Thesis Research
2011 Theses
Following are a selection of theses abstracts by members of the Class of 2011. Alums and Partners, join MITREX (The MIT Real Estate Exchange) to download complete theses. For non MITREX members, theses can be purchased from the MIT Libraries.
How to Best Redevelop Vacant Big Box Retail Property in Texas
Alfonso Barrera-Villarreal
Abstract
The Future of Lease Accounting and its Impact on Corporate Real Estate Decisions
Timothy R. Canon
Christina A. Fenbert
Abstract
Developing Tomorrow: Creating and Financing the Ideal Public Realm for Mixed-Use Urban Projects in Denver’s South Lincoln Redevelopment
Elizabeth DiLorenzo
Abstract
Luxury Condos: An Analysis of Sales Price and Hotel Amenities in Manhattan
Amelia Jane Dolan
Abstract
Examining Issuance and Pricing of Commercial Mortgage Backed Securities During the Financial Crisis of 2007 – 2009
Michael J. Ellch
Abstract
Prefabricated Housing, a Solution for Ghana’s Housing Shortage
Evans K. Essienyi
Abstract
Conversion of Residential Neighborhoods Into Affordable Assisted Age-in-Place Communities
Yael Getz Schoen
Abstract
Alternative Investment Opportunities in Real Estate for Individual Investors
Jeffrey D. Harper
Abstract
Evaluating and Mitigating Execution Risk in Indian Real Estate Development
Neal Howard
Abstract
The Luxury Second Home Market, An Analysis of Historical Sales and Property Data at The Greenbrier Resort (White Sulphur Springs, WV)
Hunter L Kass
Abstract
Examination of the Real Estate Market Risk and Volatility Focusing on the U.S. Office Property
Hyunjae Kim
Abstract
The Determinants of Foreign Direct Investment in U.S. Real Estate: An Empirical Analysis
Min Liang
Sunghoon Yoon
Abstract
The Transit Oriented Basis Boost: Adapting the LIHTC to Finance Affordable Housing Near Transit
Alex Magliozzi
Abstract
Liquid Real Estate Investment Fund in Latin America: Analysis of Worldwide Best Practices and Portfolio Proposal.
Andres Martinez
Abstract
Strategies for the Private Development of Workforce Housing in New York City
Samuel Moore
Abstract
New Urbanism on a Grand Scale: The Challenges for Large-Scale, Multi-Phase Master Planned Developments
Edward J. Olchowicz, CFA
Abstract
Is Morocco an attractive destination for foreign investors looking to invest in the residential real estate segment?
Khadija Oubala
Abstract
Grocery-Anchored Shopping Centers: A Better Retail Investment?
Adam Schwank
Abstract
An Analysis of Sovereign Wealth Funds and International Real Estate Investments
Pulkit Sharma
Yoohoon Jeon
Abstract
The Process of Resort Second Home Development Demand Quantification: Exploration of Methodologies and Case Study Application
Christopher J. Wholey
Abstract
How to Best Redevelop Vacant Big Box Retail Property in Texas
Alfonso Barrera-Villarreal
Advisor: William C. Wheaton, Professor of Economics
The purpose of this thesis is to analyze how a developer can best redevelop a vacant big box retail property. To accomplish this, statistical, geographical and demographical analysis was done on previously repositioned vacant big boxes. To make this project manageable, the timeline for this study was limited to properties redeveloped within the last ten years and the geographic scope was narrowed to the state of Texas.
Sales data on vacant big boxes sold in Texas within the last ten years was collected from Real Capital Analytics. Research was conducted via Internet, telephone and site visits in order to determine the current use of each property and was later categorized by current use. Each property’s tax appraised value at the time of sale and today was collected from each properties county appraisal district and compared in order to measure changes in value from the re-positioning. Three previous and relevant studies have been conducted prior to this thesis, two by Colliers International and one by Texas A&M University. All three are discussed in detail and incorporated into this thesis.
