bluuebunny/crossref_metadata_2025 huggingface dataset:
Pricing Default Risk in Mortgages
Authors: Epperson James F. , Kau James B. , Keenan Donald C. , Muller Walter J.
Published: October 2003

This paper examines the valuation of fixed‐rate mortgages and the pricing of insurance against default on such mortgages. Both the mortgage and the insurance are treated as compound European put options. A put is the right, but not the obligation, to turn over an asset to another party for a specified payment, and being a European put indicates that this can only occur at a specified expiration date. The mortgage contract, and hence the insurance on it, fit into a European option framework because no rational borrower would ever choose to default until a payment is due. Mortgages are compound options in nature because at each payment data prior to the last one, the borrower either defaults or purchases a new option to default at the next payment date by making the scheduled payment.

Since the current value of the mortgage is affected by options to default in the future, the problem is solved working backwards in time with the value of later options feeding into the earlier ones, so that the process builds on itself in a recursive fashion. Using familiar arguments from option‐pricing theory, the value of any of the assets in the model is expressed as the solution to a partial differential equation, where the terms of the contract yield the appropriate terminal conditions. Standard numerical procedures are then used to produce the value of the mortgage and the insurance under various economic conditions.

The simulations indicate that the prime determinants of the value of the assets considered are the volatility of the house price and the volatility of the spot interest rate. Sensitivity tests show that changing either of these parameters affects the results substantially more than any of the other parameters examined.

The paper completely analyzes the default option and insurance against default on the mortgage. It is one part of a complete model of fixed‐rate mortgages that would allow for both prepayment and default and treat the interaction of the two options. The general approach outlined in this paper can be used to develop such a model as well as to value any mortgage‐related security. In light of the increasing variety and the complexity of such instruments in the market today, the presentation of our approach to these valuation problems is perhaps the most important contribution of the paper.
Valuing ARM Rate Caps: Implications of 1970–84 Interest Rate Behavior
Authors: Hendershott Patric H. , Shilling James D.
Published: October 2003

This paper computes how coupon rates on hypothetical default‐free 1‐ 3‐ and 5‐year adjustable rate mortgages with various caps and teaser rates issued during the 1970–76 period would have had to be set in order for the ARMs to have earned the market rate of return over a 7 1/2‐year holding period. The 1970–84 period includes both a relatively stable interest rate experience (1970–77) and a “worse case” sharply rising rate environment (1977–84). Thus the calculations include the entire gamut of margins that lenders might need to charge for various caps in order to earn the market rate of return. What margins lenders should be charging at any point in time depends on the relative likelihood of future interest rate paths, e.g., the 1970–77 pattern versus the 1977–84 pattern. More formally, the appropriate charge depends on the slope of the yield curve and the perceived volatility of interest rates.
Homeownership Returns, Tenure Choice and Inflation
Authors: Peiser Richard B. , Smith Lawrence B.
Published: October 2003

This paper empirically investigates the impact of inflation on homeownership returns and tenure choice when the assumptions underlying the user cost of housing are modified to reflect separately the effects of unanticipated and anticipated inflation. The analysis demonstrates that when the user cost model is specified to reflect the impact of anticipated inflation on house prices, the mortgage interest rate and the capitalization rate, the returns to homeownership are lower than determined by previous user cost studies and are consistent with a reasonably efficient market.
A Research Note on Discrimination in Mortgage Lending
Authors: Epley Donald R. , Cronan Timothy P. , Perry Larry
Published: October 2003

This paper examines the hypothesis that mortgage lenders rank applications from better to worst and encourage the better ones to apply. A second ranking occurs when the application is ranked by the loan committee and funds are approved from the top of the list until exhausted. A theoretically correct procedure for analyzing the resulting multivariate ordinal data is the little known rank multiple discriminant analysis. Preliminary results have revealed that this technique produces a “best” model with fewer variables and a higher classification rate than the commonly known multiple discriminant analysis, logit, or probit.
Equilibrium of Housing and Real Estate Brokerage Markets Under Uncertainty
Authors: Wu Chunchi , Colwell Peter F.
Published: October 2003

The purpose of this paper is to develop a model of the real estate brokerage and housing markets with imperfect information. The paper considers general equilibrium in these markets with and without a multiple listing service. Input prices are found to affect the equilibrium housing price, brokerage commission, and split factor. The introduction of a multiple listing service is found to have several important effects. The MLS causes housing value to increase, but its effect on the commission rate is indeterminate. Contrary to the results of another paper, MLS brokers, on average, will likely undertake more search for both buyers and listings than will a non‐MLS broker. The primary reasons are related to the greater efficiency of search in the MLS context.
The Incentive Effects of Flat‐Fee and Percentage Commissions for Real Estate Brokers
Authors: Zorn Thomas S. , Larsen James E.
Published: October 2003

