Thesis Research
2005 Theses Abstracts
Following are a selection of theses abstracts by members of the Class of 2005. Join MITREX (The MIT Real Estate Exchange) to download complete theses. For non MITREX members, theses can be purchased from the MIT Libraries.
Capital Structure in Mixed-Use Development
Andrew P. Bayster
Abstract
Affordable Luxury Resort Residences
for The Baby Boomers
Mark Valdez Boyer
Abstract
Expectations of Land Value in Real
and Suburban Regions
Dianna Marie Carlson
Abstract
Who is Buying Urban Condominiums? A
Tale of Four Cities
An Analysis of the Current Urban Condominium
and Loft Market
Robert Delaney and Linda Pizzuti
Abstract
Benefits of Redevelopment of Outdated
Retail Centers
Gregory William Gitcho
Abstract
Creating Transparency in the Chinese
Real Estate Development Industry: A Case
Study
Feng Han
Abstract
German Public Real Estate Open-Ended
Funds in Japan
Rokuhei Hayashi
Abstract
Creating a Practical Model Using Real
Options to Evaluate Large-Scale Real
Estate Development Projects
Adam Hengels
Abstract
Where and How Much:
Density Scenarios for the Residential Build-out
of Gaoming, China
Karen Jia Ying Hu
Abstract
What About the Equity?
A Qualitative Analysis of Governance Provisions
and Return Structures for Equity Investments
in Joint Venture Real Estate Projects
Eric L. Jackson
Abstract
A Systematic Study of Real Estate Core
Funds:
Herd Behavior and Performance Attribution
Analysis
Valerie Kwong and George Ryan Robison
Abstract
Revisiting Performance Persistence in
Real Estate Funds
Robert A. Lafever and Luis Canizo
Abstract
Place Making in New Retail Developments:
The role of local, independently owned
businesses
Linda Laniado
Abstract
Galileo Lofts: A Real Estate Development
Feasibility Study
Lea J. Ledohowski and James J. Perrine
Abstract
Multiple Asset Class Investing: Equilibrium
Asset Pricing Evaluation of Real Estate
Risk and Return across Four Quadrants
Nan Li and Steven McKay Price
Abstract
Height Premiums for Seaside Community
Condominiums - An Empirical Analysis
Randall Loker
Abstract
The Causes and Consequences of Condo
Hotel Conversion in Waikiki, Hawaii
Mark C. K. Lu
Abstract
Assessing the Effect of Architectural
Design on Real Estate Values: A Qualitative
Approach
Jason A. Millhouse
Abstract
An Empirical Study of Subordination
Levels in Commercial Mortgage Backed Securities
Romina Padhi
Abstract
The Effects of Oil Prices and Other
Economic Indicators on Housing Prices
in Calgary, Canada
Mercedes A. Padilla
Abstract
Building a Better Manhattan: Will the
Design of Governor’s Island Fail?
Ian S. Reddy
Abstract
Key Worker Housing: A Demand Analysis
of Middle-Income Workforce Housing in
Eastern Massachusetts
Sean D. Sacks
Abstract
The Impact of Multifamily Development
on Single Family Home Prices in the Greater
Boston Area
Arah Schuur
Abstract
Tenant-in-Common Capital in Value Added
Transactions
Jared Steven Smith
Abstract
Structured Financial Solutions for Green
Affordable Housing Projects
Shwetha Subramanian
Abstract
Key Worker Housing: A Demographic Analysis
of Working Families in Eastern Massachusetts
Margaret Fitzgerald Wagner
Abstract
The OfficeminiumTM: Alternative Tenure
Choice in the Office Business Center Market
Alan R. Williams
Abstract
Capital Structure in Mixed-Use Development
Andrew P. Bayster
Thesis supervisor: Brian Anthony Ciochetti, Professor
of the Practice of Real Estate
A survey-based approach was employed to determine the most important factors contributing to the successful financing of mixed-use development. Individual real estate developers were contacted to discuss their specific projects along with construction and permanent lenders. These projects contained three or more uses and were located in major metropolitan infill locations across the US. Specific questions were asked about the entire capital structure including equity, construction and permanent debt.
The thesis contains a background on mixed-use development and its growing importance in the marketplace, discussion of equity and lending fundamentals within commercial real estate, a presentation of the data and finally an analysis of the findings.
From the data, three main factors were derived that affect the ability of mixed-use developments to successfully receive financing. These include the size of the developer in relation to the project, the amount of pre-leasing and pre-sales completed and the ability to compartmentalize the project by use. These conclusions are important for any developer attempting to complete a mixed-use development of any size or complexity. To successfully build the project and appease any lender concerns, the developer must address each issue.
Affordable Luxury Resort Residences for The Baby Boomers
Mark Valdez Boyer
The purpose of this thesis is to determine the business viability of Oasis Destination Club, the first destination club designed entirely for the upper middle income baby boomer. The baby boomer generation is the largest demographic group in the United States, numbering 78 million individuals, between the ages of 41 and 59. As this demographic group ages and nears retirement they are seeking out ways to spend their vacation time. Many are considering vacation housing products; however, there are several key issues surrounding vacation home ownership that are not addressed by the current vacation housing products. These key issues include: 1) overall cost, 2) lack of variety in destinations, 3) illiquidity of investment, 4) inflexible use models, and 5) lack of services. To address these key issues destination clubs were developed. Club members are granted use rights in a portfolio of residences located in different destinations around the world. Each residence is large enough to accommodate a family or group and services are on a par with a well run hotel.