Results show that big boxes in high population density locations found new tenants much faster than those in less dense locations. Rental rates on average fell further for freestanding repositioned big boxes when compared to big boxes that were a part of a multi-tenant property. The properties where the old structure was demolished and a new structure was built had the largest increase in both total tax-assessed value and taxassessed land value. Properties that still had the same existing structure and remained vacant lost the most tax-appraised value.
The Future of Lease Accounting and its Impact on Corporate Real Estate Decisions
Timothy R. Canon
Christina A. Fenbert
Advisor: W. Tod McGrath, Lecturer
This thesis explores the likely impacts the proposed changes to lease accounting would have on corporate real estate decisions. The Financial Accounting Standards Board (SFASB) and the International Accounting Standards Board (IASB) plan to establish a unified set of principle-based accounting systems into a unified set of principle-based standards in an effort to improve financial transparency and comparability across world markets. One component of this plan, centered on reform of current lease accounting standards, would eliminate the distinction between capital and operating leases and require almost all leases to be recognized as an asset and liability on the balance sheet. This represents a significant departure from the current accounting guidance under Generally Accepted Accounting Principles (GAAP), which requires American companies are only required to disclose only limited information about future operating lease requirements in the footnotes of financial statements. What’s more, empirical evidence suggests that many companies structure leases to obtain this type of offbalance- sheet financing that operating leases afford.
For companies with relatively large operating lease portfolios, the new accounting standards would have a significant impact on their balance sheets. If these companies consider accounting treatment in their real estate decisions, they may be inclined to pursue alternative real estate strategies to mitigate this impact. That being said, the corporate real estate decision-making process is complex; therefore any strategy aimed at achieving a specific accounting treatment must consider other relevant and potentially more important factors.
This study analyzes the proposed changes to lease accounting and explores how corporate real estate managers consider the effects of accounting in their real estate decisions. Specific hypotheses are tested through targeted interviews with a diverse group of public and private tenants and landlords to identify the variables that would determine a particular company’s incentive to change its real estate strategy in response to new accounting guidelines. Results of interviews are discussed and predictions are made regarding the future of real estate leasing strategies.
Developing Tomorrow: Creating and Financing the Ideal Public Realm for Mixed-Use Urban Projects in Denver’s South Lincoln Redevelopment
Elizabeth DiLorenzo
Advisor: James Buckley, Lecturer, Department of Urban Studies and Planning
Society is at a crossroads; humanity is facing a new kind of threat to our personal happiness as our cities face the real risk of losing quality public space, the heart and soul of our urban civilization. The construction of an inspiring public realm develops a sense of place that people value and are attracted to living in. Pedestrian infrastructure and public spaces have essential roles in maintaining a healthy and vibrant community. These public infrastructure attributes of mixed-use developments however tend to be the most difficult to finance. In order to build a successful project a mixed-use developer requires the skills and knowledge to understand what constitutes a quality public realm and how to incentivize the financing. An important dichotomy exists; a great public realm is only developed though a strong public private partnership, with the addition of creative financing strategies, an interdisciplinary approach, and commitment to improving public spaces in the built environment.
This thesis will examine what the most important attributes of a successful public realm are, why these attributes are important, and what strategies are available to finance the public realm in the future. There are a variety of financing mechanisms available for developers to leverage, yet many mechanisms are incredibly specific, require a strong expertise, and are difficult to bundle together in order to fill the financing gap that mixed-use projects require. This thesis will categorize financing mechanisms available for mixed-use development into six main categories and will discuss the advantages and disadvantages of each. Financing mechanisms have a direct affect on the quality of the public realm and cities need to ensure their policies are incentivizing the outcomes citizens demand: a quality public realm.
More specially, this thesis will analyze a successful mixed-use development case study in Denver, CO: The South Lincoln Redevelopment. This project is a mid-century public housing site that is being transformed into a mixed-income, mixed-use, transit-oriented urban development. Denver Housing Authority, the developer, has used various financing strategies to specifically enhance the public realm of this development. Some of the financing alternatives are not available to a private developer so this thesis will propose how one could replace financing mechanisms, such as a HOPE VI grant, with other sources while maintaining a quality public realm. This thesis will focus on a few key questions. First, why does the public realm matter? Second, what determines a quality public realm for mixed-use urban developments? And lastly, how can developers begin to look at how to finance these much needed improvements?
