Yet the buying public (which includes many major investors) assumes that the real estate agent has the answers. This book addresses the issues of analyzing real estate with a variety of potential readers in mind.
CHAPTER 1
BASIC MARKET ANALYSIS CONCEPT—AN OVERVIEW
Market analysis must be linked to an understanding of the psychology of the various players. Market analysis is a crucial part of the initial feasibility study for a real estate project, but it does not end there.
MARKET STUDY AND FEASIBILITY STUDY
THE DISTINCTIONS
These five questions—which include questions of supply and demand—are at the heart of market research. Some believe that [an analyst's] role should be limited to answering the question "how much is it worth?". and leaving the question "will it work?" to others.”7.
WHAT SHOULD A MARKET AND FEASIBILITY STUDY CONTAIN?
A ten year pro forma must be used, based on an assumed sale of the property at the end of year 10. Addendum: This section is used for all supporting documents such as plans, maps and materials to support other sections of the report. .
THE FIRST STEP IN THE MARKET STUDY
MARKET AREA
However, a careful study of the market area can reveal that the results are not always as obvious as they may seem at first glance.
CASE STUDY: BELLIS FAIR, WASHINGTON STATE
The market area for tenants can be drawn from the immediate area as well as from other areas. The border between the US and Canada (or between two states) is artificial in terms of market area.
THE SECOND STEP IN MARKET ANALYSIS
Be aware of the differences between artificial boundaries (county boundaries, state boundaries, etc.) and built boundaries such as highways that cut through neighbors, defining or limiting a market area. Be careful about making undocumented assumptions about the correct size of a development or the size of an existing market area.
SITE EVALUATION
For example, you may need to evaluate a site within the context of a county's inventory of land that shares the same zoning. You may discover that opponents will use GMA rules to prevent new development even when zoning is appropriate.
THE THIRD STEP IN MARKET ANALYSIS
You may win the point, but delays and legal fees can make it less viable. When comparing one location to another in GMA states, you may need to limit your location evaluation to available land within the existing city boundary, or be prepared to prove the necessity of your development beyond that boundary.
DEMAND FACTORS
While in most cases we may assume that a properly zoned land implies implicit approval for your development, this is not necessarily the case. You may need to include local political demand for development as part of your demand analysis.
THE FOURTH STEP IN MARKET ANALYSIS
This is understandable; development is change, and change is often resisted for no other reason than because it is seen as negative by some people. This problem is common in many areas, but the range of problems associated with antigrowth sentiment in residential development (and especially against low-income housing) is particularly severe.
EXISTING SUPPLY FACTORS
Broadly based assumptions should be rejected and the market research should be based on the local reality and the economic mix. This is essential if the study is to truly identify the market in terms of supply and demand.
THE VALUE OF THE FEASIBILITY STUDY
So the assumptions that are part of the feasibility study are based on the market study. Second, the assumptions used in the feasibility study must be the result of a market study.
WHO USES MARKET ANALYSIS?
One of the possible outcomes of a feasibility study is the finding that the project, as originally conceived, does not work financially. The latter is effective if it includes elements of a market study and a feasibility study; however, it becomes extremely effective when information and conclusions are presented in a way that provides the project vision that is so important.
THE GOOD AND THE BAD ON STUDIES
CHAPTER 2
It explains how analysis becomes an integral part of your business plan and its underlying assumptions; how the scientific method is applied to the study of real estate markets; and how to use facts in the context of three distinct versions of real estate supply and demand. However, once we've mastered the theories—which means we at least know what questions to ask—a more challenging concept is how to make that information useful and practical.
FACTORS AFFECTING MARKET ANALYSIS—
BEYOND THE NUMBERS
An investment in exceptional design can generate dividends in future market value; therefore, the market analysis must take into account the design philosophy of the developer and architect. Local support or opposition to the project. The issue of local attitudes towards new development cannot be ignored in the feasibility of the project.
THE ANALYTICAL PROCESS
In carrying out these steps, it is all too easy to derail the scientific method. These possible areas that affect the reliability of the market study - and possibly also other conclusions - demonstrate that the scientific method is a useful tool to avoid inaccurate conclusions in the study of supply and demand.
