Thesis Research
2004 Theses Abstracts
Following are a selection of theses abstracts by members of the Class of 2004. Join MITREX (The MIT Real Estate Exchange) to download complete theses. For non MITREX members, theses can be purchased from the MIT Libraries.
The Determinants of Office Tenant Renewal
Rebecca Asser
Abstract
Turkish REITs: An Overview of the Industry
and its Performance
Can Aydinoglu
Abstract
Site Selection Criteria in Community
Shopping Centers: Implications for Real
Estate Developers
Benjamin T. Brubaker
Abstract
Creating Sustainable Air Rights Development
Over Highway Corridors: Lessons from
the Massachusetts Turnpike in Boston
Bonnie E. Campbell
Abstract
Predictability of Returns in Commercial
Real Estate - Implications for Investment
Decisions
Kyung Seok Cho
Abstract
Redeveloping Lawrence, Massachusetts’
Historic Mill District - Insights into
Adaptive Reuse in Untested Residential
Markets
Heather Clark
Abstract
Governance Issues and Default Resolution
in Commercial Mortgage Backed Securities
Jacob A. Darling
Abstract
The Feasibility of Residential Development
in the Newly master Planned Ship Creek
Area of Anchorage, Alaska
Shaun T. Debenham
Abstract
New Spaces for Living and Working in
the Creative Economy
Krystal Ann England
Abstract
Inclusionary Housing Requirements in
California: Examining the Economic Impact
on Three Cases
Matthew Foss
Abstract
In a Fiscally-Constrained Legislative
Environment, are Project-Based Section 8 Vouchers
an Overlooked Vehicle for Affordable Housing
Production?
David Pedro Garcia
Abstract
Mixed-Use Development: A Development
Case Study
Christian Gardner
Abstract
Towards a Pan-European Property Index:
Methodological Opportunities
Friederike Helfer and Markus Witta
Abstract
University-Affiliated Retirement Community
Development: A Resource for Universities
Christopher B. Helsabeck and David
B. Ritchey
Abstract
Valuing Flexibility in Large-Scale Real
Estate Development Projects
Jihun Kang
Abstract
Convert! The Adaptive Reuse of Churches
Christopher John Kiley
Abstract
REIT-Based Pure-Play Portfolios: The
Case of Property Types and Geographic
Locations
Eui-Hoe Kim
Abstract
The Rental and Occupancy Performance
of Historic Office Buildings Rehabilitated
for Tax Credit
Melissa E. Kroeger
Abstract
Site Plan Review in the Commonwealth
of Massachusetts: Authoritative Abuse
or Administrative Method for Regulation
Charles Frederick Leatherbee
Abstract
Redevelopment of Southern Mill Towns:
A Study of Georgetown, South Carolina
Robert L. Morgan
Abstract
Vacant and Underutilized Land
in Boston
Alison E . Mori
Abstract
International Real Estate Investments
by US Pension and Endowment Funds
Michael J. Mullins
Abstract
The Functional Perspective of Financial
Innovation and Real Estate
Trevor T. Murray
Abstract
Real Options Theory and the Pricing
of Residential Land-Use Rights in Shanghai
Victor L. H. Sheen
Abstract
Creating Construction Cost Indices and
Examining Their Cyclic Behavior
William Eric Simonton
Abstract
The Low-Rated CMBS Market: Mortgage
REIT, Financial Innovation and Policy
Lessons from the Asian and Russian Financial
Crisis
Yi Su
Abstract
Discerning Alpha Investments in Downtown
Manhattan’s Asset Market: The Financial
Feasibility of Office-to-Residential
Redevelopment and the Planning Implications
for Lower Manhattan Economic Development
Sung-Min Thomas Suh
Abstract
Outsourcing, Offshoring and the US Office
Market
Tanya M. Topolewski
Abstract
A Reevaluation of NCREIF Performance
Charles Aldrich Walsh
Abstract
The Variation of Capitalization Rates
across Submarkets within the Same Metropolitan
Area
Yisheng Yu
Abstract
The Determinants of Office Tenant Renewal
Rebecca Asser
Thesis supervisor: William C. Wheaton, Professor,
Department of Economics
This study empirically examines the historical probability of renewal for nearly three hundred properties across forty-one Metropolitan Statistical Areas throughout the United States. It then investigates the factors that affect the office tenant renewal decision using linear and probit regression models.
Through statistical analysis, several factors emerge as influential in the renewal decision, including the size of the occupied space, the level of employment in the market, as well as location. Logical building characteristics such as the age of the space and the size of the building did not appear to have as large of an impact on renewal probability. For the more than 15,000 individual leases in this study, the overall renewal probability was lower than expected. However, the regression analysis has revealed some explanation of the difference between the actual results and the industry accepted renewal probability rate of 75%.
Turkish REITs: An Overview of the Industry and its Performance
Can Aydinoglu
Thesis supervisor: David Geltner, Professor of Real
Estate Finance, MIT Center for Real Estate
This thesis aims to provide insight into the emerging real estate investment trust (REIT) sector of Turkey, the reasons underlying its creation, its legal and economic evolution and its performance since the commencement of the REIT Sector Index in January 2000.