This paper analyzes the incentive affects of flat‐fee and percentage commission systems from the perspective of the economic theory of agency. Under a plausible set of assumptions the systems provide equivalent incentives. However, the relative desirability of the two systems depends upon the pricing strategy employed and factors specific to the individual. In general, neither system perfectly aligns the interests of the agent with those of the property‐owner. A surprising result of the analysis is that the optimal listing price when an agent is employed may be below the first‐best price. The first‐best price, or residual maximizing solution to the principal‐agent problem from the perspective of the property‐owner, is the solution that would occur if the agent's interests were perfectly aligned with those of the principal. This study suggests that the use of a percentage versus a flat‐fee commission may be due to information costs rather than price discrimination on the part of brokers.
The Demand and Supply of Mortgage Funds and Mortgage Loan Terms
Authors: Zumpano Leonard V. , Rudolph Patricia M. , Cheng David C.
Published: October 2003

The supply of and demand for residential mortgages has been the subject of much discussion in the literature. Many of these studies have used single equation, partial adjustment models with the price specified as the contract rate. In this study, two of the assumptions that underlie these previous studies are tested empirically. First, the proper specification of the price of mortgage funds is tested by using both the contract rate alone and all of the terms of the mortgage as the price. Second, the speed of adjustment in the mortgage market is examined by estimating the model in both the instantaneous adjustment and partial adjustment forms. Both of these tests are carried out using a simultaneous equation rather than a single equation model. The empirical results indicate that the contract rate along with the loan initiation fees, the loan‐to‐value ratio and the maturity is the better specification of price and that the partial adjustment model performs better than the instantaneous model in the mortgage market.
Mortgage Default Risks and the 1971 San Fernando Earthquake
Authors: Anderson Dan R. , Weinrobe Maurice
Published: October 2003

The paper is based on a study of mortgage default risks associated with natural disasters. These risks are faced by holders of mortgages when forced by default to acquire damaged properties. A sample of residential mortgage properties damaged in the 1971 San Fernando, California earthquake is studied. Some of the mortgagors defaulted while others did not. The paper identifies and analyzes those variables associated with default using discriminant and probit regression analysis. The study concentrates on earthquake exposures in California, but has implications for all major disasters.
An Evaluation of Hedonic Price Indexes for Thirty‐four Large SMSAs
Authors: Blackley Dixie M. , Follain James R. , Lee Haeduck
Published: October 2003

The purpose of this paper is twofold. First, a set of price indexes are developed for thirty‐four metropolitan areas for the years 1975 and 1978. Indexes are also broken down by central city and suburb for twenty two of the metropolitan areas. These indexes measure variation in the price per unit of owner‐occupied housing stock and the price per unit of housing services of rental housing. Confidence intervals are constructed for the price indexes. It is found that the indexes are reasonably precise measures in that the typical ratio of the confidence interval to the predicted median rent or value is about 13%. Also, analysis of the confidence intervals indicates substantial and statistically significant variation in the price of housing stock and services among the metropolitan areas studied.

One of the major benefits of this set of indexes is that it can be used to address one of the most important questions in real estate — Why do housing prices and rents vary among metropolitan areas and over time? Research projects are currently underway that use the data to address these two questions.
Diversification Categories in Investment Real Estate
Authors: Hartzell David , Hekman John , Miles Mike
Published: October 2003

This paper continues previous work evaluating the benefits of diversification and analyzes the various dimensions within the commercial real estate opportunity set. The database is large and extends through the 1982 downturn in property values. Due to the low levels of systematic risk, current distinctions by region and property type make little sense in a world of costly diversification. More exacting categories combining property type, SMSA growth rate and lease maturity offer promise for more efficient diversification within the real estate portfolio.
Estimation of Depreciation for Single‐Family Appraisals
Authors: Cannaday Roger E. , Sunderman Mark A.
Published: October 2003

Methods for the estimation of depreciation within the cost approach to appraisal of single‐family residential property have been the focus of very few empirical studies. The purpose of this study is to generate empirical evidence related to one such method, specifically the age‐life method. Within the context of a hedonic price model, functional form of the model and the design of the age variable are chosen so that we can test for alternative paths of depreciation with just one model. The alternative paths can be concave, convex or straight‐line. Contrary to the evidence presented in several previous studies, the empirical evidence presented in this paper supports a path of depreciation for single‐family houses that is concave (i.e., initially less rapid than straight‐line). Of the standard paths of depreciation often suggested, the reverse sum of the years digits path most closely approximates the path indicated as appropriate by this study, particularly in the early years of the life of a house. If appraisers are looking for an approximation of the path of depreciation for single‐family residences, it would appear that the reverse sum of the years digits path is much more appropriate than the straight‐line path that is often assumed.
Tax Reform and the Value of Real Estate Income Property
Authors: Fisher Jeffrey D. , Lentz George H.
Published: October 2003

