Thesis Research
2009 Theses
Following are a selection of theses abstracts by members of the Class of 2009. Join MITREX (The MIT Real Estate Exchange) to download complete theses. For non MITREX members, theses can be purchased from the MIT Libraries.
Holistic Revitalization in Small Post-Industrial Cities: Tools for Urban Housing Development
Jeffrey Beam
Abstract
General Services Administration Lease Procurement: Opportunities and Challenges
Nathan Roger Boyer
Abstract
Evolution of the Financial Services Industry in Europe and US
Pinar Boyar
Onur Celen
Abstract
Application of the Design Structure Matrix (DSM) to the Real Estate Development Process
Benjamin Bulloch
John Sullivan
Abstract
A Real Options Case Study: The Valuation of Flexibility in the World Trade Center Redevelopment
Alberto P. Cailao
Abstract
MILITARY HOUSING PRIVATIZATION & THE PROMISE OF DESIGN INNOVATION
Jason Ellis
Abstract
Sophisticated Sensitivity: Can Developers Guess Smarter?
Jason J. Foster
Bryan D. Lee
Abstract
Combating the Growth of Slums Using For‐Profit Social Business Models
Kurtis C. Fusaro
Abstract
Analyzing Capital Allocation for Energy Efficiency Improvements by Commercial Real Estate Investment Managerst
Ross Gammill
Kristian Peterson
Abstract
Analyzing the Private Development Model for University Real Estate Development
James F. Gerrity IV
Abstract
Examination of the Rationality of Real Estate Market Pricing: Focusing on the US Office Property Market
Jinbae Jeong
Abstract
Two Studies of Japan-REIT Performance: Modeling Risk and Tracking Property-Level Performance
Rena Konagai
Abstract
The Low‐Income Housing Tax Credit: HERA, ARRA and Beyond
Jason Korb
Abstract
Secondary Residential Demand Trends in Contemporary Japan and North Asia
Michael M. Lam
Abstract
Basis Risk and Property Derivative Hedging in the UK: Implications of the 2007 IPF Study of Tracking Error
Jia Ma
Abstract
A Real Options Analysis of Olympic Village Development: How Design Flexibility Adds Value
Robert Martinson
Abstract
Female Leaders in Commercial Real Estate: To the Women Following in Their Footsteps
Jodie Copp Poirier
Abstract
How Can Social Compact's Neighborhood DrillDown Data Spur More Retail Development in Miami's Difficult to Develop Neighborhoods?
Dickson Benjamin Power
Abstract
CAPITAL APPRECIATION POTENTIALS OF CHINESE RESIDENTIAL MARKET: IDENTIFICATION OF INVESTMENT OPPORTUNITIES
Jia Qian
Philip Gin Shun Wang
Abstract
SmartSpaceTM: Opportunities for a New Real Estate Product
Si Yuan Qiu
Abstract
HOUSING MARKETS: MEXICO
Ricardo M. Solórzano M.
Abstract
Corporate Governance: The Case for Asian REITs
Denise Tan
Abstract
Demand Segmentation: Adapting a Marketing Method to Real Estate Development
Michael Burr Tilford
Abstract
Opportunities and Challenges of investing in Indian Real Estate
Kunal Wadhwani
Abstract
The Effect of Real Estate Mortgage Investment Conduit Regulations and Standard Pooling & Servicing Agreements on Commercial Mortgage Backed Security Work Out Success and Profitability
William Casey Wells
Abstract
Ghost Towers: Distressed Condominium Investing in Atlanta
Faraji L. Whalen
Abstract
An Analysis of U.K Property Funds Classified According to U.S Styles: Core, Value-added and Opportunistic
Guoxu Xing
Abstract
Public Market Development Strategy: Making the Improbable Possible
Joshua Charles Zade
Abstract
Holistic Revitalization in Small Post-Industrial Cities: Tools for Urban Housing Development
Jeffery Beam
Advisor: Dr. Lorlene Hoyt, Associate Professor of Urban Planning
For generations, housing programs have sought to utilize redevelopment projects to accomplish broader
community revitalization goals. Contemporary affordable housing practice embodies this idea in large
housing development projects, often funded through government programs such as HOPE VI. This
“Conventional” revitalization is primarily based on experiences within the distressed housing projects of
large cites, on the false premise that the impacts of redevelopment will be the same in a small post-industrial
city as in a large, economically diverse one.
Housing developers entering the context of a small post-industrial city must reconsider this idea. They
must understand an idea of “holistic” housing revitalization that leverages the development process
to make positive economic, physical, and psychological impacts that specifically address the specific
challenges in these cities, such low civic capacity, poverty, low governing capacity, large immigrant
populations, and an abundance of vacant properties. Fortunately these places possess inherent assets,
such as walkable scale, historic architecture and cultural institutions, that present unique opportunities
which position them to lead a national economic recovery through sustainable building projects.
This report focuses on three cases of current, innovative housing development:
• An industrial mill conversion that creates a new mixed use neighborhood in Lawrence, Massachusetts;
• An adaptive reuse of a prominent hotel in Flint, Michigan that has sat vacant for 30 years into new
downtown student housing; and
• A new apartment community for single-parent, full-time students in Owensboro, Kentucky.
Against the background of the broader evolution of holistic housing development, the cases directly
address the unique challenges of small cities. Comparing the cases and their formative partnerships,
concepts and strategies yields a wide range of data to support an idea of Holistic revitalization in
these places. The primary data include over twenty hours of interviews with project proponents and
stakeholders, as well as development proposals, zoning opinions, financing applications, consultant
reports and local press coverage. Together, they provide a detailed view of Holistic revitalization and the
tools of its implementation in small post-industrial cities.