The paper utilizes a combination of quantitative methods and qualitative discussion in order to identify and analyze some of the key issues that define the current situation of the Turkish REIT industry. The paper can be viewed as a composition of two main parts.
The first part provides a qualitative discussion of the emergence of REIT, how it is legally structured and how it fits into the broader real estate markets as well as the Turkish capital markets, particularly the stock market.
The second part expands on the quantification of the REIT industry. This section also includes the application of the Modern Portfolio Theory to examine how REIT stocks individually and as an industry fit into optimal risky portfolios at various risk and return preferences both based on their actual inflation adjusted stock returns and on their net asset value returns.
Site Selection Criteria in Community Shopping Centers: Implications for Real Estate Developers
Benjamin T. Brubaker
Thesis supervisor: Brian A. Ciochetti, Professor
of the Practice of Real Estate
The purpose of this paper is to investigate retail site selection criteria in community centers and ascertain the implications of these criteria for the retail real estate developer. Historically, real estate developers contemplating the development of a community center will acquire a site based on hunches, experience, and a limited amount of data. Real estate academics, on the other hand, have produced numerous mathematical models and methods for retail site selection. However, to the real estate developer the retail community shopping center has remained elusive. Not only will developers oftentimes face the prospect of site selection without a complete picture of who their tenants will be, but they will be left to their own experience to understand in depth the needs and preferences of typical community center tenants.
This paper will explore current methods and site selection criteria used by leading community center tenants for site selection and will investigate how that information can be implemented by the developer to improve their approach to retail site selection.
Creating Sustainable Air Rights Development Over Highway Corridors: Lessons from the Massachusetts Turnpike in Boston
Bonnie E. Campbell
Thesis advisor: Eran Ben-Joseph, Associate Professor
of Landscape Architecture and Planning
Research and practice have shown that air rights development over highway corridors in America’s cities is not only feasible, but desirable. As planners, policy makers and consumers attempt to curb the sprawling development pattern that was characteristic of the second half of the twentieth century, the development of the air space over urban highway corridors is emerging as a beneficial type of development that promotes revitalization and can be more sustainable than other types of redevelopment.
As the advantages of air rights development over highway corridors become increasingly apparent, more projects and proposals are surfacing in cities nationwide. However, while this development pattern can contribute to urban revitalization, it is also unique from other types of infill and redevelopment. Air rights development is complex and requires special scrutiny and treatment from a planning and policy perspective, a distinct understanding of urban design and attention to neighborhood context, and specific development principles for construction and financial feasibility. This thesis describes these unique considerations both generically and through analysis of the Massachusetts Turnpike in Boston. It examines three cases: a completed air rights development, a planned development that has gone through the permitting phase, and a proposed air rights development as it seeks the path of least resistance for development.
In this examination, a set of “best practices� and recommendations is proposed to advance the feasibility of this unique type of development. The recommendations aim to make air rights development over highway corridors more sustainable, more predictable, and more systematic in improving the urban environment. Chief among these recommendations include: the implementation of a robust and predictable regulatory framework to control the outcome of air rights development; design guidelines to ensure connectivity and contextualized development that also reflect realistic assumptions about financial feasibility and development intensity; and a systematic air rights lease negotiation process and framework that links leasing liabilities to future development revenues.
Predictability of Returns in Commercial Real Estate - Implications for Investment Decisions
Kyung Seok Cho
Thesis supervisor: David Geltner, Professor of Real
Estate Finance
Prior studies suggest that variations of returns in all assets can be predicted to some extent. This study extends the subject of predictability of returns to commercial real estate. The main purpose of the present study is to investigate whether private real estate is predictable and the level of predictability associated with real estate return sufficient to realize superior investment performance by market timing. The study examines commercial real estate both at the aggregate level and in markets for four major property types in the United States. A rolling regression using a vector autoregressive model is employed to forecast returns and estimate the predictability of commercial real estate. Then the forecast model is used to construct simple rules regarding market timing.
The classical efficient
market theory suggests that there is
little to be gained by timing investment,
and little hope to consistently beat the
market since asset prices already reflect all
information available in the market.
However, the fact that returns in commercial
real estate are predictable raises the
possibility of market timing. The potential
to use a market timing strategy
based on the predicted returns to achieve
superior investment performance is of
interest to practitioners since it suggests
a more efficient method for investment
portfolio allocation.
The findings of the study suggest that commercial real estate returns are predictable to a certain extent and, although not statistically convincing, that the level of predictability associated with commercial real estate can be used to direct market timing decisions and achieve superior performance relative to a passive buy and hold portfolio. However, predictability of returns tends to decrease at the disaggregate property market level as the markets have smaller sample sizes and more exposure to idiosyncratic risk.
Redeveloping Lawrence, Massachusetts' Historic Mill District - Insights into Adaptive Reuse in Untested Residential Markets
Heather Clark
Thesis supervisor: Lorlene Hoyt, Assistant Professor,
Department of Urban Studies and Planning
Lawrence, Massachusetts is one of a number of post-industrial cities in the northeastern United States that has the potential to convert underutilized industrial buildings into a valuable community asset, namely housing. Yet, despite a plentiful supply of historical industrial buildings, the increasing popularity of residential mill conversions, and a strong housing market in eastern Massachusetts, no mill has been converted for the purpose of housing in Lawrence in the last decade. This thesis argues that if mill owners take action and partner with developers to undertake redevelopment, and partner with community development organizations and the local government, key barriers to development in Lawrence could be dismantled in order to prepare the mill district for redevelopment.