This paper examines the effect of recent proposals for tax reform (Treasury I and Treasury II) on the tax benefits and value of real estate income property. The effect on tax benefits is measured by the effective tax rate, and the potential impact on value is measured by the capitalization rate (user cost). The analysis of Treasury I provides insight into the effect of a tax‐neutral system on real estate since this proposal comes close to meeting the criteria of tax neutrality. The importance of debt in evaluating tax neutrality is also shown. The paper demonstrates that the interaction between tax law changes and the way interest rates adjust to inflation are critical to the conclusions.
The Expanding Concept of Just Compensation and the Role of the Appraiser
Authors: Clauretie Terrence M. , Harju Melvin W.
Published: October 2003

Compensation for injury to business profits in eminent domain actions has long been the focus of controversy. Historically, the federal and state courts explicitly excluded profits or goodwill from a determination of an award. Under this scheme the measure of compensation quickly settled on the market value of the condemned realty. Where injury to profits was especially evident, the courts sometimes allowed future returns to the business to be included as a factor which would influence the market value. They also developed, in some states, the “specialty” doctrine where the business was unique in any number of ways. Still, the measures of compensation adopted in these cases may have been inadequate to return the business owner to the same financial position as before a taking.

In this paper, we review an expanded theory of just compensation currently emerging in the courts and indicate the measure of compensation necessary to effectively return the business owner to the same financial position after a taking as before. We also show that traditional awards have been less than adequate in cases where the cash flows accruing to a business are dependent, in some fashion, on the expropriated realty.

Finally, we indicate the nature of awards under a jurisdiction which is unique in the sense that it explicitly requires consideration of all elements of loss resulting from expropriation of business properties. Those awards represent a departure from previous compensation measures and conform to those indicated by the theory developed in this paper. The role of the appraiser is outlined under this expanded system of compensation.
The Value of a Real Estate Franchise
Authors: Frew James R. , Jud G. Donald
Published: October 2003

Franchise affiliation has become common in the real estate brokerage industry. Department of Commerce estimates show that in 1981 about 30% of all real estate brokerage establishments were franchise affiliated. This paper develops and estimates a model of brokerage firm sales, using sample data collected in 1982 for three North Carolina cities. Controlling for the size and experience of the brokerage staff and the experience of the broker, the paper finds that franchise affiliation contributes to firm sales. Affiliation with a national franchise appears to be worth about $930,000 in additional sales to the average firm.
The Investment in Housing As a Forward Market Transaction: Implications for Tenure Choice and Portfolio Selection
Authors: Bosch Jean‐Claude , Morris James R. , Wyatt Steve B.
Published: October 2003

A model of tenure choice is presented which treats the benefits and costs of homeownership from a theory of finance perspective. The incremental benefits from homeownership over renting housing services are from two sources: protection against rental price risk (a forward transaction in the housing market) and from a possible capital gain from the eventual sale of a house (substitutes for portfolio investment). The cost of these benefits is higher initial outlay on housing, which reduces the funds available for portfolio investments. The comparative statics of this model is presented. It is shown that rental risk and portfolio risk add to the value of homeownership. Since homeownership is a partial substitute for portfolio investment, it is shown that the lower the covariance between portfolio returns and future home prices the more valuable is homeownership. In the presence of differential borrowing opportunities it is shown that the leverage available to housing significantly increases the value of homeownership.
The Optimal Mortgage Payment Path Under Price Uncertainty
Authors: Barney L. Dwayne , White Harry
Published: October 2003

It has been shown that in a world of certainty, individuals with rising income streams will choose a graduated payment mortgage over the standard flat payment mortgage. The present paper extends this analysis by introducing uncertainty about future inflation rates. We show that the risk‐averse individual, when faced with uncertainty, will choose a less graduated payment path than in the certainty situation. While not conclusive, the analysis may cast some doubt on the suboptimality of the standard flat payment mortgage.
Adjustable‐Rate Mortgages, Economic Fluctuations, and Lender Portfolio Change
Authors: Lea Michael J. , Zorn Peter M.
Published: October 2003

In this study we examine the effects of economic fluctuations on the repayment behavior of a portfolio of adjustable‐rate mortgages (ARMs). Because the U.S. experience with ARMs is quite recent, we have used data on a form of ARM used in Canada, the rollover mortgage. The results of our analysis suggest that use of ARMs similar to the rollover mortgage may reduce but not eliminate interest‐rate risk for lenders, as borrowers, albeit constrained, prepay above‐market‐rate loans. In addition, we find that the periodic payment change inherent in the rollover mortgage does not lead to higher default rates and, therefore, credit risk.
Mortgage Pricing: What Have We Learned So Far?†
Authors: Hendershott Patric H.
Published: October 2003

Much progress has been achieved in the valuation of call options and mortgages. Preliminary evidence suggests that the observed term structure of interest rates (the full structure, not just the end‐points) and a reasonable estimate of the volatility of spot rates is sufficient for pricing purposes. Knowledge of the precise nature of the interest‐rate process and the exact market price of interest‐rate risk, the not‐well‐identified determinants of the term structure, are not necessary for pricing. Moreover, the number of interest‐rate state variables is also of little import, again holding the term structure and rate volatility constant.
The Resale Housing Market
Authors: Rosen Kenneth T. , Smith Lawrence B.
Published: October 2003