General Services Administration Lease Procurement: Opportunities and Challenges
Nathan Roger Boyer
Advisor: Gloria Schuck, Lecturer
In 2009’s fragile real estate market, many developers are looking for safe investments for their
invested capital. Developers are looking to the federal government, specifically the General
Services Administration, for growth and safety. The General Services Administration (GSA) is
the contracting body of the U.S. federal government. It is the nation’s largest public real estate
organization. It leases space from private developers in over 7,100 facilities across the United
States comprising office buildings, border patrol stations, courthouses, warehouses, clinics, post
offices and many other uses. The GSA pays over $4.6 billion in rent to landlords annually on
nearly 181 million square feet of space. GSA is authorized by law to acquire, manage, utilize,
and dispose of real property for most federal agencies.
The thesis is primarily based on interviews conducted with industry professionals: developers,
financiers, brokers, and GSA contracting officials. It looks at the opportunities and challenges of
working with the General Services Administration on new lease construction build-to-suits. It
focuses on four areas; 1) the lease procurement process; 2) opportunities for new procurements
in 2009’s market; 3) developer financed new lease construction build-to-suit projects; and 4)
opportunities and challenges of financing projects in 2009’s credit crunch.
Evolution of the Financial Services Industry in Europe and US
Pinar Boyar
Onur Celen
Advisor: William C. Wheaton, Professor of Economics
The thesis aims to address the long lasting phenomena of evolution of financial services
industry both in US and Europe. The topic has never been more emphasized since the
Great Depression. The dramatic fact of cost cutting and diminishing the headcount in
financial services industry creates question if the geographic location has substantial
effect in their business activities. This study is conducted to analyze whether there is
substantial change in the geographic preference of financial services industry which can
result immigration away from the Metropolitan Statistical Areas (MSAs) like Chicago,
New York in US and London, Paris in Europe to smaller MSAs. This thesis presents a
quantitative model to find out about the historical trends, correlation with other
significant variables and significance of the causalities between the variables.
Furthermore, the qualitative part of the thesis will try to explain the motivations behind
the change and the accelerations and decelerations of the trend at a certain point of time.
The thesis examines and tests the hypothesis in two parts, US and Europe with a comparative approach. In the first section of the thesis, the specialization and concentration variables of US will be computed and ranked by taking 1974 as base year in order to observe the evolution since then for each category and subcategory of sectors. The trends of those variables along the time horizon as well as the correlation to other variables are explained for the top 4 and top 10 MSAs. Moreover, the significance of those variables is tested in order to verify the reliability of the results. In the second section, previously selected nine major cities in Europe are selected according to the criteria of availability of continuous data along the time period, level of the finance employment and total employment levels. Although the detailed data related to subcategories of the finance industry were not available, the value added measures of financial industry shed light on productivity measures at each city level. The outcomes of the two studies is compared and contrasted and the reasons of the deviations are investigated. Therefore, the study is also a gateway to project what trends may be expected in the future.
Application of the Design Structure Matrix (DSM) to the Real Estate Development Process
Benjamin Bulloch
John Sullivan
Advisor: David Geltner, Professor of Real Estate Finance
This thesis presents a pioneering application of an engineering systems framework, the Design Structure Matrix (DSM), to model the real estate development (RED) process. The DSM is a process modeling tool that originated recently in the branches of engineering systems and management science, and is primarily used to study product development processes. The DSM is an n-squared graphical matrix representation of a process that is particularly well suited to model both the sequential and iterative informational relationships between tasks in a product development process. The similarities between product development and the real estate development process make DSM an excellent fit for applying the DSM.
The thesis first reviews existing models of the RED process but finds them lacking a combination of granularity and ability to model the highly iterative nature of the RED process. This limits their effectiveness for conveying information useful to practitioners. No previous RED model describes the process at a task level or has the ability to model iterative or sequential information flows between tasks.
The DSM developed in this thesis first presents a normative or baseline model of a RED project. The model was developed through the participation and assistance of MIT/CRE industry partner, Jones Lang LaSalle (Boston Office). Through a series of interviews and meetings, the authors first developed a Six Stage Event Sequence model of RED with decision-gates found to occur during the process. The six stages were then expanded with JLL’s assistance into a table of 91 individual tasks necessary for successful completion of a RED project. Finally, again with JLL’s engagement, the 91X91 ‘Baseline’ RED process DSM was constructed, identifying 1,148 planned informational inter-task interactions (out of 8,281 potential interactions). The ‘Baseline’ DSM model was then manipulated to highlight important aspects of the RED process including the iterative and interdisciplinary nature of RED. Several typical development scenarios are then modeled to highlight the utility of DSM as a management tool in practice. The models show how unplanned iteration can become a significant cause of project risk and failure. They also highlight the risks and opportunities that task re-sequencing can have on a project.
This thesis demonstrates the DSM to be a useful and effective model of the RED process enabling new insight and understanding. The highly complex and iterative RED process can be graphically modeled in great detail in a visually appealing manner. Additionally, the RED DSM proves to be an adaptive and manipulative tool that allows for a multi-layer grasping of the RED process, able to assist in project management, change management, identification of risks and opportunities, and firm-level organizational structure and procedures. Additionally, the RED DSM model proves to be a useful pedagogical device for teaching real estate students.