In recent years destination clubs have experienced very strong growth in the upper income or high net worth market. Oasis Destination Club plans to be the first destination to target the upper middle income market, while also addressing the five key issues of vacation home ownership, thereby, becoming the premier brand name in the upper middle income market. In simple comparison terms Oasis Destination Club plans to become the Marriot in an industry where only the Ritz Carlton and Four Seasons exist.
The market study indicated that an Oasis Destination Club has a potential market size between 35,000 and 70,000 households. This market has a price point of $75,000 with annual dues between $15,000 and $8,500. For these fees Oasis Destination Club plans to provide use rights in a portfolio of $1,000,000 residences around the world, which are large enough to accommodate family and group vacationing. Consistent service that removes the hassle and worry from second home ownership or villa/hotel rental would also be provided.
Financial projections for Oasis Destination Club indicate that the business would break even in the second year and would require $1.7 million of start up funding at the company level with an additional $2 million in TIC 1031 backed funding to purchase the initial property portfolio.
Expectations of Land Value in Real and Suburban Regions
Dianna Marie Carlson
Thesis supervisor: William C. Wheaton, Professor
of Economics
Timberland has become a new and emerging asset class among investors. Institutional investors have committed large amounts of capital through the private equity market. Timber real estate investment trusts (REITs) have also allowed smaller individual investors to participate in the ownership in timberland. Given that land supply is fixed, the demand for land is expected to increase as baby boomers near retirement. Owners of timberland are faced with making strategic decisions as to whether timberland remains the highest and best use.
Given these facts, this thesis examines over 300 predominately rural counties where timberland is harvested and attempts to create a model to identify where land has the highest value as an urban use, and secondly, where this urban land value is expected to experience the most appreciation.
Using house prices as a proxy for land value, models for both house price and house price appreciation were developed. The results indicated that two variables were significant factors in forecasting appreciation: 1) the percentage of developed land within a county and 2) the percentage of seasonal units. As a result, urban counties with a lower percentage of seasonal units appreciated less, whereas rural counties with a higher percentage of seasonal units appreciated more. The results are significant in that it shows how there is an option growth effect for rural land beyond the urban edge which can potentially yield higher appreciation rates for speculative landowners.
Who
is Buying Urban Condominiums? A Tale of Four
Cities
An Analysis of the Current Urban Condominium and Loft
Market
Robert Delaney and Linda Pizzuti
Thesis supervisor: William C. Wheaton, Professor
of Economics and Urban Studies and Planning
This thesis is an analysis of the current trend in urban condominium and loft sales in the United States. It focuses specifically on the question of whom, demographically speaking, is buying the incredible influx of new urban residential products that has come onto the market since 2000. There is only anecdotal evidence gathered to date, where some claim that it is the empty-nesters abandoning the suburbs for the convenience of city life. However, there has not been the corresponding drop in suburban population levels or house sale levels to corroborate that hypothesis. Other market participants claim that the sales are primarily to investors, who are either renting or riding appreciation expectations to resell. If that is true, then there are considerable market implications for the future. Others project that it is an urban pied-a-terre trend; however the 2000 census only identifies 3% of the whole housing stock as seasonal, recreational, or second homes.
This thesis pools and analyzes recent historical data in four urban downtowns: Atlanta, Boston, Chicago, and San Diego to determine what is happening in each city and to try to discover a national trend. It utilizes raw mortgage origination data, assessor’s data, and surveys and interviews with developers and brokers in each of the four designated cities. In addition to demographic profiles of buyers, this study determines whether these are second homes, speculative purchases, or complete relocations from outside the city.
Ultimately, what can be concluded from this analysis is that a much larger segment of demand for urban condos in Atlanta, Boston, Chicago and San Diego consists of second home purchasers and investors than are counted in the 2000 Census. Surveys of 7849 units indicate 66% owner occupancy, 22% second home purchase plus investors with no plan to rent and finally another 12% investors who rent out their units. Trends are similar across markets, although the Atlanta market is driven by younger buyers and San Diego has the lowest percentage of owner occupants, indicating the most speculative buying.
Benefits of Redevelopment of Outdated Retail Centers
Gregory William Gitcho
Thesis supervisor: William C. Wheaton, Professor
of Real Estate Economics
This paper explores the benefits of redevelopment of outdated retail shopping centers and seeks to identify potential redevelopment opportunities. The focus is specific to sites located in Dallas, Texas, and the overall concept can be applied to centers elsewhere. The assumption is that redevelopment of a particular retail center improves the value of the single-family (SF) residential properties surrounding that center. The redevelopment use can be altered to include strictly retail, but preferably includes a mix of uses – such as retail, residential, and/or office – that combine to satisfy the demands of today’s market and hopefully that of the future.
The research and data analysis portion of this study seeks to provide evidence that redevelopment of an underutilized site does indeed enhance the value of the SF residential properties surrounding that particular site. This data and the factual results provided herein can be used to provide stakeholders with evidence of the value of redevelopment. Specifically, adjacent property owners and neighborhood groups may find comfort in a careful study rather than simply a developer’s verbal description and visual depiction of the benefits of redevelopment. In addition, the municipal authority that derives tax revenue from the value of the property can also confirm that real estate tax revenue will increase with redevelopment.