This paper describes and analyzes the structure and operation of the market for existing single‐family homes. The paper develops aggregative models of sales and renovation activity based on the adjustment choice decisions of households to alter their housing consumption by moving or by undertaking renovations. The models demonstrate that housing resales and renovation expenditures occur when the present value of the gains associated with a housing adjustment exceeds the costs of the transaction. The choice of the adjustment mode is shown to be significantly influenced by the relative transactions costs of moving versus renovating.
Canadian Inter‐City House Price Differentials
Authors: Fortura Peter , Kushner Joseph
Published: October 2003

The purpose of this paper is to identify the sources of intercity house price differentials in Canada. The results indicate that demand factors are important explanatory variables; a 1% increase in the income of households raises house prices by 1.11%; higher rates of anticipated inflation result in higher house prices as households increase their demand for real assets such as housing during inflationary periods; and finally, the fraction of households that are non‐family households is positively associated with house prices. These results are in agreement with those of other countries.
An Analysis of Home Equity Conversion in the RAM Program
Authors: Weinrobe Maurice
Published: October 2003

Home equity conversion by elderly homeowners is described and analyzed. The transactions were completed under the California RAM Program. One hundred twenty‐six of 345 applicants elected to enter into reverse mortgages or sale‐leasebacks. Data from interviews conducted as part of the application/counseling process are analyzed to discern the most important variables in the equity conversion decision.
Interest‐Rate Volatility, Basis Risk and Heteroscedasticity in Hedging Mortgages
Authors: Park Hun Y. , Bera Anil K.
Published: October 2003

This paper investigates the validity of the OLS regression to estimate the hedge ratio for mortgages (GNMA) and provides alternative methodologies. In particular, this paper is concerned with the variance structure (conditional and unconditional heteroscedasticities) and the misspecification (nonlinearities) of the simple linear regression model for direct as well as cross‐hedging. Using data on spot prices of GNMA and futures prices of GNMAs and T‐bills for the period September 1979 to January 1985, we show that there exists significant heteroscedasticity particularly for cross‐hedging, and nonlinearity between cash and futures prices for direct as well as cross‐hedging. Alternative hedge ratio estimates are provided using the Box‐Cox transformation model and an autoregressive conditional heteroscedastic (ARCH) Model.
The Borrower's Choice between Fixed and Adjustable Rate Loan Contracts
Authors: Smith Donald J.
Published: October 2003

Previous research indicates that key variables in the choice between fixed and price index‐linked debt are the covariances between inflation and real income and between inflation and the real value of the asset financed by the debt. This model extends those results to adjustable rate loan contracts and examines the impact of covariance between the real interest rate and, in turn, real income and real asset values. Positive (negative) covariance between those terms shifts preference toward the adjustable (fixed) loan contract.
A Contingent Claims Analysis of Price Level‐Adjusted Mortgages
Authors: Kim Taewon
Published: October 2003

This paper examines the performance of alternative mortgage instruments in an environment of stochastic price fluctuations. The two most widely discussed contracts that deal with inflation are the adjustable‐rate mortgage (ARM) and the price level‐adjusted mortgage (PLAM). The former compensates for inflation by paying the nominal interest rate, which contains a component reflecting the rate of inflation. Nonetheless, even without explicit nominal amortization, this results in real amortization and hence a tilting effect. In addition, the inflation component of the nominal interest rate is shown to reflect only anticipated and not actual inflation, and so the real value of an ARM fluctuates due to unanticipated inflation. A PLAM suffers from none of these defects. To the extent that one is interested in a mortgage whose properties reflect the underlying real environment, the price level‐adjusted mortgage is the ideal instrument.
Consumer Welfare Under the Adjustable‐Rate Mortgage: Some Empirical Evidence
Authors: Sa‐Aadu J.
Published: October 2003

The theoretical literature on the economics of mortgage choice holds that consumer‐borrower preference for the ARM depends largely on the FRM‐ARM rate differential. However, there is no empirical evidence as to whether consumers are better off, worse off, or left indifferent with the choice of the ARM relative to the alternative FRM. This paper estimates the windfall gain or loss induced by the FRM‐ARM rate differential in a multiperiod setting. The major results are as follows: (1) on the average consumer‐borrowers reap windfall gain from the use of ARM, (2) but some individual consumers had windfall loss, (3) consumers with ARMs that have periodic interest‐rate caps have significantly higher windfall gain than consumers whose ARMs have no periodic rate caps, and (4) the level of the windfall gain (loss) appears to be correlated with the slope of the yield curve and the level of interest rate.
An Approach to Industrial Real Estate Market Segmentation and Valuation Using the Arbitrage Pricing Paradigm
Authors: Grissom Terry V. , Hartzell David , Liu Crocker H.
Published: October 2003