A Real Options Case Study: The Valuation of Flexibility in the World Trade Center Redevelopment
Alberto P. Cailao
Advisor: David Geltner, Professor of Real Estate Finance
This thesis will apply the past research and methodologies of Real Options to Tower 2 and
Tower 3 of the World Trade Center redevelopment project in New York, NY. The qualitative
component of the thesis investigates the history behind the stalled development of Towers 2 and
3 and examines a potential contingency that could have mitigated the market risk. The
quantitative component builds upon that story and creates a hypothetical Real Options case as
a framework for applying and valuing building use flexibility in a large-scale, politically charged,
real estate development project. Through this demonstration, it is observed that applying Real
Options “in” the World Trade Center Towers 2 and 3 projects minimizes losses in weaker markets
and maximizes gains in stronger markets.
MILITARY HOUSING PRIVATIZATION & THE PROMISE OF DESIGN INNOVATION
Jason Ellis
Advisor: Dennis Frenchman, Leventhal Professor of Urban Design and Planning
The objective of this paper is to answer the question, “Has the military housing privatization process produced design innovation?” Secondary questions are, “What specific role has the Army’s Residential Communities Initiative played in fostering innovation? What are the key process drivers? What (if any) specific building product innovations have arisen from an architectural, sustainability, construction technology and community planning perspective over the last 10-15 years?”
Particular emphasis is paid to design measures employed by the development partners to ensure client satisfaction, maintain the competitiveness of their product on the open market and preserve long term partnerships with the U.S. Government. Consideration is given to the ways in which the Army has streamlined the privatization solicitation process to foster private sector innovation and what impacts these efforts have had on both design drivers and customer satisfaction levels. Specific examples of planning, design and construction innovation are explored through case studies. The author concludes that privatization has produced significant innovation and high customer satisfaction in the military housing market. However, there is still room for further program innovation in light of parallel trends in university student housing privatization, public housing privatization and the private market.
Research methodology included relevant literature review and direct, focused interviews with key industry players from the U.S. Government, design and development arenas. These approaches were augmented with select, relevant case study analyses and supporting site visits.
Sophisticated Sensitivity: Can Developers Guess Smarter?
Jason J. Foster
Bryan D. Lee
Advisor: Brian A. Ciochetti, Professor of the Practice of Real Estate
The study takes a quantitative approach to test the determinants of commercial mortgage loan pricing at origination. The determinants include capital market risk, property market risks, mortgage terms and property characteristics. Taken into consideration of the endogenous factor between loan spread and LTV ratio, we use the OLS and 2SLS model to examine the variables of driving the spread and LTV and the interaction between them. The conclusion is drawn that there is little linkage between property market risks and commercial mortgage loan spread at origination. Therefore, commercial mortgage is mispriced in terms of property market risks.
Combating the Growth of Slums Using For‐Profit Social Business Models
Kurtis C. Fusaro
Advisor: Lynn Fisher, PhD, Associate Professor of Real Estate
With 1 billion people living in the slums of cities today and no signs of a decrease in the rate of
urbanization and population growth, it is obvious that new approaches to combating poverty and the
global housing crisis are needed. Acknowledging the recent growth of the microfinance industry and
social investing, this thesis investigates how for‐profit social investment techniques could be used to
create housing and combat the growth of slums. It compares various for‐profit social business models
and provides a “toolbox” of potential structures which could be employed based on the characteristics
of a specific community. In the end, it shows that social business techniques hold promise as effective
ways to draw money into developing nations from the world’s capital markets to improve the lives of
millions of informal settlers.
Using literature reviews, interviews with industry participants, and a feasibility study based in Manila,
the paper shows that:
• There are multiple for‐profit social business structures for producing low‐cost housing which
could be employed based on the characteristics of the particular community.
• The social investment landscape has developed to the point where there is significant capital
available for investments in housing.
• A social business structure would be effective in providing housing for the lower‐middle class
population of informal settlements in Manila; and the implementation of such a program would
be effective in relieving a large financial burden from public institutions, allowing them to serve
more households in the lowest income segment.
• These social business models could be scaled‐up to numerous communities to create a
significant impact on the housing crisis.
As real estate developers fancy themselves as choreographers of a dance of multiple disciplines which,
when orchestrated well, improves the quality of the built environment, I hope this paper presents a
unique multidisciplinary approach to the issue of informal settlements, combining elements of finance,
urban planning, law, and policy.
Analyzing Capital Allocation for Energy Efficiency Improvements by Commercial Real Estate Investment Managers
Kristian Peterson and Ross Gammill
Advisor: Sarah Slaughter, Senior Lecturer
Numerous studies have shown that retrofitting an office building with energy efficiency
improvements can significantly reduce operating costs, yet many existing office buildings have
not been retrofitted. The objective of this paper was to explore the incentives and motivations
of various parties throughout the real estate management chain to better understand why
investments in energy efficiency are not more prevalent. The paper focuses on investor-owned multi-tenant office properties.
The authors explored the question from a qualitative and quantitative methodology. The
qualitative study consisted of interviews with key players in the real estate management chain
including property managers, asset managers, portfolio managers, and institutional owners.
The quantitative study consisted of a financial model to compare competing alternative capital
investments. The competing investments consisted of a cosmetic improvement which was
modeled to either increase rents or decrease leasing costs and an energy efficiency
improvement which was modeled to decrease utility costs. Multiple permutations were tested
in each scenario in order to gauge the sensitivity of returns in each scenario. Both methods
were designed to understand how industry participants allocated capital to energy efficiency
improvements.
The study determined that financial considerations are the primary drivers behind real estate
investment decisions. Secondary factors that drive investments in energy efficiency
improvements include fostering a positive public image, winning new business, and focusing on
environmental responsibility. Recommendations to increase investment in energy efficiency
conclude the paper. Increased investment in energy efficiency will result if managers recognize
that energy efficiency projects can decrease the volatility of returns, and that these returns are
maximized by making the investment in energy efficiency prior to significant lease rollover.