Creating Transparency in the Chinese Real Estate Development Industry: A Case Study
Feng Han
Thesis supervisor: Brian Anthony Ciochetti, Professor
of the Practice of Real Estate
Transparency issue remains one of the top issues that have discouraged foreign investors to invest China’s real estate market. This thesis establishes a framework for Chinese developers to create transparency for their development projects. It consists of the company transparency, the country-level, region-level, city-level, and project-level analyses around a project in Chongqing, China. Many special situations in China are discussed as well in order to acknowledge the existing transparency issue in China, especially in the real estate industry.
German Public Real Estate Open-Ended Funds in Japan
Rokuhei Hayashi
Thesis supervisor: Dr. David Geltner, Professor of
Real Estate Finance
The German real estate open-ended fund, a major indirect real estate investment vehicle for German individual investors, is now suffering a strong pressure of globalization from its investors because of the sluggish German domestic real estate market. In order to deal with such pressure, many funds have begun to invest in the US and now looking for opportunities in Asia, especially in Japan.
For a German fund which is basically a core investor with a long-term investment horizon, the Japanese market fits its investment policy because of the maturity and stability. At the same time, the low correlation with its fatherland market and the currency hedge gain in Japan is worthy of special mention, along with the recovering market.
However, many funds seem to encounter difficulties in acquiring Japanese properties. Among several reasons, the most significant problem is likely to be the problem of the accessibility to deal flows. Currently, many transactions are conducted among the limited market community of participants in Japan. Otherwise bidding requires a fairly high premium on the market consensus because of the small number of publicly available transactions.
Nevertheless, some foreign investors have successfully acquired properties in Japan, so the German open-ended fund will surely be able to have opportunities, too. In this thesis, four measures are proposed: the close relationship to Japanese leading real estate companies or their intimate advisory firms, the entry in the retail sector, the participation in development projects, and the investment in PFI projects. Some of them may have already been examined by funds, but the advantages and disadvantages of these alternatives are examined from the perspective of a Japanese real estate professional, which should help German funds comprehend possibilities in the Japanese market.
Creating a Practical Model Using Real Options to Evaluate Large-Scale Real Estate Development Projects
Adam Hengels
Thesis supervisor: David Geltner, Professor of
Real Estate Finance, Department of Urban Studies
and Planning
Real Options analysis has only begun to be recognized as way to evaluate real estate and is considered “beyond the cutting edge� of financial analysis.
Several academic papers have looked at ways that real estate can be analyzed using real options; however a universally practical financial model using real options has not successfully been achieved. There are several reasons why real options analysis has not quickly come to the forefront of financial analysis. The first obstacle is that real options analysis can be quite rigorous and mathematically complex, making it difficult to be easily adopted by the everyday analyst.
Presently, the most common method of analyzing real estate is using Discounted Cash Flow, which is relatively systematic and can be universally understood by most persons in the finance world. However, real options theory is not nearly as intuitive, even to the most sophisticated financial persons. There is no tried and true, universally recognized methodology for real options analysis of real estate, at least not yet. Discounted Cash Flow does a very good job analyzing most real estate. However, complex, multi-phased, or very speculative developments justify significantly more sophisticated analysis methods, such as real options.
Real options is relatively new to real estate, and awaits daring pioneers who are willing to create intuitive, thorough, and transparent models that could be used by future real estate analysts before real options analysis will ever become a mainstream method for analyzing real estate.
With this in mind, this thesis intends to present a practical, comprehensive, and intuitively transparent financial model using Microsoft Excel for analyzing real estate development projects. This thesis will hopefully serve as a basis for future models, and will aid in others’ understanding of the advantages and drawbacks of such analysis and how to properly utilize it as a tool for real-world projects. It is also the intent of this model to be utilized and further refined by future students in the Real Estate Development Studio course at MIT and by real-world real estate practitioners.
Where
and How Much:
Density Scenarios for the Residential Build-out of
Gaoming, China
Karen Jia Ying Hu
Thesis supervisor: Tunney Lee, Professor of Architecture
and Urban Studies and Planning, Emeritus
The author will use Gaoming District in the western part of China’s Pearl River Delta (PRD) as an opportunity to examine the impact a range of residential densities along planned public transportation corridors can have on the rate and degree of agricultural land conversion in urbanizing areas. The author will use collected field data on the existing densities of old and new residential building construction in Gaoming, Gaoming District’s 2004 Master Plan, projected population and economic growth figures from the Gaoming Planning Department, and the parameters of land leasing and revenue generation in China as inputs in her analysis. The author will then present scenarios where a range of residential densities is created from variations in the degree of government planning, public transportation investment and land leasing methods. Moreover, the author will present instructions to build an economic model for planners to understand the land valuation process by which private developers bid for land. Lastly, the author will make recommendations to the planners and officials for how they can generate more revenue from land and work towards the sustainable build-out of Gaoming.
What About
the Equity?