This paper investigates whether a segmented market exists for industrial real estate with respect to risk and return characteristics. Given the existence of industrial market segmentation, the next issue examined is whether a submarket perspective or an integrated real estate market orientation provides better rate of return estimates for individual industrial properties using an Arbitrage Pricing Theory (APT) framework. The results support the existence of regional markets for industrial real estate. A submarket orientation rather than an integrated perspective is also found more appropriate in predicting returns on industrial real estate.
A Test of Weak‐Form Efficiency in Residential Real Estate Returns
Authors: Rayburn William , Devaney Michael , Evans Richard
Published: October 2003

This paper tests weak‐form efficiency of residential real estate returns for the city of Memphis, Tennessee. The database for the study is comprised of the population of all sales of single‐unit residential property over a fifteen‐year period, 1970–1984. The city was divided into ten submarkets based on Memphis City Planning Commission planning districts. An analysis of variance procedure was utilized to stabilize the variance both within and across submarkets and nonmarket financing was partially controlled by eliminating transactions with loan‐to‐value ratios greater than 95%. The remaining transactions were then used to generate a mean return series. The advantage of the mean over the single transaction series used by Gau is that it represents the most likely outcome for the investor trying to duplicate investment performance since “property unique” features would be expected to cancel. Seven of the ten submarkets exhibited time patterns; however, after adjusting for transaction costs, all ten submarkets were determined weak‐form efficient for the period 1970–1984. This was not true for the short horizon holding period, 1970–1975. In four sub‐markets an asymmetric version of Alexander's filter rule was able to outperform a buy‐and‐hold, even for round‐ trip transaction costs as high as 10%.
Office Building Investment and the Macroeconomy: Empirical Evidence, 1973–1985
Authors: Kling John L. , McCue Thomas E.
Published: October 2003

Given the recent concern about overbuilding in the office sector, this paper considers the influence that macroeconomic factors have upon office construction. Because office construction is volatile and because the “time to build” problem requires construction to change with a lag, the paper employs a different methodology, vector autoregressions, to model the office building sector. The findings indicate that anticipated output has a large and direct effect. This effect depends on the predictive content of nominal interest rates, suggesting that the declines in nominal rates over the past five years explains the recent overbuilding.
Local Economic Base, Geographic Diversification, and Risk Management of Mortgage Portfolios
Authors: Corgel John B. , Gay Gerald D.
Published: October 2003

Variability of local economic conditions underlie, in part, the default and prepayment risks of mortgages originated in a metropolitan area. In this study we examine the benefits of diversifying across metropolitan areas for reducing these risks. Employment data for the thirty largest metropolitan areas in the United States, divided into eight industry groups, are analyzed with the aid of factor and principal component analysis to determine if the variances of employment changes across the thirty areas are independent. Independence is investigated to assess the potential for diversification. Mean‐variance portfolio analysis is then used to measure the gains from geographic diversification vis‐a‐vis a set of several alternative strategies for diversification. We conclude that geographic diversification is an important mortgage portfolio objective and that mean‐variance strategies outperform the alternative strategies tested here.
Toward the Development of an Urban Growth Model that Recognizes the Importance of the Basic Nature of Services
Authors: Huffman Forrest E. , Warner Arthur E.
Published: October 2003

This exploratory research examines selected service sectors of a defined local economy. Using export base theory, preliminary models linking these services sectors to exogenous influences are developed. These models are found to be statistically diverse. Further model‐building efforts should recognize the heterogeneous nature of services through disaggregation of services sectors and a thorough consideration of potential exogenous variables.
Surpluses in Disequilibrium Urban Land Markets
Authors: Harris Curtis C. , McConnell Virginia D.
Published: October 2003

It is unlikely that urban land markets are in equilibrium. If land markets are out of equilibrium, zones within an urban area would have residential location surpluses. This paper shows how to derive and estimate an index of income surplus by residential zone. The procedure is applied to the Baltimore Metropolitan Area for 1978. Households should be at attracted to zones with high surpluses. A comparison of the estimated location surpluses and growth rates for the Baltimore area show this correspondence.
An Analysis of Post‐Deregulation Savings‐and‐Loan Failures
Authors: Rudolph Patricia M. , Hamdan Bassam
Published: October 2003

A number of studies have looked at the financial characteristics of problem or failed savings and loans but none have used data taken exclusively from the post‐deregulation period. In this paper, the financial characteristics of savings and loan associations that failed during the period 1984‐II to 1985‐I are analyzed, using both univariate difference in means tests and multivariate logistic regression. Both the known unequal population prior probabilities and the estimated unequal misclassification costs are taken into account in the logistic regression. The empirical results are compared to those of recent studies by Benston [7] and Barth, Brumbaugh, Sauerhaft and Wang [5]. The financial ratios that significantly affect the probability of failure are different in the three studies.
A Comparison of the Reinvestment Risk of the Price Level Adjusted Mortgage and the Standard Fixed Payment Mortgage
Authors: Houston Arthur L.
Published: October 2003