Analyzing the Private Development Model for University Real Estate Development
James F. Gerrity IV
Advisor: Dennis Frenchman, Levanthal Professor of Urban Design and Planning, Department of Urban Studies and Planning
Universities in the Unites States have long been active in the real estate development market surrounding their campuses. However, beginning with the baby boom in the late 1950s, colleges began expanding their campuses at ever increasing rates to accommodate the influx of new students. In order to respond to this increased need for campus expansion, universities have begun to look increasingly to private development firms as a means to facilitate the development of university real estate. As these development partnerships between the institution and the private sector become more widespread, how can private firms provide a benefit to the university by building facilities that utilize private market efficiencies of design and construction? The question is answered by studying three cases of university – private sector development: Harvard University, the University of Pennsylvania, and the Massachusetts Institute of Technology. By focusing on two types of real estate product in particular, student housing and laboratory space, the case studies will compare product developed privately for each university to product developed by the university’s internal facilities department. Financial, construction, and design metrics of private and university developed products are compared and contrasted to determine where and how private, market influence might provide the university with an advantage in developing real estate.
Examination of the Rationality of Real Estate Market Pricing: Focusing on the US Office Property Market
Jinbae Jeong
Advisor: William C. Wheaton, Professor, Department of Economics
This study examines whether or not investors behave rationally when they price the U.S. office
properties. After reviewing several previous studies on the market efficiency, this paper makes
three new attempts: first, we employs the actual information on transactions and rents at the
property level to resolve the substitution problems; second, we introduce another pricing
method which use gross yields and typical cap rate method; lastly, Shiller Test with those actual
data is conducted to determine whether future rental growth can be predicted by both or either
of those two pricing methods.
The major empirical results can be summarized into the two findings: 1) in the pricing models,
the gross yield reflects a property’s future rental growth, whereas the cap rate is mostly
correlated to the relatively short‐term rental growth in the past, 2) in Shiller Test, the future
rental growth of a property can be forecasted by the gross yield, not by the cap rate.
These findings suggest that although not perfect, investors of the US office properties, at least
partially, forecast the future income of the investments, and reflect them into the pricings by
means of gross yields rather than cap rates.
Two Studies of Japan-REIT Performance: Modeling Risk and Tracking Property-Level Performance
Rena Konagai
Advisor: David Geltner, Professor of Real Estate Finance, Department of Urban Studies and Planning
This paper is intended to recognize the performance of REITs in Japan (J-REITs) by conducting two kinds
of studies in a REIT-level and an underlying property-level: first, to do “factor loadings” that identify
systematic risks of long run investment performance in J-REITs; second, to demonstrate “Pure Play
Indices,” segment-specific indices of REIT-based property market returns by tracking monthly REIT
return data and property holding data.
The first study employs the Fama-French three-factor model for monthly J-REIT returns from September
2001 to September 2008. This investigation upgrades past similar research with longer data periods in a
two-stage regression (a time-series regression and a cross-sectional regression) for all the listed J-REITs.
Nevertheless, the model results in a limited explanatory power for the J-REIT performance, probably due
to too short a market history, as in the past research.
The second study applies the Pure Play Indices, originally proposed by Geltner and Kluger [1995, 1998],
to the J-REITs for office, residential, and retail segments since January 2006 when the J-REIT market
became sizable enough for study. The developed Pure Play Indices perform similarly with the J-REIT
return indices, except the Pure Play Residential Index during the down market due to the effect of
non-target segments within the J-REITs. The reason for this effect will require a further study.
As the market matures with more data accumulated, this two-fold study that shows demonstration of
returns from J-REITs will become more valuable to derive risk of J-REITs and different types of
information of properties.
The Low-Income Housing Tax Credit: HERA, ARRA and Beyond
Jason Korb
Advisor: Lynn Fisher, Associate Professor of Real Estate
The Low‐Income Housing Tax Credit (LIHTC) has arguably been the most successful government
subsidy to finance affordable housing. Since its creation in the Tax Reform Act of 1986 as
Internal Revenue Code (IRC) Section 42, the LIHTC program has helped finance over 1,670,000
housing units. LIHTC has endured the test of time due to its strength both in the public policy
and political spheres as well as its effectiveness in attracting significant private capital and in
encouraging private oversight.
The collapse of corporate earnings in late 2008 led to the subsequent collapse of the LIHTC
syndication markets as demand for LIHTCs practically evaporated. Proposed affordable housing
developments that anticipated receiving private investment through the sale of LIHTCs stalled.
In response to the overall national housing crises, Congress enacted the Housing and Economic
Recovery Act of 2008 (HERA 2008), which contained numerous LIHTC amendments. In early
2009, Congress passed the American Recovery and Reinvestment Act of 2009 (ARRA), which
temporarily converted the LIHTC program into a grant program. While HERA 2008 and ARRA
were well intentioned, ARRA is a stopgap measure that could become costly to the US budget.
This thesis argues that additional changes to IRC Section 42 should be implemented by
Congress in order to reinvigorate the LIHTC syndication markets and improve LIHTC efficiency.
This thesis will first provide a detailed, yet comprehensible, background on how the LIHTC
functions. Armed with that background, the reader will then be introduced to the recent
legislation affecting the LIHTC program. Finally, additional changes to the LIHTC will be
proposed that, if enacted by Congress, should serve to further strengthen the LIHTC program
and help revive affordable housing production. These changes include but are not limited to:
expanding the passive investor rules to individuals, permitting LIHTC investors to carryback the
LIHTC for five years, amending the LIHTC state allocation formula, accelerating the 10 year
credit period, implementing methods to better control development and program costs, and
expanding the Community Reinvestment Act.