A Qualitative Analysis of Governance Provisions and
Return Structures for Equity Investments in Joint Venture
Real Estate Projects
Eric L. Jackson
Thesis supervisor: Lynn Fisher, Assistant Professor
of Real Estate
This paper looks at the equity component of real estate finance – the equity portion of the capital stack, if you will. It begins by characterizing the process through which real estate equity is secured by developers, and conversely, how it is placed by investors. It moves on to a discussion of the typical components of joint venture real estate LLC operating agreements – the primary document used to formalize joint equity investments in real estate projects. Through the author’s observation of a collection of operating agreements (primarily at the institutional level) governing both operating real estate projects and ground-up development projects, the paper discusses the six primary governance issues that are common across most joint venture real estate projects - financing and capital structure, cash management, leasing, investment horizon, dispute resolution and defaults, and certain administrative issues. It further outlines how contractor control, control of the construction process and cash management issues emerge as the three additional critical governance issues in ground-up development projects. The paper continues with a discussion of the two primary return structure models prevalent in the market today – preferred equity and participating equity. While the models are often tailored to meet the specific needs of parties to different transactions, the primary negotiated variables – hurdle return rates, profit percentages (promotes), and carried interest amounts – generally remain consistent. The author observes that the level of contractual control demanded by investors does not necessarily increase with projects of greater risk. Instead, the quantity of controllable issues increases. Further, there appears to be a positive correlation between the level of control demanded by an investor and the investor’s level of investment in the project as a percentage of total equity. Additionally, as the priority of an investor’s ownership claim rises (i.e. straight preferred equity over participating equity), the level of direct contractual control demanded by the investor tends to decrease.
A
Systematic Study of Real Estate Core Funds:
Herd Behavior and Performance Attribution Analysis
Valerie Kwong and George Ryan Robison
Thesis supervisor: David M. Geltner, Professor of
Real Estate Finance
The returns and portfolio characteristics of core funds were tested for evidence of herd behavior and performance relative to the NCREIF Property Index (NPI), using a proprietary database that included data from 1985 to 2004. Tests performed include descriptive statistics, regression analysis, and attribution analysis.
Results indicate that herd behavior tends to be somewhat correlated with the NPI return. Through our disaggregate (fund specific) analysis, we find that herd behavior, where managers base investment decisions on the collective actions of the market rather than their individual beliefs, may be present in the core fund industry. Regression analysis suggests that herding appears to be positively correlated with fund size and negatively correlated to leverage, fees, and persistence from the one-year lag of the deviation from the mean.
Performance analysis results indicate that although fund leverage has increased significantly over time, the use of debt has produced little or no additional return to investors. We found that across funds, net returns to real estate fall short of the NPI, and that across time, there is a negative correlation between the performance of the index and fund performance relative to the index. Attribution analysis revealed that property selection returns have produced the greatest amount of return deviation from the NPI over time, and that selection and strategy returns are negatively correlated. Regression analysis suggests there is persistence in fund performance in the short term, that a fund’s fee is positively correlated with gross returns, although that does not necessarily translate into higher returns to the investor, and that larger funds are negatively correlated with performance.
Revisiting Performance Persistence in Real Estate Funds
Robert A. Lafever and Luis Canizo
Thesis supervisor: David Geltner, Professor of
Real Estate Finance
In this thesis, real estate opportunity fund returns were analyzed for evidence of persistence in subsequent funds from the same manager; it is designed to update and enhance a prior thesis performed by Cathy C. Hahn (2003), using both parametric and non-parametric tests. Tests were performed on gross and net returns covering the period from 1991-2004.
These tests confirm the prior finding that past fund performance is a significant indicator of future fund performance within the same firm. Our study also found the strongest evidence of persistence to exist in the extreme performers ranking in the top and bottom quartile amongst their vintage year peers. Additional tests for persistence, as well as effects of fund characteristics on performance, were employed using a methodology similar to that performed on private equity funds by Kaplan and Schoar (2003). Our tests yielded similar results to those found by Kaplan and Schoar (2003), but were not substantiated with statistical significance.
Place
Making in New Retail Developments:
The role of local, independently owned businesses
Linda Laniado
Thesis supervisor: Lynn Fisher, Assistant Professor,
Department of Urban Studies and Planning
This thesis sets out to examine whether incorporating local independent or small regional chain retailers and restaurants along with national chain stores in new large scale open-air retail developments can help add to a “sense of place� in these projects and thus make them more successful.
New retail developments of the past two decades, often called Lifestyle Centers, Urban Entertainment Centers, Town Centers or New Main Streets, attempt through design to create a “place.� However, unlike traditional Main Streets or other locales that come to mind when thinking of distinctive “places� to shop, the tenants in these centers seem to be largely the same as those in regional malls—ubiquitous national chain stores. Due to this lack of local, unique content, these projects in many cases seem to be more a repackaging of the regional mall formula than truly successful attempts at place making.
However, despite several challenges to tenanting independent businesses, some owners of new, what I refer to as, Place Making Centers have nonetheless taken a more proactive role in varying their tenant mix so as to better differentiate and reflect the local character of these projects; consciously dedicating a substantial percentage of their retail space for smaller local or regional retailers. This suggests that for some developers and projects these obstacles can be overcome, and that there is some perceived added value, place making or otherwise, to incorporating these businesses.
In this thesis, I argue that place making, besides a physical act, also involves an intangible social and cognitive quality. I also assert that independent business can contribute to sense of place by contributing spaces more likely to promote social interaction and adapt over time and by providing a sense of uniqueness, rootedness and authenticity.