Luxury Condos: An Analysis of Sales Price and Hotel Amenities in Manhattan
Amelia Jane Dolan
Advisor: William Wheaton, Professor of Economics
The purpose of this research project is to examine the market pricing behavior of condos with hotel amenities in the Manhattan condo market. To do this, data was compiled from multiple sources to track variations in price paid per square foot controlling for whether the unit was part of a building with hotel amenities, among other things. Prices were tracked from 2004 through 2011 to capture the peak and fall of the most recent real estate cycle, during which luxury branded condos with hotel amenities saw a surge in popularity. The resulting analysis reveals a number of buyer preferences for building attributes as well as unit attributes.
To determine the value of each attribute, the regression controls for variables such as neighborhood, floor on which each unit is located, maintenance fees per square foot and bedrooms and baths. The results of this analysis reveal that buyers are willing to pay a premium for units in buildings which have been branded. It also reveals that, controlling for all other variables, buyers do not value hotel amenities as part of the branded package.
The timeliness of this research given the current surplus of unsold luxury condos should help developers responsible for the disposition of these assets by providing quantitative data to support the market and financial analysis tools already at their disposal. While this data focuses on the Manhattan condo market, the analysis and process can easily be translated to other major markets making this paper applicable to a wide range of readers.
Examining Issuance and Pricing of Commercial Mortgage Backed Securities During the Financial Crisis of 2007 – 2009
Michael J. Ellch
Advisor: Andrew Lo, Professor of Finance
Changes in the issuance of Commercial Mortgage Backed Securities are examined and contrasted with market events and policy action during the financial crisis of 2007 - 2009. Additionally, a sample of investment-grade Commercial Mortgage Backed Securities are separated by original rating and observed in a time series chart against the market events and policy actions from June 2007 through May 2010.
Prefabricated Housing, a Solution for Ghana’s Housing Shortage
Evans K. Essienyi
Advisor: John F. Kennedy, Lecturer, Center for Real Estate
Sub-Saharan Africa has been experiencing phenomenal population growth since the beginning of the 20th Century, following several centuries of population stagnation attributable to the slave trade and colonization. The region’s population in fact increased from 100 million in 1900 to 770 million in 2005. The latest United Nations projections, published in March 2007, envisaged a figure of 1.5 to 2 billion inhabitants being reached between the present and 2050 (CEPED, 2008).
The growth in population poses a lot of challenges for Governments of these countries, not the least is housing the masses. Some governments have explored industrialized building systems (IBS) – PREFAB HOUSES to address the housing shortage. The social and economic factors in these countries have impeded the success of these housing initiatives.
In 1952 the then Gold Coast government explored the possibility of employing industrialized Building Systems (IBS) – PREFAB HOUSES to relieve the housing shortage in the country, then a British colony. The government engaged Messrs. N. V. Schokbeton of Kampen, Holland as consultant of the project and producers of the Prefab houses. The program was abandoned on the recommendation of the United Nations Technical Assistance Mission on Housing to Ghana.
This essence of this paper is to reviews the UN report to the government of Gold Coast to learn why the project failed and what might be done to make such a project successful in the 21st century. This paper uses case studies to show countries that have successfully and unsuccessfully employed Industrialized Building Systems (IBS) – PREFAB HOUSES to address housing shortage.
Finally, this paper employs a survey to gauge the interest - the willingness of the middle income Ghanaian to adopt prefab houses as dwelling units.
Conversion of Residential Neighborhoods Into Affordable Assisted Age-in-Place Communities
Yael Getz Schoen
Advisor: Dennis Frenchman, Leventhal Professor of Urban Design and Planning
The purpose of this thesis is to develop a new senior housing and service product for the aging population of the next decade. The thesis starts with an overview of the senior housing industry in its current condition in 2011. It discusses the demographic characteristics of the population, the senior housing trends across the world, the changing needs and desires of the baby boom generation, the different housing products available for the elderly, the entitlement programs, and financing methods for development and operations of senior housing. Then it focuses on the Boston senior housing and assisted living industry, and looks specifically at 5 active case studies that range from housing to service providers: 2 senior housing projects, 2 assisted living projects and 1 village service provider to understand their specific models of operations, financing and designs. The case studies are analyzed and compared in how they serve the user and the developer from the perspective of affordability for the user, extent of subsidies used by the developer, appropriateness of design, extent of services and ability to service people with dementia or Alzheimer.