MARKET ANALYSIS AND BUSINESS PLANNING
In the real estate market analysis process, both market and product must be treated as potential variables. We cannot handle real estate market analysis in the same way as the business plan.
THE KEYS TO MARKET ANALYSIS
While we do not suggest that the importance of business planning should be ignored, we emphasize that it is not the same as market analysis. Developers, architects, designers, builders and lenders or investors all need the precise level of definition for both markets and financial forecasts derived from market analysis.
SUPPLY AND DEMAND
While most people are aware of the basics of real estate supply and demand, they may not appreciate the trends that underlie and are reflected by the same forces. It is also essential to recognize that supply and demand of property (reflected in the prices of properties, the time they remain on the market, and comparisons between listed price and final sale price) are not always the same as the rental market's supply. and question
THE NATURE OF ECONOMIC CONDITIONS
CHAPTER 3
This chapter presents the valuation principles that determine market value; fundamentals of evaluation science; and significant economic and political trends affecting the valuation. In the economic sense, the market value has a specific definition - the current value of the future benefits realized by ownership. 1.
PRINCIPLES OF REAL ESTATE VALUATION
Contribution tells us: "Improvements add to market value as a factor of current supply and demand, and not necessarily based on actual cost." The principle of contribution can also be defined as being governed by both increasing returns and decreasing returns. In other words, improvements to property will cause some growth in market value (increasing returns), but when improvements exceed that level, return on investment begins to decline (diminishing returns).
MEASUREMENTS OF VALUATION
CHAPTER 4
We introduce these important issues in this chapter and also study the anti-development movement known as NIMBY (Not In My Back Yard), demonstrating how analytics in real estate is not just economic; it can also be political. Focus groups, buyer surveys and other qualitative techniques complement the hard data of the market research.
HOME OR CONDO?
At the same time, the buyer together with the other unit owners buys an “undivided interest” in the common elements of the building or development. Each of the unit owners is responsible for paying a proportionate share of the building's fuel costs, building employee salaries and other operating expenses.
VALUATION FACTORS UNIQUE TO RESIDENTIAL PROPERTY
So in theory (and with the same down payment) the monthly commitment for a $200,000 condo would be equivalent to buying a $250,000 home outright. In general, this refers to supply and demand; however, there is more to the equation.
CASE STUDY: ANTHEM, PHOENIX, AZ
In many of the gated communities in the area, the dominant market is retirement age. More than 7,000 people attended a preview of the first phase and around 300 homes were sold in the first week.
TRADE AREA ANALYSIS
Certainly, a significant portion of the typical housing market will simply not buy the property at any discount because they simply will not live in such an area under any circumstances and have no interest in buying, renting or reselling such properties. 10. The trade area was defined as 80 percent of students with a local residential address.
MARKET CHARACTERISTICS OF RESIDENTIAL PROPERTY
Absorption predictions were made by looking at the way students would progress through school, with the understanding that upperclassmen would be more likely to live off campus.
CASE STUDY: SONOMA VILLERO, BOTHELL, WA
Therefore, it is much less reliable to look at only one trend to draw conclusions about the current state of the housing market. This is even more subtle than the obvious comparison: if two developers build residential buildings in the same market, it is not realistic for.
CASE STUDY: EAST LAKE COMMONS, DECATUR, GA
The most important thing in a local research on supply and demand is the realistic analysis of the market. The difference will be visible in the price of real estate, population trends and the fundamental supply and demand for new homes.
CASH FLOW ANALYSIS OF RESIDENTIAL PROPERTIES
Since the property was purchased below market price, the idea here is that the cash flow will be healthy. The idea solves the cash flow problem, but may not be practical for other reasons.
LOCAL OPPOSITION AS A MARKET FACTOR
A possible solution is to rent out a second home for the part of the year that it is not used as a second home. It is thus possible to create rental income to cover the costs of owning the second home for part of the year, while creating a partial tax break.
CASE STUDY: SNOW HILL CITIZENS FOR DECENT HOUSING
CHAPTER 5
The total value of real estate (excluding single-family homes) in the United States was $5.275 trillion in 2004, of which 44 percent were apartments.1 The distribution among apartments and other types of real estate is summarized in Figure 5.1. If other builders are currently building 150 units, it may be reasonable to argue that our project will be justified by 25 percent of demand (50 out of 200 new tenants, based on trends and expected tenant growth).