Furthermore, the characteristics that contribute to the likelihood and/or viability of incorporating independent businesses in a project fall into three categories—owner characteristics, project financing and economics, and market characteristics. In projects that successfully overcome these obstacles, independent businesses are shown to further place making’s aim of overall and long-term value creation, suggesting that incorporation of these retailers should be strongly considered by developers of new retail formats.
Galileo Lofts: A Real Estate Development Feasibility Study
Lea J. Ledohowski and James J. Perrine
Thesis supervisor: Brian Anthony Ciochetti, Professor
of the Practice of Real Estate
In August 2004, a development proposal titled “Galileo Lofts at MIT: Housing and Urban Park� was submitted to the Cambridge Redevelopment Authority for the provision of new housing and a public park on Parcel 7, in Kendall Square, Cambridge, MA. This study is a feasibility analysis of the development proposal.
A market analysis and a marketability study were conducted to determine the appropriateness of the proposal for the East Cambridge, Kendall Square market. Demographic analysis identified two primary submarkets: 1) Cambridge Condo Submarket (i.e. demand for the location); 2) Loft Product Submarket (i.e. demand for the product type). To analyze supply and pricing, transaction data for the sale of condominiums within a one-mile radius of the proposed site, and data for the sale of comparable loft condominiums in the Greater Boston Area, were downloaded. Tests performed include descriptive statistics, regression analysis, and attribution analysis. A capital budget was estimated and a development model created to determine the financial feasibility of the proposal.
Results indicated that the demand for residential products in the East Cambridge neighborhood priced for the “entry-level buyer� (i.e. up to $550,000) was not being met by current levels of supply, and it was predicted that demand for products priced at the entry-level would continue. It was also illustrated that demand for “luxury� products does exist in East Cambridge, but that the luxury consumer has demonstrated a preference for properties with high-end amenities and water adjacency.
The Feasibility Analysis concluded that the proposed project is not viable in financial terms. It was suggested that the original proposal is not ideally suited to capture the demand in either the entry-level or luxury markets. The primary observations were that the planned residential units are too large to target the entry level buyer, and that the location, lack of amenities and rental townhouses at the ground level are expected to be problematic in the pursuit of the “luxury� buyer. It was recommended that the developers reduce the unit sizes in order to satisfy the requirements of the primary target market and redistribute the affordable rental units within the building to avoid a potential problem with marketability and management. These changes, however, would not be sufficient to turn the proposed Galileo Lofts at MIT into a financially viable project because 40% of the units are required to be affordable, and these units cost $180,000 more to produce than they would generate in sales revenue. Other relief would be needed: some suggestions are given.
Multiple
Asset Class Investing: Equilibrium Asset Pricing
Evaluation of Real Estate
Risk and Return across Four Quadrants
Nan Li and Steven McKay Price
Thesis supervisor: David M. Geltner, Professor of
Real Estate Finance
The major objective of this study is to test equilibrium asset pricing models with respect to how well they price risk across multiple asset classes; including the four quadrants of real estate. While using the Geltner (1999) paper as a springboard for our approach, this thesis both updates Professor Geltner’s earlier work and extends its scope through the testing of additional models and asset classes. Using historical data to derive beta estimates, we empirically test several variations of the Capital Asset Pricing Model (CAPM). These variations include the traditional, single-beta, Sharpe-Lintner CAPM, as well as the multi-beta, Fama-French CAPM. For the single-factor formula we explore the use of two different market portfolio proxies, the S&P 500 Index and the National Wealth Portfolio (NWP). We also apply the single-factor formula to a non-wealth based, consumption oriented approach.
Test results show the NWP based CAPM to be the strongest model, being both robust and statistically significant in its pricing of asset volatility. When using the traditional S&P 500 index as the market proxy, the basic CAPM performs surprisingly well, though not as well as the NWP version. The multi-beta Fama-French model explains a large amount of price variation, however, only the market and size factors prove to be statistically significant at the 95% confidence level. In a dramatic departure from what was found roughly fifteen years ago, the consumption model’s performance was lackluster; supporting a widespread belief that there may be empirical issues with the measurement of quarterly consumption. The most interesting finding across all models tested was the behavior of the housing asset class. Housing appears to be an outlier that doesn't seem to fit in with the rest of the asset classes using linear pricing models. All the models display a statistically significant intercept, suggesting that there is a component of risk, perhaps a significant component (as perceived by investors relative to treasury bills), that is not captured in any of these risk models.
Height Premiums for Seaside Community Condominiums - An Empirical Analysis
Randall Loker
Thesis supervisor: Henry O. Pollakowski, Research
Associate, Center for Real Estate
This thesis investigates the value that condominium buyers in oceanfront communities place on how high above the ground their home will be. It is assumed that buyers will pay a premium for height, but to date no study has been performed to quantify what that value is, and how it changes throughout the height of a given building.
A semi-log regression equation is employed to isolate the impact of vertical location on price, and as expected, price does increase with floor height. The regression results conclude that for oceanfront buildings, condominium prices (relative to floors 1-10) are 6.1% higher for floors 11- 20, 12.8% higher for floors 21-30 and 13.5% higher for floors 31-40. For buildings on Biscayne Bay or the intercoastal waterway, condominium prices are 7.7% higher for floors 11-20, relative to the ground floors, and 9.1% higher for floors 21-30.