Targeted primarily at mill owners and community development organizations in Lawrence and similar cities, this thesis identifies key barriers to residential redevelopment that exist in untested residential conversion markets like Lawrence. It then provides recommended solutions to overcome those barriers, learned from other conversion projects within a 50 mile radius of Boston. In doing so, this thesis demystifies the development process to help mill owners and community development organizations acquire a more realistic vision for the redevelopment of the mill district. In the process, it also gives mill owners a better understanding of their options in terms of whether to sell or partner with a developer and describes how community development organizations may contribute to the mill district’s redevelopment.
From this research, two main conclusions are drawn. First, development in the mill district must be approached with cautious optimism – the prospect for success is high due to current market conditions and grassroots efforts, yet so is the risk. Professional developers will likely need to be involved in redevelopment, either on their own or as partners with mill owners. This is because the risk of residential redevelopment in the mill district is high in comparison to similar projects in other cities, and the margin between achievable prices and costs is tight. An experienced developer with significant financial resources and a proven track record needs to participate to increase the probability of success, and to magnify the benefits of redevelopment for mill owners, the community, and future residents of the mill district.
The second and final conclusion is that mill owners, developers, local government, and community development organizations need to continue the precedent for collaboration set forth by participatory planning efforts like the Reviviendo Gateway Initiative, a community development coalition. In doing so, Lawrence’s mill district will distinguish itself from mill conversions in other cities. Collaboration should be directed to marketing to cultural creatives, a marketing term that includes people who may be interested in such areas as the arts, cohousing, green building, and social activism. Marketing to these groups will generate demand for housing in the mill district, and ensure that the mills become home to residents who will become socially and financially invested in the city. Collaborative efforts should also continue to follow the path established by other Lawrence efforts, which is one of resident involvement. By involving residents in the planning process, as well as by helping current residents purchase or rent in the mill district, current Lawrence residents will be prepared to enjoy the success of the mill district’s redevelopment. In the long term, this approach could create a major turnaround in Lawrence and build an initiative that helps the city emerge again as a regional cultural center.
Governance Issues and Default Resolution in Commercial Mortgage Backed Securities
Jacob A. Darling
Thesis supervisor: Lynn Fisher, Assistant Professor
of Real Estate
With the increasing role of CMBS in commercial real estate lending, it has become crucial to understand the agency and governance risks that are created with the CMBS servicing structure. This study is an investigation of three key relationships within CMBS servicing, (1) between the servicers and different investor classes, (2) between the master servicer and the real estate owner/borrower, and (3) between the special servicer and the real estate owner/borrower. Through interviews with industry professionals and careful reading of the documentation that drives CMBS governance structures, the study reveals several different conflicts of interest that could significantly impact both the cash flow available to various trust investors and the underlying value of the real estate asset securing the mortgage.
The Feasibility of Residential Development in the Newly master Planned Ship Creek Area of Anchorage, Alaska
Shaun T. Debenham
Thesis supervisor: Brian Ciochetti, Professor
of the Practice of Real Estate
The aim of this thesis is to determine if a 40 unit condominium complex located in the Ship Creek area in Anchorage, Alaska, is financially feasible. Historically, Ship Creek has been an industrial area but recently the Alaska Railroad has master planned the area and hopes to entice developers to revitalize the area into a vibrant pedestrian friendly "village." Because Ship Creek is close to downtown, Ship Creek, Cook Inlet, and recreational trails, development in this area could be very desirable.
A Market Analysis performed for this area determined that Anchorage's economy should continue with slow gradual growth. Also, it was forecasted that the demand for new condos in 2005 will be 340 units and that the supply of new condos will be 358. The proposed project will target the empty nester age group.
Construction on the project is assumed to start in the third quarter of 2004 and end four quarters later in 2005. The benefit value of the development is calculated to be $9,887,988. Therefore the Net Present Value of the project is +$95,087. A positive NPV means the project should be pursued. An IRR for the Net Cash Flows (all equity) was calculated to be 20% and the IRR for the equity contributor was calculated to be 59%.
Although the "numbers" indicate that the project should be pursued, the numbers can not incorporate one important risk. Ship Creek is far from the vision created in the master plan. The proposed project risks being the first major redevelopment in the area.
The proposed project is cautiously recommended. Due to Anchorage's dwindling supply of developable land, Ship Creek will eventually be redeveloped. Ship Creek's close proximity to downtown, combined with the belief that Anchorage has unmet demand for empty nester housing, makes the Ship Creek area attractive. However, because this development is one of the first major redevelopments in the area it is risky.
New Spaces for Living and Working in the Creative Economy
Krystal Ann England
Thesis supervisor: Susan C. Silberberg, Lecturer
in Urban Design and Development
With economic development agencies and city planners increasingly aware of the role of the arts in local economies, artist housing appears to be an essential step in the cultivation and retention of an arts community. While artists' lofts are typically thought of as converted post-industrial structures, there is a need for new construction in areas where postindustrial structures are too expensive, not suitable for conversion, or nonexistent. This thesis looks at new construction of artist housing from the developer's standpoint to discover how developers can create new live/work space for artists. It explores the development of three new artists' live/work projects (The Banner Building in Seattle WA, Laconia Lofts in Boston MA, and ARTBLOCK 731 in Boston MA) to determine how and why a developer should consider building new artists' live/work space.