THE LOW INCOME HOUSING MARKET
The problem with using such lists to identify demand is that any conclusions will be exaggerated. The tendency to assume that a new project will meet all new demand is simply unrealistic.
CASE STUDY: THE YARDS, PORTLAND, OREGON
Today, 40 percent of all multifamily developments include some level of eligible LIHTC units. The rules require one of two standards: Either 20 percent or more of the apartments in a development must be occupied by tenants with incomes below 50 percent of the median income; or at least 40 percent of the units must be occupied by those whose income is at or below 60 percent.
FACTORS AFFECTING MULTI-UNIT MARKET ANALYSIS
Thus, a market area study must include a realistic analysis of the actual supply and demand market. The shape of the market will probably not be round, but rather will follow the development and traffic factors, the location of jobs and the competitive factors: the existence of competing or planned apartments within that realistic market area.
CASE STUDY: THE SOLAIRE, NEW YORK
This occurred despite the September 11 disaster and the building's proximity to Ground Zero. We again point to the extreme example of The Solaire to make this point.
CASH FLOW ANALYSIS FOR MULTI-UNIT HOUSING
If the cash flow assumption was based on market and feasibility studies, there is a two-pronged concern: the possibility that the market has changed, and the possibility that the assumptions in the initial studies were wrong. When performing a cash flow analysis, it is important to be aware of how the predictable tenant base will perform.
THE OCCUPANCY ISSUE IN MULTI-UNIT CASH FLOW ANALYSIS
In fact, rent increases and occupancy/vacancy trends provide different types of market indicators. In some cases, the highest average vacancy rates also report higher than average rent increases.11.
CASE STUDY: THE VILLAGES, FLORIDA
CHAPTER 6
This chapter provides guidelines for analyzing retail properties with these questions in mind. By definition, the valuation of retail properties depends on the elements of a customer base, both individually and relative to competing retail areas.
AN OVERVIEW OF RETAIL MARKET ANALYSIS
The Mall of America is one of the most visited destinations in the United States, attracting more visitors annually than Disney World, Graceland and the Grand Canyon combined. Modern shopping centers thus include entertainment and comfort as an important part of the shopping experience today.
FURTHER ANALYSIS FOR RETAIL SPACE
Analysis of the competitive environment in which the store or shopping center must operate. The driving force is, of course, the identification of the number of consumers and their income levels.
FEATURES OF THE RETAIL AND SERVICE MARKET
There, the retail market area and retail trade area are narrowly defined to include the city itself and nearby Mandan. While the Bismarck and Mandan metros have an immediate market area of about 73,000 people, the retail trade area is very diverse.
CASE STUDY: LAS VEGAS HILTON, LAS VEGAS, NV
ANALYSIS OF RETAIL SUPPLY AND DEMAND
Some areas, such as the southern Florin Road area of the city, are characterized by a mix of less successful large malls, but more active malls. We can also wonder if Old Sac – as the locals call it – actually competes with another urban retail project, Arden Fair, an upscale venue on the north side of town.
IDENTIFYING THE REAL MARKET
For example, in the previously cited example of Bellis Fair Mall—located less than 30 miles from the British Columbia border—all the stores accept Canadian funds without hesitation, and cash registers are set up to change between U.S. a certain type of retail demand definitely exists in a densely populated area, this does not necessarily mean that a certain type of store will succeed there.
CONVERSATION WITH THE CASHIER AT THE STORE
For example, your analysis can reveal retail sales totals as well as allocated purchasing power. Thus, available statistics on purchasing power and total retail sales could not be reliably translated from the US.
HIGHEST AND BEST USE AS A DISTINGUISHING ANALYTICAL POINT
The most important consideration in determining the highest and best use is the market itself. An analysis involving the highest and best use study would need to take into account factors such as local incentive allowances.
TRENDS IN RETAIL MALL DESIGN
CHAPTER 7
Combined, office and industrial real estate is the largest commercial real estate market in the United States. Of the different types of property, office and industrial sales accounted for 62 percent of the entire market for the year 2002.