Secondary Residential Demand Trends in Contemporary Japan and North Asia
Michael M. Lam
Advisor: Dennis Frenchman, Leventhal Professor of Urban Planning + Design, Director, City Design + Development
This research paper attempts to address the opportunity and challenges for Vacation
Residential Development in North Asia, with specific geographic focus on Japan first through an
analysis of national and regional consumption, tourism and real estate trends, followed by
examination of similar successful developments in the surrounding region and lastly, application
of research findings to assess the feasibility for a vacation home development in Kanagawa
(Japan), a prefecture filled with several coastal communities approximately thirty-five miles
south west of Tokyo.
The concept of vacation homes has not been as well received in Japan as in other developed
regions, specifically Western Europe and North America. In the most recent housing survey
conducted by the Japanese government, less than 1% of the housing stock could be considered
as, “second dwellings” whilst in France and the US vacation homes make up roughly 10% and
3% (respectively) of the total housing stock. More recently in the past decade, there has been
significant efforts made by both international and domestic developers to develop the vacation
home market in the world’s second largest economy. The hypothesis for this research is:
demand for vacation residences in Japan will be driven by 1) the demographic shift within
Japan, 2) emergence (and in some cases reemergence) of both the Japanese and surrounding
regional Asian economies and 3) subsequently the large and growing concentration of high networth
individuals within the region.
This thesis engages qualitative research with quantitative analysis of the market and existing
developments around the globe. Research findings are then used as inputs to assess what
product type and operating model should be built to properly capture demand. The thesis may
be considered the precursor to a more intensive quantitative research applying urban
econometric models to determine exact demand both nationally and within specific micro
markets. The thesis is presented with the assumption that the reader has a good
understanding of the geography and the economic, socio and political conditions in Japan; and
is written with a bias in favor of real estate development in Japan. Lastly, best efforts have been
made to aggregate and use the most recent and available data, but in some cases industry and
public sector reports are not released on an annual basis.
With regards to forex conversion, the rate used throughout this research is USD 1=JPY 113, the
monthly last price average between 2001.09 and 2009.5.
Basis Risk and Property Derivative Hedging in the UK: Implications of the 2007 IPF Study of Tracking Error
Jia Ma
Advisor: David M. Geltner, Professor of Real Estate Finance, Department of Urban Studies and Planning
This thesis examines how the basis risk affects property derivative hedging in the UK market, based on the tracking error (basis risk) report from the Investment Property Forum study in 2007 (the IPF Study). The thesis first analyzes the risks relevant to hedging and defines the basis risk. Considering hedgers with different objectives measure hedging efficiency differently, this thesis divides the hedging users into two major categories: β-Avoidance hedgers and α-Usage hedgers. Each of these has two sub-ordinate groups. In order to quantify the basis-risk influences on hedging, a Monte Carlo simulation designed for short contract of the swap is used.Basis risks of portfolios with different sizes are selected from the IPF Study. To shed light on different hedging uses, three scenarios are tested based on different assumptions on the expected alpha and leverage. Other relevant elements are also studied, such as the price of the debt and the swap. The analysis results in a useful reference for investors who are interested in eliminating portfolio risks with hedging strategies. In the end, the thesis suggests avenues for the further study.
A Real Options Analysis of Olympic Village Development: How Design Flexibility Adds Value
Robert Martinson
Advisor: David Geltner, Professor of Real Estate Finance
This thesis applies past research on real options – a right, but not an obligation to take some action on
a real asset in the future – to a very specific type of real estate development related to Olympic Village
development. The Olympics have been previously criticized for the excessive cost of preparation for
the 16 or 17 day event. Chicago, if selected to host the 2016 Summer Games, could be faced with
many of the same challenges of past cities.
The purpose of this thesis is not to provide the final answer to whether a developer should implement
design flexibility into a project like the Chicago Olympic Village, but rather provide a tool for which to
analyze the project and areas of uncertainty. Real Options Analysis (ROA) is presented as a set of
specific steps that correlate with more commonly used methods of real estate valuation.
In order to determine the optimal sources for flexibility, qualitative research identifies challenges and
uncertainties of Olympic Village development. This data is reviewed, analyzed and used to illustrate
potential sources of flexibility for further analysis. ROA introduces the use of Monte Carlo simulation
to better forecast the range of expected outputs and then integrates flexibility at various decision points
of the project. The results of this model should allow decision makers for a project to choose the most
desired path based on the goals and requirements of the project.
It is observed, based on the assumptions used for this analysis, that flexibility “in” and “on” the project
does create additional value, however this additional value is partially offset by the cost of the flexibility,
if applicable. The results also illustrate the benefits of mitigating the downside risk of a project with
the use of a real option. The process could provide alternate results with the use of other assumptions.
The analysis of the hypothetical case study also investigates the relationship of two individual real
options applied to a project simultaneously. It is determined, through results analysis, that the effect of
a real option “on” and a real option “in” are virtually cumulative in achieving additional value for each
type of option.
Female Leaders in Commercial Real Estate: To the Women Following in Their Footsteps
Jodie Copp Poirier
Advisor: Gloria Schuck, Lecturer
Within commercial real estate, women are not as likely as men to achieve senior‐level executive positions. Commercial real
estate has been slow to change in terms of achieving gender parity, and though improvements have been made in the status
of women in leadership positions, gender‐based disparity still exists. The purpose of this study is to shed more light on the
facilitators and barriers to career advancement of women in commercialreal estate who have achieved top‐level leadership
positions. Thirteen women holding senior‐level management positions in the commercial real estate industry were
interviewed regarding facilitators to career advancemen and notable barriers, the role of mentors, and work‐life balance issues.
