realized by a REIT's shareholders. Additional analysis suggests that firm size and property location may partially explain REIT performance.
Capital Structure Decisions in Real Estate Investment
Authors: Gau George W. , Wang Ko
Published: October 2003

This study examines the financing decisions of real estate investors and the choice of capital structure when acquiring income‐producing properties. Drawing from the literature in finance and real estate, we develop a capital structure model for real estate investment and derive six hypotheses regarding the relationship of the overall loan‐to‐value ratio chosen by an investor to selected characteristics of the investment. The hypotheses are then tested using financing data from a sample of apartment and commercial transactions over a fifteen‐year period in a specific real estate market. The empirical findings strongly support the importance of depreciation deductions, financial distress costs, capital constraints, tax rates, and interest rates as determinants of the capital structure of real estate investors.
Empirical Evidence on Shareholder Value and the Sale‐Leaseback of Corporate Real Estate
Authors: Rutherford Ronald C.
Published: October 2003

This study examines the valuation effect of the sale‐leaseback of corporate real estate on the stock prices of the selling and purchasing firms. The issue tested is whether the sale‐leaseback transaction offers a net benefit to the corporate seller/lessee or purchaser/lessor. The empirical evidence suggests that the sale‐leaseback of corporate real estate has substantial benefits for the seller/lessee common stockholders. Additionally, the sale‐leaseback transaction produces an insignificant loss for the corporate purchaser/lessor.
An Investment Model of the Demand and Supply For Industrial Real Estate
Authors: Wheaton William C. , Torto Raymond G.
Published: October 2003

A recent inventory of industrial building in fifty‐two major metropolitan areas of the country indicates that most such space is either owner occupied or single tenant. This suggests that the production of industrial space may be modeled as a firm “investment” decision. Using the completion date of each inventoried building, we construct a time series of plant completions that moves similarly to some other national investment data. We are able to successfully estimate an “accelerator” type model of plant deliveries, driven by movements in employment and the after‐tax cost of corporate capital. Our model can be used to estimate a measure of excess plant capacity in the market, and historic values of this measure do move parallel to some recent industrial vacancy data.
Optimal Price and Selling Effort from the Perspectives of the Broker and Seller
Authors: Geltner David , Kluger Brian D. , Miller Norman G.
Published: October 2003

This paper uses numerical solutions of a dynamic optimization model to examine the principal‐agent relationship between the seller and broker in residential real estate markets. Potential conflict of interest is quantified in two dimensions, the level of selling effort the broker puts forth, and the reservation price for the property. The dynamic optimization model reveals that the use of a finite duration listing contract will induce the broker to increase his or her effort level compared to an unlimited duration contract, and that the broker's optimal effort will increase over time, becoming greater as the listing contract expiration time draws nearer (“rational procrastination”). The numerical analysis indicates that with plausible parameter values, conflict of interest problems regarding broker effort level are minor or nonexistent near the end of the listing contract, but potentially important near the beginning of the contract. In contrast, the conflict of interest regarding reservation price is more severe near the end of the listing contract and is exacerbated by the use of finite duration contracts, the more so the shorter the contract.
Mortgage Credit Availability, Housing Starts and the Integration of Mortgage and Capital Markets: New Evidence Using Linear Feedback
Authors: McGarvey Mary G. , Meador Mark
Published: October 2003

This paper employs linear feedback measures to examine the relationship between housing starts and the availability of mortgage credit. Estimates are obtained using monthly data with samples ending with May 1978 and beginning with June 1978. The results indicate that mortgage credit availability contributed significantly to short‐run cycles in housing starts in the earlier sample. Such feedback is considerably smaller, however, in the later sample. The results suggest the housing finance sector has become integrated with the overall capital market as the result of the deregulation of thrift deposit rates and the development of the securitized mortgage market.
Testing the Monocentric Urban Model: Evidence Based on Wasteful Commuting
Authors: Thurston Lawrence , Yezer Anthony M. J.
Published: October 2003

Recent papers have questioned the ability of the monocentric urban model to account for urban development patterns. Most damaging are estimates of wasteful commuting that indicate actual commuting may be eight times as large as efficient commuting predicted by the strong form of the monocentric model. This study recomputes previous estimates of wasteful commuting in a monocentric city that relaxes the strong form assumption that all households are identical. The recomputed estimates indicate that actual commuting is only twice as large as efficient commuting, a result generally consistent with the monocentric model.
Determinants of the Rate of Return for Nonresidential Real Estate: Inflation Expectations and Market Adjustment Lags
Authors: Dokko Yoon , Edelstein Robert H. , Pomer Marshall , Urdang E. Scott
Published: October 2003