The thesis then zooms in even further into the Cambridge, MA community and identifies senior housing problem for the middle income level of society. Using all the tools learned from the global industry and the Boston metro area case studies we suggests a new senior housing product that will solve the challenge of serving the elderly population, while allowing the residents to age in place in an affordable assisted setting.
Alternative Investment Opportunities in Real Estate for Individual Investors
Jeffrey D. Harper
Advisor: W. Tod McGrath, Lecturer
This thesis will evaluate whether an unsatisfied need to access private commercial market real estate investment opportunities exists on the behalf of individual investors via their Individual Retirement Accounts (IRAs) and 401(k)s and, if so, what the optimal investment structure is to accommodate that need given certain investment parameters.
Institutional Investors, with few exceptions, maintain some percentage of their investment portfolios in commercial real estate assets. That allocation to real estate assets can be achieved in any combination of the following investment vehicles: direct ownership (separate accounts), public real estate investment trusts (REITs), closed and open-ended commingled private equity funds, and joint ventures with local partners or developers. According to the Pension Real Estate Association (PREA), the average institutional investor currently allocates approximately 9% of its investment portfolio to real estate, with public REITs only serving as 5% of that allocation. The remaining 95% is composed of direct investment, closed and open-ended commingled funds, and joint ventures. Institutional investors have a long time horizon and a myriad of resources at their disposal to optimize their asset allocations. But can individual investors with similar long-term liabilities replicate institutional real estate strategies within their own retirement portfolios?
Individual investors are increasingly becoming their own fiduciaries through defined contribution programs; defined benefit plans’ percentage of total retirement assets in the US has been in significant decline for decades, with no sign of reversal. Real estate is an important asset class for pension plans in terms of providing current yield, inflation protection and diversification; it should be equally important in individual investors’ portfolios. This thesis argues that one way for individual investors to efficiently gain private market commercial real estate investment exposure is through a multi-manager core fund held within a collective investment trust.
Evaluating and Mitigating Execution Risk in Indian Real Estate Development
Neal Howard
Advisor: Christopher M. Gordon, Lecturer, Center for Real Estate
Real estate development is a complex process in which developers and equity investors look to capitalize on favorable financial markets and economic forces to produce investment returns. Real estate development is a risky venture in even the most mature economies that possess transparent government regulations, reliable local and national legal systems, efficient capital markets, skilled labor markets and substantial market demand data. These issues are magnified in an emerging market where few of the above ingredients are readily available. However, the hypothesis of this thesis is that a developer can better assemble its development team, positively impact performance, and reduce execution risks by reorganizing project teams with the resources currently available in India.
This thesis contemplates the evolution of real estate development design and delivery methods as developers compete to deliver real estate assets; equity investors seek greater insulation from execution risk; and a growing stable of qualified construction professionals compete for contracts. However, demand for real estate assets, equity investment hurdles and increased competition are pressuring developers to consider design and delivery methods that decrease the time to market and contemplate risk allocation.
The analytic approach of this thesis is to: 1) document common delivery methods in India through a series of interview with developers, architects, project management consultants, quantity surveyors and contractors, 2) compare and contrast the delivery methods and allocation of execution risk in the United States and India and 3) propose a management plan to further mitigate execution risk through different risk allocation and delivery methods. The goal of this thesis is to provide developers and equity investors insight into the evolution of the Indian delivery process and identify emerging opportunities to mitigate execution risk.