The data for this study comes from the Miami Beach, Florida MLS database including transactions occurring from June 2003 through May 2004 on condominiums within a 5-mile radius of South Beach, the area’s most valuable real estate. The results should be applicable to other oceanside communities, but not necessarily to urban centers where the relationship between height and view is likely to be significantly different.
The Causes and Consequences of Condo Hotel Conversion in Waikiki, Hawaii
Mark C. K. Lu
Thesis supervisor: Brian Anthony Ciochetti, Professor
of the Practice of Real Estate
This paper explores the causes and consequences of the recent conversions of hotels into ‘condo hotels’ in Waikiki, Hawaii, through an examination of local and national real estate trends. Condo hotels result from the conversion of hotels to individual condominium units operated as a hotel. In the last few years forces driving a national residential real estate boom have carried the concept of the condo hotel to the forefront of the public’s imagination. For developers, the model of hotel conversion offers numerous advantages and has proven an effective bridge between risk adverse lenders and developers seeking project financing. Developers and condominium buyers alike value the services and branding hotel operations can bring to a property. In Waikiki, condo hotels operate as a vehicle for the renovation and reinvention of aging hotel stock. The product has proven exceptionally popular, yet the wholesale conversion of aging hotel stock could have both positive and negative consequences for Waikiki or similar communities. While condo hotels can upgrade a region’s accommodations infrastructure, some allege it has the potential to disrupt local employment and undermine tax revenues. Others fear demographic changes and social displacement not unlike the controversy over apartment conversions in the 1970s. No doubt conversion of large numbers of hotels into condo hotels will result in change but that change needn't produce a negative outcome.
Assessing the Effect of Architectural Design on Real Estate Values: A Qualitative Approach
Jason A. Millhouse
Thesis supervisor: Lynn Fisher, Assistant Professor
of Real Estate
It has long been known that ‘good’ architecture and quality design are public goods, as they have been shown to increase surrounding property values, create a sense of community, and provide a catalyst for future development. What is less clearly understood is the individual user’s demand and willingness to pay for good architecture; if there is a positive externality to quality architecture on the surrounding buildings, tenants, and bystanders, then there must exist a ‘socially optimal’ level of design that may or may not be equal to the optimal level as measured by the private market. Through interviews with industry leaders and policy makers, and a careful reading of relevant literature, this study seeks to investigate the discrepancy between the socially and privately optimal levels of design, and to determine the degree to which ‘good’ architects or ‘good’ architecture can affect private returns to private developers or owners.
More simply
put: does there exist a private market
for ‘good’ architecture within
the market for real estate?
An Empirical Study of Subordination Levels in Commercial Mortgage Backed Securities
Romina Padhi
Thesis supervisor: Brian Anthony Ciochetti, Professor
of the Practice of Real Estate
The CMBS market has been in existence since
the mid 1980s; however, it was during the
mid 1990s that the market began to grow.
A combination of favorable interest rate
environment, entry of new players in the
market and the amount of demand for commercial
real estate assets, led to a record US
CMBS issuance in 2004, with the 2005 outlook
being even better. However, the subordination
or credit enhancement level of these securities
has been on a downward trend since 1995.
The thesis attempts to analyze the risk
factors such as loan to value ratio, debt
service coverage ratio, floating versus
fixed rate, large and conduit deal types,
as well as diversification factors (property
type and geographic location), and their
impact on subordination levels. Finally,
market forces such as spreads on CMBS are also
analyzed for their influence on
subordination levels.
For the analysis, data were collected on 430 commercial mortgage backed securities issued from 1995 through mid 2005. The information was obtained from Trepp, which tracks all the commercial mortgage backed securities issued in the market. The trend in subordination levels of each of the tranches or bond classes was analyzed over the period of study and a quantitative regression analysis was performed to analyze the influence of the above mentioned factors on the subordination levels.
The results indicate that the loan to value ratio, interest rate type (fixed versus floating) and the deal type (conduit and large loans) have a significant impact on the subordination levels. Also, certain other market factors, including the spread differential between CMBS and corporate bonds, strong property market performance, increased liquidity and increased number of investors may also have influence the subordination levels of these securities.
The Effects of Oil Prices and Other Economic Indicators on Housing Prices in Calgary, Canada
Mercedes A. Padilla
Thesis supervisor: William Wheaton, Professor of
Real Estate Economics
This thesis aims to answer: (1) to what extent can oil prices and other economic indicators predict the changes in housing prices and rent in the Calgary single family housing market and (2) to determine what the lag time is between them. Implications of this study from a macro perspective are multiple. This study can be used as a simplified case study in isolating the effects of the boom and bust cycles of economic industries and quantify its impact to real estate performance.
Results found an astonishing correlation. Oil prices, exchange rate, interest rate and employment levels can determine up to 98% of the changes in house prices and rents. Oil prices, representing economic viability of the city, affect the real estate industry with a lag of 7 quarters of approximately two years, while interest rates representing the financial well-being of the city affect house prices and rents with a lag of 2½ years. Foreign exchange rate to the dollar, representing the relative global prosperity, affects real estate prices in one year.
House prices seem to be equally sensitive to a positive or negative shock in oil prices, exchange rate, and interest rates. At which, $25/barrel oil price seems to be the “breakeven� level at which house prices remain stable, all else equal. Above which, prices will continue to appreciate, below which, prices will fall. Not surprisingly, this is the same estimate of the ‘breakeven� point at which the oilsands in Calgary become economically viable.