This paper analyzes the economic forces that determine the real rate of return for nonresidential real estate. Our analysis shows that the intermarket variation in the real rate of return is statistically significant, and the rate of return differs by land use and market area, as well as over time in response to changes in macro‐economic conditions. We use inflation variables as surrogates for changes in macroeconomic conditions over time. In contrast to earlier studies, we find that nonresidential real estate may not outperform expected inflation. We believe that the impact of expected inflation (and other macroeconomic variables) on real estate rates of return depends upon the interaction of the macro‐environment and specific local real estate market conditions. Finally, our empirical evidence suggests that the effects of a given shock dissipate rather quickly in most markets when we take into account locational and property use differences.
An Empirical Analysis of Hedonic Regression and Grid‐Adjustment Techniques in Real Estate Appraisal
Authors: Kang Han‐Bin , Reichert Alan K.
Published: October 2003

Multiple regression analysis has become increasingly popular when appraising residential properties for tax purposes. Alternatively, most fee appraisers and real estate brokers use the traditional sales comparison approach. This study combines the two techniques and uses multiple regression to generate the adjustment coefficients used in the grid adjustment method. The study compares the combined grid‐regression method with ordinary regression and defines the market conditions under which each method is likely to be more effective. The grid‐regression method is found to be more accurate for relatively homogeneous housing markets, and the multiplicative percentage adjustment method (MPAM) the preferred approach.
Stock Market Response to Voluntary Liquidations and Reorganizations of Real Estate Corporations
Authors: Elayan Fayez A. , Maris Brian A.
Published: October 2003

Announcements of voluntary liquidation or reorganization by real estate corporations are analyzed. There is a positive stock price response to announcement of liquidation, and a negative stock price response to announcements of reorganization. Results were the same before and after the 1978 Bankruptcy Reform Act took affect.
A Further Examination of Appraisal Data and the Potential Bias in Real Estate Return Indexes: Comment and Clarification
Authors: Geltner David
Published: October 2003

This comment points out a flaw in Gau and Wang's recent empirical analysis of appraisal return bias and clarifies a point in Geltner's previous article that may have misled Gau and Wang as well as others. In examining appraisal bias in returns it is important to distinguish between cross‐sectional versus time‐series moments. In dealing with time‐series data, both the arithmetic mean and the geometric mean returns offer useful information and can complement each other in correcting for appraisal bias in the first moment of returns series.
Transportation, Sorting and House Values
Authors: Voith Richard
Published: October 2003

In this paper, we examine the importance of accessibility to employment and transportation system attributes for residential location choice, car ownership and house values. Using the 1980 Census of Housing and Journey to Work data merged with transportation system data, we find strong evidence of residential sorting based on employment location. We find that suburban areas with good commuter rail access to the CBD have significantly greater fractions of their labor force working in the CBD, own fewer cars and have higher house prices than similar neighborhoods and houses in census tracts without service. The house value premium is over 6.4%.
Maintenance, Housing Quality, and Vacancies under Imperfect Information
Authors: Read Colin
Published: October 2003

A model of a rental housing market is presented in which landlords economize on the maintenance of housing quality to profit from tenants imperfect information. In a partial equilibrium model that describes tenants by their distribution of minimum acceptable (reservation) quality for units priced at an identical rent, these profits induce entry of new units, resulting in rental vacancies. The equilibrium number of landlords and the market vacancy rate are derived in a free entry, imperfect information equilibrium in which the distribution of rental unit qualities range from the competitive quality to that which would be offered by a monopoly landlord.
Zoning and Industrial Land Values: The Case of Philadelphia
Authors: Asabere Paul K. , Huffman Forrest E.
Published: October 2003

This paper examines the market effects of zoning. Using the hedonic framework, we perform an empirical analysis that shows that lots zoned for industrial use in our study area are associated with a 58% price discount. The paper highlights the outcome of static zoning policies in a dynamic world. As the demand for industrial land in Philadelphia declined (resulting in vacancies), prices fell, but zoning was slow to adjust, therefore land conversion did not occur to re‐equilibrate.
Windfall Gains on the Swedish Housing Market: The Effects of Queueing for a Cooperative Dwelling
Authors: Berger Tommy , Turner Bengt
Published: October 2003

The cooperative housing sector in Sweden consists of one market for new dwellings where the downpayment and rent is fixed, and where the dwellings are allocated through a queue, and one market for used dwellings, where all units are bought and sold freely with a transaction price determined by market conditions. As the transaction price usually exceeds the down‐payment, substantial windfall gains accrue to those achieving a dwelling through the queue. Regression analysis reveals that this ratio is on average nearly three. The ratio varies, however, depending on the local housing market situation. It is argued that the ratio is a better indication on the demand situation in the local housing market than is provided through information on the length of the queue at the municipal exchequer.

A logit analysis is used to find out which households receive these windfall gains. It is shown that the probability of acquiring a dwelling through the queue, and thus capturing the windfall gain, is positively correlated with income and family size. The conclusion is that the cooperative queues do not have a redistributive effect on wealth in society, quite opposite the housing policy intention upon which the Swedish cooperative movement was founded.