What route did these women take to the top and what did they encounter along the way? Each story told involved some
combination of diligent work, the pursuit of opportunities, and the will to succeed. The results from this study supported
much of the research that has been done on this topic. Gender barriers, biases, and stereotypes were met along the way,
but these women succeeded in spite of these barriers. The women attribute their success to facilitators of career
advancement such as a strong work ethic, relationship building and risk‐taking. While this thesis shed light on the careers
of women in commercial real estate, it also raises at least two questions. How similar are the career paths of women and
men in commercial real estate in terms of facilitators and barriers to advancemnt? Does the glass ceiling appear thin or
non‐existent once female executives are above it?
How Can Social Compact's Neighborhood DrillDown Data Spur More Retail Development in Miami's Difficult to Develop Neighborhoods?
Dickson Benjamin Power
Advisor: Professor Karl Seidman, Senior Lecturer, Department of Urban Studies and Planning
The inner-city neighborhoods of America continue to struggle with the economic blight
they have faced ever since American urban growth began to abandon the urban city core fifty
years ago. One of the most salient characteristics of the American inner-city is how it is
constantly overlooked by private investment. This has many negative effects on the economic
livelihood of these neighborhoods, including leaving these areas of the city void of much of the
retail its residents need for their own purchases and for local economic activity. Recent theories
have focused on the idea that one of the reasons there is a lack of investment is because of an
information gap that exists in the inner-city, through which inner-city economic and demographic
conditions are not accurately represented in the market data used for retail development market
analysis.
This thesis researches how improved retail market analysis data can help spur more
inner-city retail development, with a specific focus on how Social Compact's 2009 Neighborhood
Market DrillDown report for the City of Miami can support increased inner-city retail development
in the city. The research looked at the history of inner-cities, the retail development process, and
the use of DrillDown reports in Cleveland, Ohio and Houston, Texas, and then studied Miami!s
economic development context and its developing strategy for the dissemination of the
DrillDown report. It is concluded that the Neighborhood Market DrillDown reports have the
potential to be an important enabler of increased inner-city retail development. However, this
success is completely contingent on the data!s passage through the Retail Market Information
Flow framework that this thesis stipulates that actionable market data flows through in a city's
development process. The essence of the flow framework is that it is a series of networking and
collaboration steps that determine how effectively a city!s public, private, and non-profit actors
work together to support the use and acceptance of improved data and apply it effectively to
retail development deals.
LCAPITAL APPRECIATION POTENTIALS OF CHINESE RESIDENTIAL MARKET: IDENTIFICATION OF INVESTMENT OPPORTUNITIES
Philip Gin Shun Wang and Jia Qian
Advisor: William C. Wheaton, Professor of Economics
The mission of our thesis is to assist residential real estate investors and developers
in making more systematic investment decisions when selecting Chinese cities. In
particular, our thesis has three major objectives, (1) to understand the residential price
appreciation with respect to economic growth among 35 core Chinese cities, (2) to
understand the dynamics of the residential market fluctuation, and (3) to predict the
residential market movement.
Our models have suggested that the residential markets of Tier II Chinese cities shall
outperform those of the other tiers in terms of capital appreciation under a sustainable
economic growth condition, with Tier I Chinese cities experiencing the least collective
growth.
Interestingly, our models have suggested that historical performance is a relatively
good indicator of medium-term performance, in terms of capital appreciation potentials,
under an up-market cycle. Our results have indicated that the capital appreciation
performance ranking of our 5-year prediction period to 2012 are relatively consistent with
the capital appreciation performance ranking of the historical 9-year trend between 1999
and 2007. In particular, our top five cities with the highest capital appreciation for the
5-year period to 2012 are Xiamen, Ningbo, Nanchang, Taiyuan, and Fuzhou, respectively; in
comparison, the top five cities with highest capital appreciation for the 9-year period to
2007 are Ningbo, Xiamen, Qingdao, Nanchang, and Xian, respectively.
In terms of residential market dynamics, our models have revealed that the increase
in sales transaction volume, the decline in real prime rate, and the loose mortgage policy
have all contributed to the overheating of the Chinese residential market in 2007. But as
the monetary policy and lending standards tighten, the sales volume was curbed and prices
lost its steam. We observed that the policy change was not the only cause to the
slowdown in sales transaction volume, but also the continued sales price growth; in fact, the
policy change was a cause of the over-heated market. If the current pattern continues and
supported by favorable policy, we expect the market shall show signs of relief in 2010;
however, if prices over-shoot in the coming months, the market performance may actually
reverse.
SmartSpaceTM: Opportunities for a New Real Estate Product
Si Yuan Qiu
Advisor: Dennis Frenchma, Professor, Department of Urban Studies and Planning
SmartSpaceTM, or "S2" for short, is a super-efficient, super-cool, super-small studio apartment with many built-in features designed to be built in very high density, prime, city locations. This thesis has two main objectives: 1) explore the design of SmartSpaceTM and recommend changes so that it will better fit the needs of its users; and 2) identify target markets and locations for S2 development.