Rents are more sensitive to positive shocks in oil prices, not exchange rate. Inversely, they sensitive to negative shocks in exchange rate, not oil prices. Rents are not sensitive to interest rates.
Building a Better Manhattan: Will the Design of Governor’s Island Fail?
Ian S. Reddy
Thesis supervisor: John de Monchaux, Professor of
Architecture and Planning
The process selected for the planning and design of an area is fundamental to the success of its development. The planning corporations constructed to represent city interests often replicate a similar design process, despite repeated failures and improved alternatives. Strategies to incorporate public discourse in planning initiatives and foster innovative and responsive ideas for final master plans have eluded some of New York’s greatest developments. By combining the success of current design processes and eliminating those techniques proven to fail, joint city real estate ventures will more effectively respond to both private and public demand, while guiding master plans that promote long term sustainability.
This thesis examines the planning and design initiatives and methodologies used to create master plans for three joint city developments in Manhattan—Governor’s Island, the World Trade Center, and the High Line. The strategies that proved successful, and those destined to fail, guide an enhanced design process for the planning and design of Governor’s Island.
The methodology for this design process consists of four phases. The first phase reviews literature pertaining to the planning and design of the three large-scale developments in Manhattan. The second phase consists of onsite examinations and a series of interviews with members of the respective planning departments and neighborhood associations. The third phase includes an in depth analysis of each case study, focusing specifically on history, planning structure, defining vision, communication, guidelines/direction, master plan and lessons learned. The final phase entails a proposal for an enhanced urban design process for the planning and design of Governor’s Island.
Lessons learned from the successes and failures of three case studies in Manhattan are incorporated in a final proposal to help guide the City of New York with the final master plan for Governor’s Island and future joint city developments.
Key Worker Housing: A Demand Analysis of Middle-Income Workforce Housing in Eastern Massachusetts
Sean D. Sacks
Thesis supervisor: Henry O. Pollakowski, Research
Associate, MIT Center for Real Estate
The Boston Metropolitan Area is one of the most expensive places to live in the United States. In recent years studies have speculated that middle-income workers have had to endure increased commute times as they have moved farther away from their jobs in order to live in adequate housing that is affordable. These long commutes may signal shortage and demand for more housing that the area’s workforce can afford in the Boston metro area.
This thesis intends to substantiate or debunk some of the above claims using Eastern Massachusetts’ teacher, nurse, firefighter, and policeman “key workers� as a proxy for middleincome workforce households, and to better understand where demand may be greatest for middle-income housing. Key workers provide essential education, heath, and community safety services fundamental to the long-term vitality of our cities and towns. Key workers would therefore likely be at the forefront of any new middle-income housing policy either at the town or state level.
The analysis integrates both 2000 Census micro-level individual and micro-level household data by job location to provide a more accurate picture of affordability and demand on the household level for 165 communities in Eastern Massachusetts. Incorporating a spatial multi-dimensional approach beyond simplistic median incomes and median house price comparisons, this thesis layers additional pieces of critical individual and household data such as number of jobs by location, homeownership and rental rates, marriage rates, commute times, and housing types. Once mapped by 35 discrete areas to show distinctive area differences, this rigorous multi-dimensional analysis offers a more realistic and more accurate state of localized key worker housing demographics and demand.
Particular attention is paid to 30-44 key worker rental households who are the most likely candidates for first time home purchases and Boston’s estimated 8,720 key workers who both work and live in Boston. The City of Boston is an important focal point due to its 24% share of all full-time key worker jobs and residency requirements for many city employees.
It is the recommendation of this thesis that the cities and towns whose key workers travel the longest commute times should investigate their current housing options vis-Ã -vis key worker household incomes and consider key worker housing programs and supply incentives in order to preserve quality cost effective key public services. Boston should also strongly weigh a key worker housing program if it hopes to strengthen its residency requirement and retain community stabilizing key worker and middle-income workforce households.
The Impact of Multifamily Development on Single Family Home Prices in the Greater Boston Area
Arah Schuur
Thesis supervisor: Henry O. Pollakowski, Research
Associate
The impact of large, multifamily developments on nearby single-family home prices was tested in five towns in the Greater Boston Area. Case studies that had recent multifamily developments built near transit nodes or town centers were chosen. For each town, a conservative impact zone around the multifamily development was established, and sales prices in this area were compared to those in the rest of the town.
Using data on the sales of single-family homes from 1987 until 2005, regression analyses were used to construct hedonic price models for the impact and control areas. This model was used to create a sales price index over time. The trend in the index of the impact zone and the control area was compared in the years immediately preceding the permitting of the multifamily development and the years following completion of the development in order to determine if the multifamily development affected sales prices in the impact zone.
In the four cases for which there was appropriate data, no negative effects in the impact zone were found.
Tenant-in-Common Capital in Value Added Transactions
Jared Steven Smith
Thesis supervisor: Brian Anthony Ciochetti, Professor
of the Practice of Real Estate, Department of Urban
Studies and Planning
Billions of dollars of equity is flowing into the emerging tenant-in-common (TIC) market, forcing demand for such investments to outweigh the current supply of TIC offerings. Investors seeking deferral of capital gains are enticed by the flexibility of passive ownership, the access to institutional quality assets, and the comfort of professional third-party management. In attempt to tap into this growing source of equity, a feasibility study was conducted to determine whether TIC capital could finance development and/or redevelopment (value added) transactions that are initially non- or low-income producing assets.