The thesis begins with a brief review of the various forces which have led to the arts' recognition as a significant economic driver at the national, regional, and community levels. It then analyzes the space needs of artists at the individual level. These needs are contrasted with those of the developer who is faced with the challenge of developing new space for artists under regulatory and financial constraints.
The three case studies inform a framework of conditions under which artists' live/work space should be considered and developed. The cases indicate the need for a certain degree of government involvement in artists' live/work development, including land use policies and building codes to enable the creation of suitable spaces, as well as subsidy to incentivize the development of affordable spaces. On the other hand, too much city oversight and regulation is seen to lead to unnecessary costs and lower project-level affordability. The built case studies illustrate how new artists' projects can revitalize neighborhoods and how professional developers are best prepared to assume the challenges of developing artists' live/work space.
Inclusionary Housing Requirements in California: Examining the Economic Impact on Three Cases
Matthew Foss
Thesis supervisor: Henry Pollakowski, Research Associate
California has recently seen massive housing price gains and rental cost increases due to demand outstripping supply. This trend is echoed throughout the state, and is reflected in the resulting increase in costs to homebuyers and renters. Determining and implementing methods for increasing the supply of housing affordable to families and workers has become a priority for many public, non-profit, and private organizations.
Two primary tools are available to municipalities in California seeking to encourage or require the production of affordable housing: density bonuses and inclusionary housing requirements. Density bonuses are mandated by state law, and allow developers who set aside a minimum percentage of the residential units in a project as affordable to take advantage of a subsequent 25 percent increase in density. The density bonuses are often also packaged with other incentives, such as fee reductions or streamlined permitting processes. Inclusionary housing requirements mandate that a certain percentage of any new residential units be sold at affordable levels. The density bonus program can be viewed as the 'carrot' to encourage affordable housing development, while inclusionary housing requirements are the 'stick'.
As housing prices and rents have risen, they have captured the attention of the media and the public. And as inclusionary housing requirements have become more and more common, they too have received much attention from the media and the public, as well as from private and non-profit organizations arguing for their particular interests. Even with the wide attention that inclusionary housing requirements are receiving, available information continues to be primarily qualitative, with little empirical project-level evidence of the true costs and impacts of such programs. Accordingly, there is little documentation showing what the actual impacts are, only predicted impacts. The goal of this study is to determine and evaluate these impacts.
In a Fiscally-Constrained Legislative Environment, are Project-Based Section 8 Vouchers an Overlooked Vehicle for Affordable Housing Production?
David Pedro Garcia
Thesis supervisor: Peter Roth, Lecturer, Department
of Architecture
In a legislative environment where increased funding for affordable housing is highly improbable, the affordable housing industry is left with the task of trying to assist additional families with static funding levels. One way to accomplish this daunting task is it to try and identify existing affordable housing programs that are not fully optimized, to increase their efficiency. One program that could be made more effective and efficient is the Project-Based Section 8 Voucher program. This thesis considers the Project-Based Section 8 Voucher program in the context of federal affordable housing programs, to better understand how this program was created and how it is currently being implemented. It provides examples of how the program is best used in an affordable housing transaction to maximize loan proceeds that can be used to fund additional rehabilitation, add social services, enhance property amenities, or simply fill an existing project financing gap. The thesis also considers the impact of this program on lenders, developers, public housing authorities / HUD, tax credit investors, and residents. The thesis culminates with several recommendations on how HUD could make this a more effective program.
Mixed-Use Development: A Development Case Study
Christian Gardner
Thesis supervisor: David Geltner, Professor of Real
Estate Finance
The following thesis is written as a case study of a proposed urban lifestyle center in Salt Lake City, Utah. Union Pacific in 1998 issued an RFP for their 40-acre rail yard. Developers were invited to submit offers to purchase and develop the property.
This thesis will seek to provide the reader a summary of the events and critical elements that go into a developer's decision-making process. The reader will be asked at the end of the thesis to analyze the materials and recommend a course of action. The thesis seeks to explore real estate development topics such as, construction financing, private-public partnerships, market analyses, architecture/design, construction, permanent financing, mixed-use developments, and leasing.
Towards a Pan-European Property Index: Methodological Opportunities
Friederike Helfer and Markus Witta
Thesis supervisor: David Geltner, Professor of Real
Estate Finance
This study examines the methodological opportunities of index construction for the Pan-European property index, whose release is planned by the company Investment Property Databank (IPD). To address the question of temporal aggregation in appraisal indices, three index construction methods, namely "Stale Appraisal", "Linear Interpolation", and "Repeated Measures Regression", are tested for their accuracy in dealing with infrequent appraisals. Our model is based on a simulation approach, calculating appraised indices from a simulated "true index" of randomly generated returns, and directly comparing the statistical characteristics of these index returns to the true return.
As broader context, this paper also gives an overview of the current theories in respect to general valuation issues on a disaggregate, aggregate and international level. We also investigate the European real estate market regarding currently applied market size measuring, structure and country performance. In particular, we explore crucial valuation issues that are relevant for the planned Pan-European property index to obtain the respect of the international investment community.