The Luxury Second Home Market, An Analysis of Historical Sales and Property Data at The Greenbrier Resort (White Sulphur Springs, WV)
Hunter L Kass
Advisor: William Wheaton, Professor of Economics, Thesis Supervisor
The global economic expansion and subsequent creation of wealth as well as increased purchasing power and disposable income has contributed to the growth in the secondary home market. Over the past decade developers that cater to such discerning buyers have focused significantly on bringing to market products that will meet the wants, needs, and expectations of their target customers. Despite the significant growth in the secondary home market and general infatuation that most individuals have with real estate, there are limited studies that analyze the second home market. Instead most research has focused on the commercial and primary home real estate markets. This study examines a specific development, The Sporting Club at The Greenbrier Resort in White Sulphur Springs, WV.
The study focuses on the residential home price transactions that occurred at The Greenbrier Resort since 1980. The data collected from the Greenbrier County Assessor!s Office will be used to derive a hedonic price equation. This equation will help to explain the value derived from key home attributes; beds, baths, home square footage, and location. Then a nominal and real price index will be constructed and used to understand the correlation between home prices and supply and GDP. The end goal is to calculate, through regression analysis, a price equation with the dependent variable price and independent variables of supply and demand (GDP) and a supply equation.
The analysis has three conclusion sections. The first is the hedonic price equation that implies the law of marginal utility is recognized with respect to the number of bedrooms a home has and that any more than three a negative affect on price occurs. However, with respect to bathrooms, additional bathrooms do add to the price of the residence. The second and third conclusions are derived from time series equations. The first explains that for every increase by 1% in GDP the real price of a property increases by $4,332. The second equation tries to explain supply and concludes that a 5% increase in the real price index causes a 5.4% increase in supply or unit supply elasticity is observed.
A recommendation for the owner/developer of The Greenbrier Sporting Club is to buyback vacant lots because currently 78% of the supply is in control of the owners. This phenomena will most likely lead to future price volatility as supply will be delivered to the market as families and speculators chose. In other words supply will not be delivered to the market at a rate that will stabilize prices.
Examination of the Real Estate Market Risk and Volatility Focusing on the U.S. Office Property
Hyunjae Kim
Advisor: William Wheaton, Professor of Economics
The high risk and volatility in the current real estate market has sparked investor interest in understanding what determines real estate market volatility. This study examines the U.S. office markets‟ overall and decomposed volatilities in vacancy and revenue across 45 metropolitan areas from 1987 to 2010. The relationships of the volatilities with economic and physical market characteristics are also analyzed.
The study examines five overall or decomposed market volatilities: volatility in vacancy, volatility in revenue, demand-oriented vacancy change volatility, occupancy-oriented revenue change, and covariance of occupancy rent change. The linear regression analyses are used to explain the movements of the volatilities with market determinants, which include market size, employment growth, jobs in specific industries, submarket structures and geography.
This study finds that geographical land availability and employment growth are significantly important for predicting market volatilities. Market size does not affect the decomposed volatility, but it reduces overall vacancy change volatility. Moreover, submarket structure becomes more meaningful when the revenue change volatility is decomposed into occupancy and rent changes. This study gives developers some tools for strategic decision-making in office property development issues.
The Determinants of Foreign Direct Investment in U.S. Real Estate: An Empirical Analysis
Min Liang
Sunghoon Yoon
Advisor: William C. Wheaton, Professor of Economics
This thesis provides an empirical analysis of the determinants of foreign direct investment in commercial real estate (FDIRE) in the U.S. We examine the major factors that affect levels of FDIRE in the U.S. and foreign investors’ location preferences.
First, using panel data from 2002 to 2006, this research develops a model to test the importance of GDP, GDP growth, national investment level, exchange rate, and interest rate in determining levels of FDIRE in the U.S. from major developed countries. Results of the study suggest that economic growth of a country unexpectedly encourages domestic investment rather than foreign investment, and depreciation of currency value of the host country attracts more FDIRE.
Second, the study analyzes the spatial distribution of FDIRE at the state level for the time period 1999 to 2007. A set of location determinants is selected to explain the pattern of FDIRE. These determinants include size of population, personal income, commercial real estate vacancy rate, commercial real estate completion rate, population growth, and personal income growth. Results of the study suggest that foreign investors prefer larger and wealthier states for direct commercial real estate investment. There is also evidence showing that foreign investors begin to diversify toward less populous and less wealthy states.