To achieve the first objective, I stayed in an S2 prototype unit for five days and five nights to get the full SmartSpaceTM experience. During my stay, I surveyed 14 graduate students and young professionals to collect their feedback regarding the design of the unit. My S2 experience was generally positive, but the unit felt more like a hotel than an apartment. To live there for a year or more, I recommended among other things, a larger, more functional kitchen, a redesigned bathroom/shower, and a bigger closet. Survey participants had similar and additional detailed feedback. The suggestions were reported to the developer and architect working on S2 so the improvements can be made.
To achieve the second objective: 1) historical trends and precedents of small living space were studied; 2) housing representatives at major universities were interviewed about graduate student housing preferences; 3) patterns were identified in the S2 survey results to make conclusions as to what groups of people will most likely be interested in living in S2; and 4) a methodology was created utilizing demographic and rental data to find the most appropriate locations for S2 development. Finally, the site where the first S2 building will be built was examined and assessed using the same criteria as those used in the site-selection methodology.
The identified users are: graduate students, workers on temporary assignments (interns, traveling nurses, consultants, etc.), and recent movers. The locations found to be best for S2 development are: Financial District, Gramercy, Greenwich Village, and Midtown in Manhattan; Pacific Heights and Western Addition in San Francisco. The development site in Berkeley was found to be a fair location.
HOUSING MARKETS: MEXICO
Ricardo M. Solórzano M.
Advisor: William C. Wheaton, Professor of Economics
What, When and Where to Develop? The purpose of this study is to help find the major areas of
opportunity for housing development and production in Mexico. The thesis intends to help developers
in their eternal quest for the right product, location and timing. The answer to these questions will not
only help developers with decision making regarding housing projects, but will be helpful to the industry
as a whole. It will help lending institutions determine which projects to finance and will be a valuable
tool for local and federal governments in determining which cities and income levels or housing
products need higher government subsidy or support.
The number of housing units sold in Mexico in the last decade has almost quadrupled, yet market
forecasts generated by institutions and developers seem negligible. A greater effort to assess the
housing demand and deficit has been made by private institutions and government entities which
finance most housing sales in the country, while developers seem only to go as far as is necessary to
secure financing for their respective projects.
This study provides an outlook of the housing markets in Mexico and includes an analysis of what is
currently being done to measure and forecast housing demand. The thesis concludes with rigorous
economics analysis intended to forecast markets through a Vector Autoregression (VAR) Model. The
model uses 15 years of historical data on housing prices, inventories and sales with economic and
demographic variables to create forecasts for seven cities representing each of the seven regions the
country was segmented into for the study.
Corporate Governance: The Case for Asian REITs
Denise Tan
Advisor: Lynn Fisher, Associate Professor of Real Estate
At the entity level, the design of sound corporate governance mechanisms is critical for REITs that are preparing to go public. At the industry level, issues of transparency and corporate governance are consequential to the further development of REITs in Asia. This study looks at various REIT regimes and corporate governance systems around the world. It then proceeds to examine the governance structures in place at the time of an IPO in the emerging REIT market of Singapore. The mechanisms of corporate governance used to evaluate the IPO of the REIT include (i) board structure and composition, (ii) ownership, (iii) compensation, and (iv) takeover defenses. The findings point to evidence that corporate governance structures are not “one size fits all” and must be tailored to fit the appropriate institutional context.
Demand Segmentation: Adapting a Marketing Method to Real Estate Development
Michael Burr Tilford
Advisor: Brian A. Ciochetti, Professor of the Practice of Real Estate
Marketing is commonly mistaken in the real estate development industry for the practice of
advertising and sales. In reality, marketing is a set of concepts and methods created primarily in
the consumer packaged goods industry that start with a focus on the consumer. Many of these
concepts and methods can be used in the real estate development process to create more
thoughtful and competitive projects. This thesis focuses on the marketing concept of demand
segmentation and whether the real estate development process could be better served through a
more defined focus on identifying specific consumers through demand segmentation techniques.
Specifically, this thesis will answer the following questions:
What is the existing structure for real estate market analysis? What is the concept of demand
segmentation and how might it apply to real estate development? How has consumer
segmentation specifically been applied in real estate development ventures? What are some
important considerations to be aware of when developing real estate for a specific consumer
segment?
To answer these questions, this thesis reviews current thinking on demand segmentation through
a review of relevant, marketing related literature for both the real estate and consumer packaged
goods industries. This thesis also examines three subject developments that are examples of
completed real estate development projects that serve the specific needs of a deliberately
identified demand segments. The intention of this thesis is to define current marketing practices,
analyze how a concept commonly used in the consumer packaged goods industry can be adapted
for real estate and discover a body of questions and conclusion that can advance the practice of
demand segmentation on real estate development.
Opportunities and Challenges of investing in Indian Real Estate
Kunal Wadhwani
Advisor: Dr. Gloria Schuck, Lecturer, MIT Department of Urban Studies and Planning
In recent years, global real estate investment has become an important component of efficient global
mixed asset portfolios. Although these investments carry increased political, regulatory and currency
risk, international real estate investment has been on the rise. Compelling macroeconomic and
demographic trends along with improvements in structural and regulatory conditions and investment in
infrastructure are driving strong real estate capital flows into the emerging markets. This thesis provides
a study of the opportunities and challenges of investing in one emerging market, India.
With a population of over 1 billion, India has been a major beneficiary of the “Globalization of Real
Estate”. This thesis identifies the opportunities in India that have caused global capital to flow into
Indian real estate and the key factors driving Indian real estate. It explains the challenges of investing in
Indian real estate and seeks to provide strategies for navigating the real estate landscape in India.