University-Affiliated Retirement Community Development: A Resource for Universities
Christopher B. Helsabeck and David B. Ritchey
Thesis supervisor: Peter Roth, Lecturer, MIT Department
of Architecture
The primary purpose of this thesis is to provide universities with a resource for understanding university-affiliated retirement community development. The initial chapters provide a brief introduction to the trend, including a summary of macro-level demand factors, synopsis of the components of the typical development model, and general outlook.
Thereafter, three university-affiliated retirement communities are studied: Oak Hammock at the University of Florida, The Village at Penn State, and Lasell Village at Lasell College. For each case, factors explored include project background, marketing strategy, financial structure, design, programmatic synergies with the university, tenure, services, operations and organizational structure. Research conducted includes interviews with university administrators, developers and other project participants as well as site visits, and reviews of project documentation. Case studies also include a summary of the university's role in the project and an analysis of critical success factors for each.
The thesis concludes with lessons and observations believed to be important to universities contemplating or presently engaged in such a project.
Valuing Flexibility in Large-Scale Real Estate Development Projects
Jihun Kang
Thesis supervisor: David Geltner, Professor, Real
Estate Finance and Investment, Chairman, Interdepartmental
Degree Program in Real Estate Development
This thesis aims to develop a set of strategic tools for real estate development projects. The conventional tools such as the Discounted Cash Flow (DCF) method fail to incorporate dynamics of real estate development processes. As a result, their application to real world situation is quite limited. Two methods are introduced to deal with this inadequacy of the DCF method. Decision Tree Analysis (DTA) employs a management science approach to analyze flexibilities and corresponding strategies from management decision making perspective. Real Options Analysis (ROA) aims to apply theories of valuing financial derivatives to real assets and it allows investors to quantitatively analyze flexibilities. Each technique has advantages and shortcomings and should only be used for appropriate situations. DTA is suited for analyses of project specific risks that are not directly related to the overall market. ROA is a superior tool when risks are originated from the uncertainties of markets. Applying both tools in practice requires rather simplified assumptions, and it is crucial to understand them to make the analyses meaningful.
The thesis finds that incorporating flexibilities in decision making into an analysis is especially important for large-scale and multi-phase projects. The DCF method treats the later phase projects as if they are fully committed at the present time. This assumption of full commitment is rarely the case in the real world practice, and as a result, the DCF method systematically undervalues future phases in multi-phase projects. The case study of New Songdo City reveals that the value of flexibility is a critical factor for the analyses of large scale projects, especially when there is a lot of market uncertainties involved. Based on the conventional DCF method, New Songdo City has a hugely negative NPV and should not be pursued. However, the ROA and the DTA approaches show that it has a potential for creating enormous value by incorporating flexibilities of the project.
Convert! The Adaptive Reuse of Churches
Christopher John Kiley
Thesis supervisor: Dennis Frenchman, Professor of
the Practice of Design
This thesis examines the phenomenon of vacated churches and analyzes the major issues underlying their adaptive reuse in order to help promulgate an awareness of the range of successful strategies and solutions that are available to stakeholders who are interested in seeing a former church building preserved through its conversion to a new use.
The reuse potential of a church is affected by the building typology and its structural condition, the stakeholders involved, the process used, the regulatory context, finance and site issues. Reuse potential for a church can also be informed by researching and documenting examples of previously successful reuse strategies. These issues are examined closely in this thesis, as is a case study of a successful public-private church redevelopment project in Brookline, MA.
The results of the research and analysis are used to form a series of findings and recommendations regarding the reuse of churches. The recommendations include combining funding sources, engaging the congregation and the public, retaining the appropriate kind of developer for the end goal, undertaking public-private redevelopment processes and the importance of identifying interim solutions. The recommendations are tested for credibility by applying them to a real situation in Plymouth, MA while working with a team of developers to asses the reuse potential of a historic church for a downsizing congregation.
REIT-Based Pure-Play Portfolios: The Case of Property Types and Geographic Locations
Eui-Hoe Kim
Thesis supervisor: Henry O. Pollakowski, Research
Associate, Center for Real Estate
Over the last 20 years the REIT industry has
made remarkable progress in terms of the
magnitude of market capitalization and
management performance. However, it is
difficult for investors to precisely target
their investments because publicly traded
REITs diversify their assets across property
types and geographic locations. This research
has explored the concept
and methodology of a REIT-based pure-play
portfolio. This portfolio is defined as
an optimal combination of long and short
positions in publicly traded REITs, such that
the portfolio can
replicate the investment returns to a specified
target sector without any direct exposure
to other sectors while minimizing the idiosyncratic
risk component of the portfolio. This thesis
constructed pure-play portfolios across
four property types and four geographic
locations using seven years of structural
information on publicly traded REITs. For
comparison with the privately held property
market, NCREIF sub-indices which represent
also four property types and four geographic
locations are used. In addition to the
construction of pure-play portfolios, the
performance indices of REIT-based pure-play
portfolios and private property-based NCREIF
sub-indices are presented.