The Transit Oriented Basis Boost: Adapting the LIHTC to Finance Affordable Housing Near Transit
Alex Magliozzi
Advisor: James Buckley, Lecturer in Housing, Department of Urban Studies and Planning
The Low-Income Housing Tax Credit is arguably the most successful and important program in American history for the creation of affordable housing. The program leverages private investment in affordable housing, through tradable tax credits, to produce quality affordable housing throughout the country. By providing additional money for projects in areas with especially low incomes and high development costs, the program has actively encouraged the creation of affordable housing in certain cities, towns and neighborhoods. At the federal level, the program has not, however, encouraged the development of housing near transit. Since 2008, when states were given the option to provide additional money for certain projects, five states began programs to provide additional money to projects near transit.
This thesis examines the possibility of providing additional money to projects near transit at the federal level, in the form of a transit-oriented basis boost. It starts with a brief introduction to the Low-Income Housing Tax Credit, followed by a discussion of the importance of housing near transit. It then examines what various states are doing to encourage affordable housing near transit, followed by a proposal for a federal basis boost program. The thesis culminates in a case study, showing how providing additional money to projects near transit might affect the economics of developing affordable housing near transit.
Liquid Real Estate Investment Fund in Latin America: Analysis of Worldwide Best Practices and Portfolio Proposal.
Andres Martinez
Advisor: William Wheaton, Professor of Economics
This work was inspired by three factors: as real estate increasingly becomes a global investment option, investors around the world turn their attention to real estate emerging markets, such as the Latin American one, looking for i) attractive returns, ii) diversification and iii) the option of liquidity. The latter characteristic, which has been -at varying degrees- more and more required by investors, is crucial in determining the investment strategy regarding target allocation for each real estate asset class.
It is crucial because, although every asset class behaves differently, real estate is an illiquid investment by nature; it involves a large amount of capital, whose return comes in the form of both yield and appreciation, resulting in lengthy due diligence periods and costly transactions.
Is important to note that attractive returns in emerging real estate markets do not always come easy; the lack of transparency and information in these markets is, many times, the toughest barrier to braek. This document proposes a methodology, based on economic models and mathematical procedures, to jump across the information barrier.
With this in mind, this thesis explores Real Estate Open-ended Funds and REITs, the principal real estate investment vehicles that provide liquidity to investors, in order to outline the specific characteristics that the underlying assets of a liquid real estate fund in Latin America should have.
Once the characteristics are defined, the document analyzes the historic performance of different asset classes and sub-classes to narrow the investment spectrum. The analysis was done on US data, as no historic real estate information is currently available for Latin America. Through a set of equations that resulted from a regression analysis based on the Four Quadrant Model (4Q)1, the performance of three selected retail asset sub-types in the US was projected to six Latin American countries (Argentina, Brazil, Chile, Colombia, Mexico and Peru).
The final product of this work is the proposal of an investment portfolio, based on the projected performance of three retail asset sub-types across six Latin American countries. The investment portfolio was calculated based on the modern portfolio theory (MPT)2.
Strategies for the Private Development of Workforce Housing in New York City
Samuel Moore
Advisor: Peter Roth, Lecturer, Center for Real Estate
A lack of quality housing affordable to the average worker near employment centers has long been an issue in American cities where the private production of housing for middle income families is restricted by market forces, zoning or physical boundaries. There are approximately 2.3 million middle income households in New York who earn between 80% and 150% of the Median Family Income who are priced out of market rate housing. These households are forced to relocate elsewhere or spend a daunting percentage of their time and income on housing and/or transportation.
The high cost of land, labor and materials are further exacerbated by zoning regulations and entitlement review processes to result in a prohibitively high cost of housing production. Governments across the US and in New York have developed various types of policy strategies aimed at subsidizing development and increasing the affordability of housing.
This thesis provides a summary discussion and perspective on the factors that increase the cost of housing production. It then reviews the different strategies utilized in reducing these costs, both nationally and locally in New York. Next it tests each strategy's effectiveness using a case study of a proposed development project in Brooklyn, NY. Finally it discusses the effectiveness of these strategies and proposes additional ideas that could also be effective in reducing the overall cost of housing, aiding in the effort to make housing more affordable to the average worker.