The Effect of Real Estate Mortgage Investment Conduit Regulations and Standard Pooling & Servicing Agreements on Commercial Mortgage Backed Security Work Out Success and Profitability
William Casey Wells
Advisor: Lynn M. Fisher, Associate Professor of Real Estate
This paper examines REMIC regulations and Pooling and Servicing Agreements in an effort to ascertain if either the REMIC regulations or standard Pooling and Servicing Agreements are unnecessarily restrictive in the context of maximizing the profitability and minimizing losses associated with CMBS workouts, with particular attention given to the current real estate climate. The paper begins with a brief history of REMICs and moves on to an examination of the statutory requirements governing the creation and maintenance of REMIC status. Next, an examination of standard Pooling and Servicing Agreements is performed followed by attempts to identify weaknesses in REMIC regulations, which are illustrated by hypothetical examples. Potential modifications to REMIC regulations are divided into two categories: Preemptive Default and Actual Default. The paper concludes that, excepting for the discretionary short term allowance of balloon payment extensions, preemptive default modifications are unwarranted and impractical. However, the author also draws the conclusion that improvements to PSA‟s might be met through better integration of master and special servicers in certain scenarios and that REMIC regulations might be improved by allowing for certain material changes to collateral as well as carve outs in default scenarios as well as short run stop gap measures including REO Debt lending and an increase to the allowable length of the REO hold period.
Ghost Towers: Distressed Condominium Investing in Atlanta
Faraji L. Whalen
Advisor: Lynn Fisher, Professor of Real Estate
The purpose of this paper is to explore investment opportunities in these now-distressed
residential condo properties. The paper will characterize the economic and development
environment to determine the extent of overbuilding and forecast future behavior amongst
market participants. It will assess the behavior of bulk condo investors in previous downturns to
assess both similarities and differences in the environment, and identify best practices in
investment and asset management. Additionally, the paper will characterize the legal and
management risks inherent in this type of investment.
The paper will conclude that there are a number of different strategies for investing in bulk
condos and their underlying debt. One of the hardest hit markets is Atlanta, Georgia, which is the
focus of this paper. Each of these strategies is contingent on the type and expertise level of the
individual investor, but there are certainly going to be appropriate avenues for investors to create
value both from the physical asset and from purchasing debt. Atlanta is likely going to be an
excellent market to pursue these deals because of unique localized factors including
extraordinary state distress, low asset pricing, and limited competition. The findings in this paper
conclude that distressed condominium investing is an extremely localized business, and the
recommendations made in this paper are specific to Atlanta. While an investor may use the paper
as a guide for investment in other locales, it would not be appropriate to use a cookie cutter
approach in every city. There are also many risks and a great deal of unknowns in the bulk condo
space. This downturn differs significantly from past real estate crises because of the complexity
of the financial instruments used to fund condo projects as well as a completely different
government response. It is clear that the government response up to this point has been as much
of a hindrance as it has been a help. Government action must engage investors in financial
instruments in a more predictable manner, and assure they will not engage in punitive legislative
behavior to investors who profit from this crisis.
An Analysis of U.K Property Funds Classified According to U.S Styles: Core, Value-added and Opportunistic
Guoxu Xing
Advisor: David Geltner, Professor of Real Estate Finance
This analysis explores the feasibility of sorting UK funds into three different styles, which are
widely used in the US. In an overview of major factors’ impact on the expected risk of a fund,
the analysis shows that leverage is by far the most influential factor, followed by the subtype
diversification. In a preliminary style-classification, the study uses Loan-to-Value ratio (LTV) as
the dominant factor, defining funds with no debt as core, funds with LTV lower than 40% as
value-added, and funds with higher than 50% LTV ratios as opportunistic. Then the study makes
some adjustments to this classification based on the observation of the funds’ attributes other
than LTV, and the adjusted classification ends up with 19 core funds, 22 value-added funds and
21 opportunistic funds. After that, three major differences between the UK and US funds are
found. First, the core approach represents a smaller portion of the UK funds than the US funds
and the opposite is true for the value-added approach. To improve the feasibility of researchers
comparing funds within these two countries, the thesis suggests using a fourth style, core-plus.
Second, the average LTV for core and value-added approaches is much lower in the UK than in
the US. Third, the US opportunistic funds seem to have better performance than their UK
counterparts with similar leverage ratio, while future studies would help draw more precise
conclusions about the performance comparisons.
Public Market Development Strategy: Making the Improbable Possible
Joshua Charles Zade
Advisor: Karl Seidman, Senior Lecturer in Economic Development
Public markets were once central components of the urban food system in American cities, but declined in number and importance by the middle of the 20th century. Despite a diminished role in feeding the city, public markets have persisted, and interest abounds in both existing markets and the development of new ones. In addition to creating an alternative to the mainstream commercial food system, public markets can generate a range of community benefits including small business opportunities, preservation and promotion of local foods and foodways, and a forum for public interaction. Despite these benefits, developing new, permanent, indoor markets is a unique challenge.
This paper investigates development strategies for organizations seeking to create new public market halls in U.S cities. Literature specific to public market development is reviewed and contextualized within broader real estate planning frameworks. A detailed case study of the Boston Public Market Association and its efforts to develop a new public market hall in Boston illuminates the difficulties of successfully advancing a public market project. In particular, current opportunities facing that organization illustrate potentially successful strategies to develop a new public market.
While developing a public market is not simply a real estate problem, the real estate world’s twin criterion of “most fitting and probable use” suggests an appropriate planning structure for public market proponents. By planning for a market that is “most fitting” in response to a range of local contexts, market advocates can make the improbable possible by adopting an opportunistic real estate strategy and attracting support and resources from both the public and private sectors. Given the long timeline market projects may face, sustained commitment and diligent activity are essential to successful market development.