The Rental and Occupancy Performance of Historic Office Buildings Rehabilitated for Tax Credit
Melissa E. Kroeger
Thesis supervisor: William C. Wheaton, Professor,
Department of Economics
Prior to the mid-1970’s enactment of federal
tax incentives designed to dove-tail the
interests of developers and preservationists,
the plight of historic structures seemed
bleak. Recognizing that
preservation had become a national imperative
that could not be accomplished in a meaningful
way without significant private investment, the
federal government enacted a tax incentive
program to encourage developers to rehabilitate,
rather than eliminate, historically significant
commercial buildings. In brief, the tax
legislation attempted to make preservation
profitable despite the additional costs
and the sacrifice of leasable space.
The financial
performance of buildings rehabilitated
for tax credit has not been examined in
the United States. Whether these buildings
garner higher rent or attain higher occupancy
rates as a
consequence of their architectural and
historic appeal remains unclear. Answering
this question is critical to an understanding
of the full economic value of rehabilitation
tax incentives and is the basis of this
thesis study.
Twenty-six historic properties
located within fifteen different metropolitan
markets in thirteen states were compared
against their respective modern counterparts
on the basis of asking rent,
occupancy rates, and rent capture rates
to address the hypothesis. It was determined
that the historic set did not perform as
well, on average, as the competitive set
in any category. General explanations for
their underperformance are examined and
recommendations are offered for future
study that could confirm or challenge these
initial results.
Site Plan Review in the Commonwealth of Massachusetts: Authoritative Abuse or Administrative Method for Regulation
Charles Frederick Leatherbee
Thesis supervisor: William C. Wheaton, Professor,
Department of Economics
Site Plan review has been accepted by the judicial
system in the Commonwealth of Massachusetts
as a means for regulating land use. However,
it is often mistaken as a mechanism provided
by statutory law and therefore used by
many communities to reject and/or impose
unreasonable conditions on proposed projects.
This thesis will argue that the site plan
review process is strictly an administrative
tool when used alone; merely to offer suggestions
by
regulating authorities for proposed developments.
Furthermore, it will be argued that this
process is often misused my municipalities.
The history of zoning within the Commonwealth
will be provided in order to establish
the constitutionality of zoning as it relates
to regulatory measures. Additionally cases
where the courts have attempted to reconcile
the administrative method that is site
plan review with the actual authority vested
to municipalities under the Zoning Act
will be discussed to support this argument.
The Special Permit process will also be closely analyzed as it is often associated and confused with the site plan review process in order to conclude that the site plan review process is a distinct regulatory measure unto itself. Additionally, sections from zoning by-laws from a few communities will be discussed to prove that site plan review under particular zoning by-laws is not supported by statutory law when used alone primarily because the site plan review process is not recognized by Chapter 40A.
Redevelopment of Southern Mill Towns: A Study of Georgetown, South Carolina
Robert L. Morgan
Architecture Thesis Supervisor: John P. de Monchaux,
Professor of Architecture and Urban Planning
Center for Real Estate Thesis Supervisor: Lynn Fisher,
Professor, Assistant Professor of Real Estate
The Georgetown Steel Company (GSC), located
in Georgetown, South Carolina, closed and
filed for bankruptcy in October 2003. GSC
has only been operating since the late
1960s; therefore, it
does not contain masonry warehouse structures
that have a clear conversion value. Its
borders, however, include a scenic river
with deep water access and a historic downtown.
GSC’s predicament is not unique, as the
news of closing mills has become commonplace
in the southeastern United States. The
American industrial base that initially
started in the northeast
and moved south is now relocating to
cheaper international locales. When these
mills close, it leaves a devastating hole
within the community, with lost jobs, abandoned
mega-structures, and polluted sites.
As the United States shifts to a service
based economy, smaller southern towns like
Georgetown that were favored by industries
will have to fight for their survival.
Situations
such as the GSC’s offer a tremendous
amount of despair, but at the same time,
an incredible opportunity. As the mills
are closing, large numbers of people are
relocating to the southeast from the northeast
and Midwest. Many locations in the southeast
are exploiting their natural resources
and are becoming either a destination spot
for the wealthy (both in tourism
and the second home market), or a new
home for retirees and those seeking an
improved quality of life.
Through Georgetown,
South Carolina, this thesis explores
the disappearing southern mill town and
its transformation to alternate uses.
I have analyzed this transition in terms
of design,
planning, and redevelopment. Issues
such as growth patterns, urban densification,
appropriate use, rehabilitation, brownfield
remediation, economic viability, and social
responsibility have been explored. While
I have focused on Georgetown, my goal is
to provide a body of research that can
be utilized by towns facing similar transitions.
Vacant and Underutilized Land in Boston
Alison E. Mori
Thesis supervisor: Dr. Lynn Fisher,
Assistant Professor in Real Estate Development
This paper considers how to define “vacant� and “underutilized� land by looking to various concepts employed by urban planners and real estate professionals. Geographic Information Systems (GIS) is then used to observe the assessed property tax value, current use and zoning constraints of parcels as compared to neighboring land in the South End neighborhood of Boston, Massachusetts. Case studies of three specific pieces of real estate are examined to help identify the constraints faced by sample parcels and to compare to assessment findings. Finally, a brief summary of select recommendations to deal with such urban real estate is offered in light of the case evidence.