Tenant-in-common investments, regulated by various IRS guidelines and potentially security laws, are very complex. If structured incorrectly, a TIC investment could lose its tax deferral status and could even open the door to security law violations. Therefore, a thorough review of the industry is prerequisite to introducing such capital into riskier value added transactions.
No organization has ventured to use TIC capital in value added deals. If a legal structure is determined to appease all regulations and still offer a marketable return to investors, then it is a win-win scenario; TIC investors gain access to higher yielding assets and developers gain access to a valuable new source of capital.
TIC investors have historically been relatively risk-averse. However, it is believed that a certain segment of TIC investors would react favorably to value added deals and allocate a portion of their investment to higher risk-adjusted returns. After a thorough analysis, five types of hypothetical transactions were formulated with structures that legally fulfill all requirements while still offering a competitive yield to investors, granting evidence that it is feasible to finance value added transactions with tenant-in-common capital.
Structured Financial Solutions for Green Affordable Housing Projects
Shwetha Subramanian
Thesis supervisor: Peter Roth, Lecturer, Department
of Architecture
Environmentally responsible buildings are increasing gaining recognition in the building industry because they address objectives such as conserving natural resources, improving energy efficiency and indoor air quality and they make more economic sense. Affordable housing and Green buildings in particular combine well together as the goals of both overlap.
A joint team comprising of New Ecology Initiatives, the Tellus Institute, LISC Boston and the Green CDC’s Initiative is currently investigating the Costs and Benefits of Green Affordable Housing. This thesis builds on the research in progress, by focusing on the financial challenges and opportunities faced by green affordable housing.
In an attempt to incentivize green affordable housing, this thesis investigates the capital sources that are available at key stages of the development process and how they can best be allocated to meet the costs and needs that arise at each developmental stage. Specifically, the fiscal sources utilized on two representative projects – one rental project and one homeownership project, were analyzed and solutions were found to restructure these resources to pay for green premiums.
Several viable solutions
emerged to offset the incremental costs
of greening in the early phases of the
two projects. But the most significant finding
of this thesis was the opportunity for cost
savings and enhancement of economic
value of Green Affordable housing by
capitalizing savings from lowered operating
costs. This is a powerful mechanism that
has the ability to service more
debt on the project and cover costs
incurred during the interim stages.
This thesis demonstrates that there are several ways of structuring successful financing solutions to meet the objectives of all the participants involved, thereby making Green Affordable housing a financially sustainable proposition.
Key Worker Housing: A Demographic Analysis of Working Families in Eastern Massachusetts
Margaret Fitzgerald Wagner
Thesis supervisor: Henry O. Pollakowski, Research
Associate, MIT Center for Real Estate
As housing costs have soared nationwide, many policy makers have grown increasingly aware of working families' housing needs. Currently, having a full-time job does not guarantee decent and affordable housing. Many housing advocates have speculated that working families have had to move far from their jobs enduring long commutes, less time at home and increased traffic congestion. More specifically, housing advocates worry that key community workers who build and sustain strong communities, like teachers, nurses, firefighters and police officers, cannot live in the communities they serve.
This thesis intends to substantiate these claims as they relate to Eastern Massachusetts' "key workers" through a rigorous demographic profiling of a sample of key worker households of those key workers employed in 165 communities. We analyze the key worker household rather than the key worker as an individual through the use of microdata from the 2000 Census. This approach results in an analysis of total household income rather than individual wages when studying housing affordability for key workers employed in Eastern Massachusetts. Our unique analysis produces results and conclusions that vary significantly from previous workforce housing studies. We also are trying to better understand micro demographic details of these key worker households that cannot be understood from the traditional Census data. For example, what differences are seen in housing trends between all workers and key workers? Do key workers tend to rent or to own? How long do these key workers have to commute? Are these key workers the primary wage earners? Into what income bracket do these families fall? Do these key workers live and work in the communities they serve? The hope is that this demographic profiling will aid in quantifying the demand for key worker housing in the Boston area, as well as contribute to the local workforce housing policy debate.
The OfficeminiumTM: Alternative Tenure Choice in the Office Business Center Market
Alan R. Williams
Thesis supervisor: Lynn Fisher, Assistant Professor,
Department of Urban Studies and Planning
The Office Business Center (OBC) is a shared office facility, which is fully equipped, staffed and furnished. Many small business and sole proprietors choose OBC space over traditional leased office space because it alleviates the upfront cost and time required to maintain and manage an effective office infrastructure.
Additionally, the persistence of low commercial mortgage interest rates have helped to witness a rise in office space ownership through the growth of the office condominium market – a market which is also dominated by small businesses and sole proprietorships.
This thesis investigates the viability of a new real estate product, the Officeminiumâ„¢. The Officeminiumâ„¢ is a hybrid product which combines the ownership tenure of the office condominium and the full service environment of an OBC.
The Officeminiumâ„¢ provides a subset of small business owners and small proprietors with a hedge against rent risk and opportunistic agency, while affording office building owners and developers with a means to reduce excess building capacity and potentially increase the value of their real estate asset.