New Urbanism on a Grand Scale: The Challenges for Large-Scale, Multi-Phase Master Planned Developments
Edward J. Olchowicz, CFA
Advisor: Dennis Frenchman, Leventhal Professor of Urban Design and Planning
New Urbanism has been described as an urban design movement promoting the master planning and development of communities that have walkable, human-scale neighborhoods while integrating the necessary elements of modern life such as vehicular traffic and parking, wideranging retail offerings, and diverse employment centers. As its core, New Urbanism attempts to counter the multitude of problems stemming from the rise of automobile transport and resulting mass migration to the suburbs in the 20th Century, including sprawl, a lost sense of local community, lack of diversity, untenable housing and transportation costs, arduous commuting times, negative environmental impacts, and harmful effects to individuals’ physical health.
There have been a number of smaller – “town-scale” – New Urbanist developments built since the movement gained traction and formal organization in the 1980s. These communities have proved their mettle not only as positive social engineering experiments, but also as profitable business models for real estate entrepreneurs. The context for New Urbanism has changed greatly over the past several decades. Today, design and development firms are undertaking the construction of secondary cities and urban nodes with housing units numbered in the tens of thousands and areas measured in hundreds of acres. These “city-scale” developments carry risks and uncertainties that eclipse the rather controllable and largely foreseeable nature of small town development by requiring exponentially larger amounts of capital over periods typically extending more than a decade. The phasing in of the wide array of product types call for clear vision, steady leadership, and stalwart relationships, despite the real challenges of fickle political support, unpredictable economic cycles, and increasingly opportunistic labor pools.
The thesis will primarily focus on Miasteczko Wilanów, a master planned community in southern Warsaw, Poland. Supplemental research, through comparisons to Kentlands, Maryland and Pinehills, Massachusetts, will be presented. Through on-site interviews and analysis of historical documentation, the thesis will aim to 1) present the initial considerations and intentions of Miasteczko Wilanów; 2) chart the development’s progress and evolution from groundbreaking to present day; and 3) present conclusions and potential solutions towards better planning and implementation of similar “city-scale” projects.
Is Morocco an attractive destination for foreign investors looking to invest in the residential real estate segment?
Khadija Oubala
Advisor: Peter Roth, Lecturer, Department of Urban Studies and Planning
Over the last decade, Morocco has witnessed an accelerated process of political, economic and social reforms aimed at improving the business climate and solidifying the economic indicators. Morocco’s structural reforms share the objective of positioning the country as an attractive investment destination. The impact of these reforms has been felt in many sectors particularly real estate which has been developing at phenomenal rates in recent years. Aware of the great strides that Morocco has taken to position the country as an attractive investment destination, many foreign real estate developers expressed their interest to participate in the real estate sector. However, the financial crisis forced these developers to revise their business plans and put their projects on hold. Structured into three sections, the thesis aims to answer the question of: Is Morocco an attractive destination for foreign investors looking to invest in the residential real estate segment?
The first chapter introduces the country and highlights key social and economic reforms which establish Morocco as a growing emerging economy whose government is proactively introducing investor-friendly reforms, incentives and programs. The second chapter presents an analysis of the housing sector, its demand drivers and supply indicators. A market segmentation is then performed which coupled with a market analysis, case studies and interviews, reveals that the low income segment is the best segment to target for investment. The third chapter sheds light on the evolution of foreign direct investments in the real estate sector. It proceeds to identify the differences between the local and foreign developers in terms of focus, strategy and profitability as well as outline key measures that the Moroccan government should take in order to encourage foreign participation in the sector. The paper concludes with a summary of findings and an investment framework for future developers looking to participate in what seems to be a lucrative and rewarding sector.
Grocery-Anchored Shopping Centers: A Better Retail Investment?