The concept of vacant land often calls forth negative images of despair and decay, but this is due to the fact that underutilized land frequently is not identified until it has already become a problem. In truth, such land can be an asset just as much as a detriment for cities as they have the power to lend to or detract from the economic health and perception of a city. By looking at assessment data and other qualitative factors, planners, real estate professionals and economists can begin to systematically identify such land, understand why it is held in an underutilized state and thus create more efficient and effect methods of dealing with potential problem parcels.
International Real Estate Investments by US Pension and Endowment Funds
Michael J. Mullins
Thesis supervisor: David Geltner, Chairman, Interdepartmental
Degree Program in Real Estate Development
The last decade has seen a renewed interest and resurgence in private IRE investments by US institutional investors. Pension Plan Sponsors and Endowment Funds have sought out foreign real estate to accomplish a variety of goals, such as increased diversification, higher returns, and the pursuit of unique investment opportunities. This thesis attempts to shed light on the current state of IRE investing by such investors. The paper begins with a review of published and unpublished literature on the subject, followed by analysis of an investor survey conducted by the author. A total of 14 Pension Fund Plan Sponsors, Endowment Fund managers, Pension Fund Consultants, Fund Managers, and Investment Managers participated in the study. The results of the survey describe what the current investment practices of US institutional investors are, what reasoning is behind those practices, and what their future investment plans are. The last portion consists of conclusions about these findings and a discussion of future trends in IRE investing may emerge as a result.
The Functional Perspective of Financial Innovation and Real Estate
Trevor T. Murray
Thesis supervisor: Lynn Fisher, Assistant Professor
of Real Estate
Two broad schools of thought dominate theories regarding financial innovation. One seeks to explain the process of security design in terms of relatively static organizations creating and promoting their wares and services competitively, generally in response to shifts in technology, taxes or regulation. The other approach stems from an understanding of the basic universal functions the financial system is called upon to deliver. I argue that the latter perspective is a more robust and adaptable framework for explaining the process of innovation. Furthermore, this functional perspective explains why cyclical shifts in certain sectors such as real estate stimulate the need for new and innovative financial products.
Real Options Theory and the Pricing of Residential Land-Use Rights in Shanghai
Victor L. H. Sheen
Thesis supervisor: David Geltner, Professor, Real
Estate Finance and Investment
China's shift away from the welfare housing scheme has generated tremendous demand for private home ownership since the early 1990's. The resulting growth in the housing market fueled the country's transformation towards a market economy. However, the transition has not been without problems. One of the main issues the government has been grappling with is the dispute between developers and residents over low rates of resettlement compensation.
This thesis offers a compound option model to analyze the existing land disposal system in China. Assuming Shanghai's land market is efficient and the market values of land-use rights converge to the option values of land, the model identifies the maximum values of tenants' resettlement and infrastructure components of the total land values developers can rationally pay to avoid negative-NPV investment decisions.
The model suggests
a compensation cost function of about
51 percent of total land value (conveyance
fee plus resettlement and infrastructure
cost), or 26 percent of the underlying asset
value upon sales of the residential
development.
It is the recommendation of
this thesis that the Chinese government
reexamines the existing land conveyance
system to formally include tenants' resettlement
compensation and infrastructural
fees as part of the land-use rights
bidding package. This thesis further
recommends legal recognitions of tenants'
'invisible leasehold interests' to strengthen
their rights to the land on which they
reside.
Creating Construction Cost Indices and Examining Their Cyclic Behavior
William Eric Simonton
Thesis supervisor: William Wheaton, Professor of
Economics
While there are several different construction cost indices that are commercially available, these indices are typically derived from the costs of the factors of production. They often lack detail regarding location, product type, or structure type. In this study, we determined that it is possible to develop location and product type specific construction cost indices for 2 different product types, office and multi-family residential, in 6 different Metropolitan Statistical Areas using real project cost data. The project data was supplied by FW Dodge and includes 61,000 records summarizing office and apartment projects from 1967 through the first half of 2004.
Once we were able to develop the construction cost indices, we could then observe differences in construction costs between markets and product types. Apartment real cost growth was slightly positive, while office real cost growth was typically slightly negative during the study period. Additionally, we were also be able to determine whether the construction industry experiences cyclicality related to building activity, or whether it acts like a commodity, with fluctuations in cost due to shocks to the material and labor markets. While casual observation indicates otherwise, the results of this study indicate that there is little to no correlation between construction costs and the level of new building supply.
The Low-Rated CMBS Market: Mortgage REIT, Financial Innovation and Policy Lessons from the Asian and Russian Financial Crisis
Yi Su
Thesis supervisor: William C. Wheaton, Professor
of Economics
As one of the most important financial innovations in 1990s, Commercial Mortgage-Backed Securities (CMBS) have provided significant amounts of financing for commercial real estate. However, when the Asian and Russian financial crisis hit in 1998, the low rated CMBS market almost dried up and one of the dominant investors Criimi Mae went to Chapter 11 for protection. This study investigates the events systematically from the perspectives of market structure and product development in the context of financial crisis. We found that the private and illiquid market structure and the short term marked-to-market rep0 financing together resulted in the disequilibrium of the low rated CMBS market during the financial crisis. Information efficiency and more resilient financing mechanism are needed to mitigate the conflicting interest between issuers/underwriters and investors of low rated CMBS.