The purpose of this paper is to increase the understanding of the risk of the indexed mortgage, commonly referred to as the price level adjusted mortgage (PLAM). This is accomplished by comparing, analytically, the reinvestment risk of the PLAM and the standard fixed‐payment mortgage (FPM) under conditions of stochastic inflation and real interest rates. The conclusion is that the PLAM has less reinvestment risk. From the viewpoint of an investor concerned with periodically reinvesting payment streams, the PLAM is the superior mortgage.
Rent Seeking in a Static Model of Zoning
Authors: Ault Richard W. , Ekelund Robert B.
Published: October 2003

This paper uses a traditional, static view of zoning to illustrate the costly, rent‐seeking behavior that results from zoning. A simple graphical model is developed and used to illustrate the size of rent‐seeking costs when various levels of development are permitted and when different schemes are used by zoning authorities to allocate development permits. The model shows that allocation schemes designed to minimize rent‐seeking fail to allocate permits to the highest‐valued users. Zoning models that ignore the costs of rent‐seeking and misallocation are found to seriously overstate the potential gains from zoning.
A Note on the use of Appraisal Data in Indexes of Performance Measurement
Authors: Giliberto S. Michael
Published: October 2003

This paper demonstrates that even when unbiased appraisals of market value are used in measuring the investment performance of real estate portfolios, a bias in the rate of return or index is present. Further, in the case where the appraisal errors are serially independent, the bias is always positive. The potential for bias in a standard rate of return formula is described. Some implications for portfolio formation and investment manager comparisons are discussed.
Resource Combination and Security Price Reactions: The Case of Real Estate Joint Ventures
Authors: Ravichandran R. , Sa‐Aadu J.
Published: October 2003

Joint ventures are a commonplace occurrence in the U.S. economy. In particular, firms undertaking real estate projects frequently use the joint venture as a method of combining resources. This paper examines security price reactions around real estate joint venture announcements. The evidence indicates that significant increases in the values of the participating firms occur within a two‐day announcement period. The changes in values appear to be due principally to the amount of information about the local real estate market possessed by the participating firms, and an information signal about the potential financial viability of the proposed project conveyed by the presence of anchor tenants. While the results are important in their own right, they are also significant in another respect. They seem to confirm the efficiency with which the capital market processes information about the markets for trading real estate claims.
Adjustments in the Real Estate Market
Authors: Hendershott Patric H. , Haurin Donald R.
Published: October 2003

AREUEA is pleased to acknowledge the support of the National Association of REALTORS in the preparation of this issue. We are particularly grateful to John Tuccillo, Senior Vice President and Chief Economist at NAR, for recognizing the importance of this research area and encouraging these studies. The editors would also like to acknowledge the continuing support of their colleagues at The Ohio State University and of the Homer Hoyt Institute.
Advertising and Natural Vacancies in Rental Housing Markets
Authors: Read Colin
Published: October 2003

We formulate a model that explains vacancy durations arising from lags in matches between the suppliers and demanders of housing units. We emphasize rental housing markets in this exposition although the model could be extended to competitive or noncompetitive rental or home‐ownership markets. In the case of rental markets, if tenants do not immediately inform landlords upon initiating search for a new unit, landlords are delayed in their search for a new tenant. These matching delays induce a positive natural vacancy rate that cannot be reduced to zero, even in competitive markets. Price‐taking landlords are, however, able to affect the resulting vacancy duration through advertising in a Cournot‐Nash equilibrium and will, in general, invest in inefficient levels of advertising. As a consequence, there may be a role for public policy to provide incentives that would induce noncooperative landlords to choose the vacancy cost‐minimizing advertising solution.
Vacancy Rates and the Future of Office Rents
Authors: Wheaton William C. , Torto Raymond G.
Published: October 2003

This research confirms the existence of a strong vacancy rental adjustment mechanism in the market for office space, such as has been found in housing markets. Using national time‐series data, we find that real office rents drop approximately 2% annually, for every percentage point of “excess vacancy” in the market. We also find that the definition of “excess vacancy” has been trending upward over time. Using a recent vacancy forecast suggests that office income streams seem likely to decline in both real and nominal dollars over the next few years.
The Demand for Housing Additions: An Empirical Analysis
Authors: Ziegert A. L.
Published: October 2003

Little is known of a household's decision to make a housing addition despite the large and growing size of these expenditures. This paper examines this decision in a two‐step empirical process: first, those factors that influence the probability of a housing addition are determined, and second, the value of the addition made is analyzed. Preliminary results indicate that unmet housing consumption needs, but not the investment potential of housing additions, have a significant impact on both the probability of an addition and the value of an addition made. Furthermore, ceteris paribus, non‐white households have a greater probability of making a housing addition, and on average, spend more on housing additions than do white households.
TYPES IN SLn
Authors: GOLDBERG DAVID , ROCHE ALAN
Published: October 2003

Let $G = SL_n(F)$ where $F$ is a non-Archimedean local field. This paper concerns the smooth (complex) representation theory of $G$, specifically, the construction of types in $G$, in the sense of Bushnell and Kutzko. The main result describes a type for each non-supercuspidal component of the Bernstein decomposition of $G$. If this is combined with earlier work of Bushnell and Kutzko, it follows that $G$ admits a complete set of types.