CASE STUDY: PIER 1, SAN FRANCISCO, CA
Public access is allowed to the building as a maritime resource, which also enabled the developer to obtain historic preservation tax credits (equivalent to 20 percent of the construction cost via tax credits). The developer was therefore able to reach an agreed compromise with the state to expand tenant uses beyond maritime uses.
CASE STUDY: 4 TIMES SQUARE, NEW YORK, NY
The usual analysis of an office-based space may not apply to the combined use of office and industrial park development. It may be more common to find a concentration of employees in the production area of such combined facilities, with office space required only for wait staff/clerks and a few members of management.
INDUSTRIAL AND SERVICE-ORIENTED REAL ESTATE ATTRIBUTES
These generalizations can be useful to the analyst in distinguishing between these classifications. The analyst's opinions and market conclusions may be influenced by the amount of local space and the size of the local industrial market.
CASE STUDY: 25, ALBUQUERQUE, NM
A facility designed to dock transfers from ship to truck, truck to rail, or all three—so-called intermodal facilities—will need to be designed with a host of requirements in place. Designers of industrial docking spaces must research these complex requirements and understand them as part of the overall design.
HEAVY INDUSTRIAL PROJECTS
CHAPTER 8
This chapter explains how this market should be analyzed and how this process cannot be carried out in the same way as other sectors. The timeshare industry alone, a small part of the housing classification, has grown from its inception in the 1960s to more than 5,000 locations worldwide just 40 years later.
AN OVERVIEW OF THE INDUSTRY
The congress grounds can therefore offer completely different facilities than a family holiday hotel; and a highway property may be more competitive on price and accessibility (as well as proximity to restaurants, gas stations, and the needs of other travelers), while a convention center may need to offer sports venues, live shows, superior dining, and other amenities. other amenities many would call distractions, but those can ultimately determine whether a guest prefers one location over another.
ANALYSIS FOR THE LODGING INDUSTRY
CASE STUDY: RITZ-CARLTON HOTEL, NEW YORK, NY
But these are impractical given the nature of the market – and consequently the nature of defining the market area itself. The term itself – market area – implies a geographical distinction; and in the case of residential or retail, this is true.
CASE STUDY: OCEAN DOME AT THE SEAGAIA RESORT, MIYAZAKI, JAPAN
When identifying demand trends, the analyst must understand that demand can be defined by a particular convenience. They can be used for business meetings, anniversaries, weddings and parties or simply for extravagant holidays.
PRIORITIES IN HOTEL MARKET ANALYSIS
As important as a room vs. guest analysis is, in an efficient lodging market – one where supply and demand levels hover around the same levels – it's not the room that makes the difference; are the amenities. October is the most popular month for those hotels in the convention market.
CASE STUDY: BURNHAM HOTEL, CHICAGO, IL
CHAPTER 9
This chapter provides analytical guidance based on examples and case histories, and examines the trend in different mixed-uses. The analysis of mixed-use projects is complex because it involves additional market dimensions; in addition, mixed use can have many different aspects.
IMPORTANT GUIDELINES FOR MIXED-USE PROJECT ANALYSIS
Merging the residential, recreational, and retail aspects creates a community identity that seeks to give residents a sense of belonging—not necessarily to the state or county, but to the particular community itself.
MODERN PLANNING TRENDS
For example, even in areas where practical constraints make some mixed-uses impractical, comprehensive plans remain in place. Even when communities determine that mixed use is a positive idea, it's not always practical.
KEYS TO ANALYSIS FOR MIXED USE
Residential: While residential use is at the center of many mixed-use projects, it is often difficult to make work of it. Developers will experience relatively low returns on homes, so it may be desirable to avoid including these homes in the mixed-use project.
ZONING SOLUTIONS FOR MIXED USE
The real trend toward mixed use is partly a response to the loss of identity, the replacement of downtown with the suburban mall. It may be somewhat accurate to distinguish between housing densities and separate residential zoning as a form of mixed use; but for practical purposes it makes more sense to review the analysis and feasibility of mixed use based on broad zoning classifications.
CASE STUDY: AOL TIME WARNER BUILDING, NEW YORK, NY
The AOL Time Warner building would never be described as an affordable mixed-use project. This example highlights the complexity of analyzing mixed-use projects: there are many types.
CASE STUDY: THE COMMONS AT GRANT, COLUMBUS, OH