Adam Schwank
Advisor: William C. Wheaton, Professor, MIT Department of Economic
A very popular hypothesis of late is that grocery-anchored shopping centers perform better and are less risky than other retail investments. This hypothesis is primarily based on three notions: 1) grocery stores are unique in their ability to attract shoppers on a regular basis, often two to three times a week. This provides a grocery-anchored shopping center with consistent traffic that benefits the in-line tenants; 2) Grocery stores represent a non-cyclical business. People need to eat whether the economy is strong or weak, therefore, grocery-anchored shopping centers can rely on a minimum level of traffic regardless of economic conditions; 3) Many retailers have experienced significant sales leakage to the Internet. This has recently led to the concept of replacing large stores with small showrooms. However, the Internet has not impacted the grocery store business as significantly. Although some grocers have attempted to implement online stores, the model has been difficult to implement and unsuccessful. Therefore, many investors view grocery-anchored shopping centers as a hedge to the threat of online shopping faced by other retailers. These three characteristics have led many core investors to allocate capital to grocery-anchored shopping centers since they are viewed as stable and low-risk investments relative to other real estate alternatives.
The purpose of this Thesis is to evaluate the performance of grocery-anchored shopping centers relative to other real estate investments, primarily in terms of asset prices and capitalization rates. This Thesis will attempt to determine whether investors pay more for grocery-anchored shopping centers and whether a potential price premium is warranted based on actual performance. This Thesis will also measure the volatility of grocery-anchored shopping center prices compared to other retail and non-retail investments to help determine the relative risk of these investments.
An Analysis of Sovereign Wealth Funds and International Real Estate Investments
Pulkit Sharma
Yoohoon Jeon
Advisor: William C. Wheaton, Professor of Economics
In recent times Sovereign Wealth Funds (SWFs) have become an important source of international real estate investments. A number of reports predict the swelling of SWF combined assets from its current figure of $3-4 trillion to $8-12 trillion by 2015. It is also expected that a continuous growth in fiscal surpluses and accumulation of wealth by SWF nations may soon make the combined size of SWFs bigger than other capital market segments such as mutual funds and pension funds. This phenomenal projected growth in SWF assets has created an indispensable need to create and manage a diversified and robust international mixed-asset portfolio. This thesis investigates the relevance of real estate in the SWF portfolio from an execution strategy and portfolio hedging perspective.
The real estate strategy section introduces SWFs and their real estate investment behavior and trends. The authors collected execution strategy data by conducting open-ended interviews with real estate leaders of four major SWFs that invest in real estate and nine senior executives representing global real estate investment management and consulting firms. The interview responses are used to understand several topics ranging from the investment objectives and risk spectrum to future trends in SWF real estate investments. The thesis findings reveal the synergies and differences in the views of the two communities and also describe the execution preferences of SWF investors from the purview of their international real estate portfolio.
The portfolio-hedging section uses a macro-economic time series model based on long-term asset returns to determine the best hedges for four SWFs (Oil-based, China, Singapore and Korea) in three foreign destinations namely the UK, the US and Japan considering real estate and stocks as the two asset classes. The vector auto-regression (VAR) model presents an extended time series analysis that tests correlations, Granger causality and impulse responses between different home asset and foreign destination pairs. The thesis further illustrates through a simple stylized sub-portfolio analysis the optimal asset allocation between stocks, long-term bonds and real estate for the above combinations. The results show evidence that foreign real estate is an effective hedge against the changes in the home source of wealth for most SWFs. The time series hedging model is fed by long-term asset return data and can be replicated for other SWFs to determine their unique investment strategy. Further, the findings challenge the low allocations given by SWFs to real estate in their global portfolio.
The Process of Resort Second Home Development Demand Quantification: Exploration of Methodologies and Case Study Application
Christopher J. Wholey
Advisor: Peter Roth, Lecturer
Prevalent methodologies utilized by resort second home development professionals to quantify demand for future projects are identified and critiqued. The strengths of each model are synthesized in order to formulate an original, composite methodology for demand quantification with industry-wide applicability. This “best practices” synthesized model is then applied to a real world case study and backtested in an effort to gauge its accuracy. After analysis of its performance, modifications are made and an innovative method for forecasting absorption is added to its framework. The resulting product of this effort is the creation of the Comprehensive Resort Second Home Demand Forecasting Model.