2000 Mathematical Subject Classification: 22E50.
ALGEBRAIC CYCLES ON REAL VARIETIES AND ℤ/2-EQUIVARIANT HOMOTOPY THEORY
Authors: SANTOS PEDRO F. DOS
Published: October 2003

In this paper the spaces of algebraic cycles on a real projective variety $X$ are studied as $\mathbb{Z}/2$-spaces under the action of the Galois group ${\rm Gal}(\mathbb{C}/\mathbb{R})$. In particular, the equivariant homotopy type of the group of algebraic $p$-cycles $\mathcal{Z}_p(\mathbb{P}_{\mathbb{C}}^n)$ is computed. A version of Lawson homology for real varieties is proposed. The real Lawson homology groups are computed for a class of real varieties.

2000 Mathematical Subject Classification: primary 55P91; secondary 14C05, 19L47, 55N91.
Sequence Diversity ofTreponema pallidumsubsp.pallidum tprKin Human Syphilis Lesions and Rabbit-Propagated Isolates
Authors: LaFond Rebecca E. , Centurion-Lara Arturo , Godornes Charmie , Rompalo Anne M. , Van Voorhis Wesley C. , Lukehart Sheila A.
Published: October 2003

ThetprKgene ofTreponema pallidumsubsp.pallidum, the causative agent of venereal syphilis, belongs to a 12-member gene family and encodes a protein with a predicted cleavable signal sequence and predicted transmembrane domains. Except for the Nichols type strain, all rabbit-propagated isolates ofT. pallidumexamined thus far are comprised of mixed populations of organisms with heterogeneoustprKsequences. We show thattprKsequences in treponemes obtained directly from syphilis patients are also heterogeneous. Clustering analysis demonstrates that primary chancretprKsequences are more likely to cluster within a sample than among samples and that tighter clustering is seen within chancre samples than within rabbit-propagated isolates. Closer analysis oftprKsequences from a rabbit-propagated isolate reveals that individual variable regions have different levels of diversity, suggesting that variable regions may have different intrinsic rates of sequence change or may be under different levels of selection. Most variable regions show increased sequence diversity upon passage. We speculate that the diversification oftprKduring infection allows organisms to evade the host immune response, contributing to reinfection and persistent infection.
Molecular Evolution of thedotAGene inLegionella pneumophila
Authors: Ko Kwan Soo , Hong Seong Karp , Lee Hae Kyung , Park Mi-Yeoun , Kook Yoon-Hoh
Published: October 2003

The molecular evolution ofdotA, which is related to the virulence ofLegionella pneumophila, was investigated by comparing the sequences of 15 reference strains (serogroups 1 to 15). It was found thatdotAhas a complex mosaic structure. The wholedotAgene ofLegionella pneumophilasubsp.pneumophilaserogroups 2, 6, and 12 has been transferred fromLegionella pneumophilasubsp.fraseri. A discrepancy was found between the trees inferred from the nucleotide and deduced amino acid sequences ofdotA, which suggests that multiple hits, resulting in synonymous substitutions, have occurred. Gene phylogenies inferred from three different segments (the 5′-end region, the central, large periplasmic domain, and the 3′-end region) showed impressively dissimilar topologies. This was concordant with the sequence polymorphisms, indicating that each region has experienced an independent evolutionary history, and was evident even within the same domain of each strain. For example, the PP2 domain was found to have a heterogeneous structure, which led us hypothesize that thedotAgene ofL. pneumophilamay have originated from two or more different sources. Comparisons of synonymous and nonsynonymous substitutions demonstrated that the PP2 domain has been under strong selective pressure with respect to amino acid change. Split decomposition analysis also supported the intragenic recombination ofdotA. Multiple recombinational exchange within thedotAgene, encoding an integral cytoplasmic membrane protein that is secreted, probably provided increased fitness in certain environmental niches, such as within a particular biofilm community or species of amoebae.
Molecular Characterization of the Mg
2+
-Responsive PhoP-PhoQ Regulon in
Salmonella enterica
Authors: Lejona Sergio , Aguirre Andrés , Cabeza María Laura , Véscovi Eleonora García , Soncini Fernando C.
Published: October 2003