Discerning Alpha Investments in Downtown Manhattan's Asset Market: The Financial Feasibility of Office-to-Residential Redevelopment and the Planning Implications for Lower Manhattan Economic Development
Sung-Min Thomas Suh
Thesis supervisors: Langley C. Keyes, PhD, Ford Professor
of City and Regional Planning,
Lynn M. Fisher, PhD, Assistant Professor of Real
Estate
This thesis examines the financial feasibility of office-to-residential conversions in Downtown Manhattan's asset markets given the policy context shaping redevelopment opportunities. The analysis explores whether such conversion feasibility is desirable in the larger context of Downtown Manhattan's economic development.
Market evidence from Downtown Manhattan's underperforming Class B/C office stock as well as record high performance in residential markets indicate that office-to-residential redevelopment is no longer an option, but a market-based necessity for transitioning Downtown Class B/C stock into more economically viable uses.
Although markets have long identified office-to-residential conversion as the highest and best use of land in Downtown’s markets, policymakers have also played an important role in facilitating conversion activity by allowing markets to adjust to economic changes. In the mid- 1990’s, policymakers used two separate approaches to advance sustainable redevelopment by clearing regulatory barriers for conversion and establishing incentives to encourage redevelopment activity. In comparison to these measures, post-9/11 incentives were designed to hold the market together and address immediate short-term redevelopment needs to stabilize markets in the long-term.
The thesis establishes that even in today’s evolving conversion markets, Downtown presents a substantive level of risk for developers. The findings reveal a crucial interdependence between critical mass and private sector investment in services. These issues are compounded by longstanding urban planning issues involving infrastructure, transportation, and access. The market study, institutional analysis, and case-based material support the position that under current market conditions, policy measures must readjust conversion policies to foster reasonably paced residential redevelopment in conjunction with larger economic development plans for Lower Manhattan.
Outsourcing, Offshoring and the US Office Market
Tanya M. Topolewski
Thesis supervisor: Sandra Lambert, Lecturer, Center
for Real Estate
There is intense debate among industry analysts and scholars over potential job losses caused by offshoring. The real estate industry has been grappling to understanding the implications of these numbers, as some have speculated that the projected job losses seem to translate into significantly lower demand for US office space.
Professional service firms are major users of office space and these firms are increasingly dependent on IT in nearly every aspect of their business. Due to its technical nature and expense, these industries routinely outsource and/or offshore both major categories of IT work: application services (AO) and business process (BPO). To explore how IT outsourcing and offshoring is affecting the US office market, this work examined three professional services industries: high-tech manufacturing/service and financial services, aggressive adopters of IT, and legal services, a nonaggressive adopter of IT. Through a review of relevant research and structured interviews with eighteen companies, this thesis examined IT outsourcing and offshoring activities with respect to three areas: labor force access, company portfolios and workspace utilization/design.
Industry analysts observe that most firms do not yet have global outsourcing strategies in place, but they need to. This work concludes that firms outsourcing and offshoring activities vary across and within industries in relation to labor access and company work place portfolios. High-skill labor that can create innovative services drives high-tech manufacturing firms to access IT labor worldwide, while in financial services firms, cost as well as innovation drives their global strategy. In complete contrast, legal services firms are cost driven, but not dependent on innovation to provide their services and therefore do not outsource or offshore IT. From a company portfolio standpoint, while client location will always bind certain companies to particular locations and markets, IT outsourcing and offshoring may make where they locate more flexible. However in contrast to the direct relationships between IT outsourcing and offshoring and labor access and portfolio strategies, evolutions in workplace strategies across firms including support of mobile work forces, increases in space efficiency, new communication strategies, and work area obsolescence appear to be more related to firm innovation and the integration of technological breakthroughs.
A Reevaluation of NCREIF Performance
Charles Aldrich Walsh
Thesis supervisor: William Wheaton, Professor of
Economics
This study compares variations in "capitalization rates" calculated using a GAAP based accounting method versus the NCREIJ? accounting method. The two versions of the annual capitalization rate were derived from the same quarterly, appraisal based, NCREIF panel data for commercial office property. The difference between the two accounting methods results from the treatment of capital expenditures.
For each of the two accounting methods, the components of the capitalization rate were examined in aggregate across the observation period, and individually for each market. The two capitalization rate calculations allow direct comparisons to the total return, which is approximately equal under both accounting treatments. Implications regarding investor's understanding of the risk and return in real estate investment performance are gleaned from the side by side comparison of the two capitalization rates and total return. The study also looks at the affect of market size, growth, and growth volatility on capitalization rate behavior in light of the two accounting methods.
The Variation of Capitalization Rates across Submarkets within the Same Metropolitan Area
Yisheng Yu
Thesis supervisor: William Wheaton, Professor of
Economics
This paper investigates the variation of capitalization rates across submarkets within the same metropolitan area by using a database with 73 transactions of office properties located in nine submarkets of Atlanta during the period from the third quarter of 2000 to the second quarter of 2003. The results show that capitalization rates are quite predictable at the submarket level. Movements of capitalization rates are shaped by local market information, national capital market information and characteristics of individual property. The study also examines the behavior of real estate investors in forming their expectations of future income streams. A cross-sectional model with time dummy variables is used in this paper.