The PhoP/PhoQ two-component system controls the extracellular magnesium deprivation response in
Salmonella enterica
. In addition, several virulence-associated genes that are mainly required for intramacrophage survival during the infection process are under the control of its transcriptional regulation. Despite shared Mg
2+
modulation of the expression of the PhoP-activated genes, no consensus sequence common to all of them could be detected in their promoter regions. We have investigated the transcriptional regulation and the interaction of the response regulator PhoP with the promoter regions of the PhoP-activated loci
phoPQ
,
mgtA
,
slyB
,
pmrD
,
pcgL
,
phoN
,
pagC
, and
mgtCB
. A direct repeat of the heptanucleotide sequence (G/T)GTTTA(A/T) was identified as the conserved motif recognized by PhoP to directly control the gene expression of the first five loci, among which the first four are ancestral to enterobacteria. On the other hand, no direct interaction of the response regulator with the promoter of
phoN
,
pagC
, or
mgtCB
was apparent by either in vitro or in vivo assays. These loci are
Salmonella
specific and were probably acquired by horizontal DNA transfer. Besides, sequence analysis of
pag
promoters revealed the presence of a conserved PhoP box in 6 out of the 12 genes analyzed. Our results strongly suggest that the expression of a set of Mg
2+
-controlled genes is driven by PhoP via unknown intermediate regulatory mechanisms that could also involve ancillary factors.
Characterization of the Integrase Gene and Attachment Site for the
Myxococcus xanthus
Bacteriophage Mx9
Authors: Julien Bryan
Published: October 2003

Bacteriophage Mx9 is a temperate phage that infects
Myxococcus xanthus
. It lysogenizes the bacteria by integrating into the bacterial chromosome by site-specific recombination at one of two sites,
attB1
or
attB2
. Integration at
attB1
results in deletion of DNA between the two
attB
sites. The
attB2
site lies within the 5′ region of the
M. xanthus
tRNA
Gly
gene. Mx9 integration requires a single protein, Int. Analysis of integration revealed that the phage attachment site (
attP
) is contained in the
int
gene and that upon integration, the 3′ end of the
int
gene is altered. Plasmids containing fusions of the
pilA
or
mgl
promoter to
lacZ
integrated at either Mx9
attB
site have higher levels of transcription than the same fusions integrated at the Mx8
attB
site.
A New Heat Shock Gene,agsA, Which Encodes a Small Chaperone Involved in Suppressing Protein Aggregation inSalmonella entericaSerovar Typhimurium
Authors: Tomoyasu Toshifumi , Takaya Akiko , Sasaki Tomomi , Nagase Takahiro , Kikuno Reiko , Morioka Mizue , Yamamoto Tomoko
Published: October 2003

We discovered a novel small heat shock protein (sHsp) named AgsA (aggregation-suppressing protein) in the thermally aggregated fraction from aSalmonella entericaserovar TyphimuriumdnaK-null strain. The −10 and −35 regions upstream of the transcriptional start site of theagsAgene are characteristic of σ32- and σ72-dependent promoters. AgsA was strongly induced by high temperatures. The similarity between AgsA and the other two sHsps ofSalmonellaserovar Typhimurium, IbpA and IbpB, is rather low (around 30% amino acid sequence identity). Phylogenetic analysis suggested that AgsA arose from an ancient gene duplication or amplification at an early evolutionary stage of gram-negative bacteria. Here we show that overproduction of AgsA partially complements the ΔdnaK52thermosensitive phenotype and reduces the amount of heat-aggregated proteins in both ΔdnaK52and ΔrpoHmutants ofEscherichia coli. These data suggest that AgsA is an effective chaperone capable of preventing aggregation of nonnative proteins and maintaining them in a state competent for refolding inSalmonellaserovar Typhimurium at high temperatures.
Description and Interpretation of Adaptive Evolution of
Escherichia coli
K-12 MG1655 by Using a Genome-Scale In Silico Metabolic Model
Authors: Fong Stephen S. , Marciniak Jennifer Y. , Palsson Bernhard Ø.
Published: October 2003

Genome-scale in silico metabolic networks of
Escherichia coli
have been reconstructed. By using a constraint-based in silico model of a reconstructed network, the range of phenotypes exhibited by
E. coli
under different growth conditions can be computed, and optimal growth phenotypes can be predicted. We hypothesized that the end point of adaptive evolution of
E. coli
could be accurately described a priori by our in silico model since adaptive evolution should lead to an optimal phenotype. Adaptive evolution of
E. coli
during prolonged exponential growth was performed with M9 minimal medium supplemented with 2 g of α-ketoglutarate per liter, 2 g of lactate per liter, or 2 g of pyruvate per liter at both 30 and 37°C, which produced seven distinct strains. The growth rates, substrate uptake rates, oxygen uptake rates, by-product secretion patterns, and growth rates on alternative substrates were measured for each strain as a function of evolutionary time. Three major conclusions were drawn from the experimental results. First, adaptive evolution leads to a phenotype characterized by maximized growth rates that may not correspond to the highest biomass yield. Second, metabolic phenotypes resulting from adaptive evolution can be described and predicted computationally. Third, adaptive evolution on a single substrate leads to changes in growth characteristics on other substrates that could signify parallel or opposing growth objectives. Together, the results show that genome-scale in silico metabolic models can describe the end point of adaptive evolution a priori and can be used to gain insight into the adaptive evolutionary process for
E. coli
.