Multi-Dimensional Nature of Real Estate - Dr. James R. DeLisle
Multi-Dimensional Nature of Real Estate - Dr. James R. DeLisle
Multi-Dimensional Nature of Real Estate - Dr. James R. DeLisle
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Part I: Behavioral Science <strong>of</strong> <strong>Real</strong> <strong>Estate</strong><br />
Chapter 3: <strong>Multi</strong>-<strong>Dimensional</strong><br />
<strong>Nature</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong><br />
Overview: Fundamentals <strong>of</strong> <strong>Real</strong> <strong>Estate</strong><br />
This is the<br />
reorganized Fundamentals <strong>of</strong> <strong>Real</strong><br />
<strong>Estate</strong>. The book is organized into four major<br />
categories: the discipline, space-time, moneytime,<br />
and ownership, investment &<br />
management.<br />
Chapter 1: : Critical Thinking 1-29<br />
Chapter 2: : Behavioral <strong>Real</strong> <strong>Estate</strong> 30-66<br />
Chapter 3-4 Merged: Interdisciplinary Field<br />
<strong>of</strong> <strong>Real</strong> <strong>Estate</strong> 67-96<br />
(NOTE: Chapter 3-4 merged on 7/30/2010)<br />
© JR <strong>DeLisle</strong>, PhD<br />
i
<strong>Multi</strong>-<strong>Dimensional</strong> <strong>Nature</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong><br />
Table <strong>of</strong> Contents<br />
The <strong>Nature</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong> ......................................................................................................................... 68<br />
Space-Time, Money-Time <strong>Nature</strong> ............................................................................................................ 68<br />
Space-Time, Money-Time <strong>Nature</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong> ......................................................................................... 68<br />
Definition <strong>of</strong> <strong>Real</strong> <strong>Estate</strong> ........................................................................................................................... 68<br />
Spatial Elements <strong>of</strong> <strong>Real</strong> <strong>Estate</strong> .................................................................................................................... 68<br />
Space-Time Elements ............................................................................................................................... 68<br />
Money-Time Elements .......................................................................................................................... 69<br />
Residential vs. Commercial Land Use .......................................................................................................... 69<br />
....................................................................................................................................................................... 70<br />
Implications <strong>of</strong> ST/MT Dimensions ...................................................................................................... 71<br />
Space-Time/Money-Time Disconnect .......................................................................................................... 71<br />
Space-Time/Money-Time Reconnect ........................................................................................................... 71<br />
Lessons Learned: Importance <strong>of</strong> ST/MT to Spatial and Money Players .............................................. 72<br />
CMBS Delinquency Rates ............................................................................................................................ 72<br />
CMBS Issuance Activity ............................................................................................................................... 72<br />
Market Monitoring: The Money-Time Side ......................................................................................... 73<br />
The Money-Time Perspective ....................................................................................................................... 73<br />
Market Monitoring: The Spatial Side ................................................................................................... 74<br />
Space-Time Perspective ................................................................................................................................ 74<br />
The Three Factor Spatial Model ........................................................................................................... 75<br />
The Full <strong>Dimensional</strong>ity <strong>of</strong> <strong>Real</strong> <strong>Estate</strong> ........................................................................................................ 75<br />
Static Attributes ............................................................................................................................................ 76<br />
Neighborhood Attributes ............................................................................................................................... 77<br />
Submarkets and Trade Area Delineation ...................................................................................................... 78<br />
Linkages and Connectivity ............................................................................................................................ 79<br />
The Asset Class Debate ............................................................................................................................. 80<br />
Is <strong>Real</strong> <strong>Estate</strong> an Asset Class? ....................................................................................................................... 80<br />
Background ........................................................................................................................................... 80<br />
Criteria for Asset Class ......................................................................................................................... 80<br />
Unique Assets and Unique Market Mechanism ............................................................................................ 81<br />
Meaningfully Different & Significant Asset Class ....................................................................................... 83<br />
ii
Part I: Behavioral Science <strong>of</strong> <strong>Real</strong> <strong>Estate</strong><br />
Chapter 3: <strong>Multi</strong>-<strong>Dimensional</strong> <strong>Nature</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong><br />
Size <strong>of</strong> the Pie ............................................................................................................................................... 84<br />
Interdisciplinary <strong>Nature</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong> Asset Class .................................................................................. 85<br />
Interdisciplinary <strong>Nature</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong> ................................................................................................. 85<br />
Interdisciplinary Spectrum: A Life Cycle Approach .................................................................................... 85<br />
Summary Chapter 3 .................................................................................................................................. 95<br />
Section 3: Next Chapter ................................................................................ Error! Bookmark not defined.<br />
© JR <strong>DeLisle</strong>, PhD<br />
iii
Preview<br />
Chapter 3<br />
Overview<br />
This chapter explores<br />
the multi‐<br />
real estate. It<br />
begins with a discussion <strong>of</strong> the Space‐<br />
Time, Money‐Time components <strong>of</strong> real<br />
estate and the implications on<br />
dimensional nature <strong>of</strong><br />
participants in the market. It<br />
introduces a formal definition <strong>of</strong> the<br />
real estate product construct including<br />
static attributes, environmental<br />
attributes and linkage<br />
attributes.<br />
The discussion revisits the classic “Is<br />
real estate an asset class?” debate. It<br />
presents an argument that supportss its<br />
treatment as an asset<br />
class based on its<br />
uniqueness, meaningfulness and<br />
significance. It discusses the<br />
implications <strong>of</strong> this treatment on the<br />
industry. The chapter<br />
then explores<br />
the<br />
various<br />
areas <strong>of</strong> specialization in real<br />
estate and real estate‐related fields.<br />
This discussion is organized around the<br />
product life cycle including<br />
planning/production,<br />
acquisition,<br />
operation and disposition. It concludes<br />
that real estate is a distinct asset class<br />
and an inherently interdisciplinary field<br />
<strong>of</strong> study.<br />
Chapter3: <strong>Multi</strong>-<strong>Dimensional</strong><br />
<strong>Nature</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong><br />
What you will learn in Chapter 3<br />
The Space‐Time, Money Time<br />
components <strong>of</strong> real estate.<br />
The importancee <strong>of</strong> market monitoring <strong>of</strong> both the spatial and<br />
capital sides <strong>of</strong>f the industry.<br />
A formal definition <strong>of</strong> the real estate product including static,<br />
environmental<br />
and linkage attributes.<br />
The importancee <strong>of</strong> considering the full dimensionality <strong>of</strong> real<br />
estate.<br />
The vulnerability <strong>of</strong> real estate to externalities.<br />
The tests <strong>of</strong> an asset class and the implications <strong>of</strong> such a treatment.<br />
The unique nature <strong>of</strong> real estate.<br />
The meaningful elements <strong>of</strong> the asset class.<br />
The significance <strong>of</strong> real estatee<br />
A life cycle approach to real estate<br />
The key participants in the real estate process over its life<br />
cycle.<br />
Key Contructs<br />
© JR <strong>DeLisle</strong>, PhD<br />
67
<strong>Multi</strong>-<strong>Dimensional</strong><br />
<strong>Nature</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong><br />
The <strong>Nature</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong><br />
The late <strong>James</strong> A. Graaskamp noted the first “real estator” was a caveman. He created the first real estate<br />
by rolling a rock in front <strong>of</strong> his cave to: 1) shield him from<br />
the harsh elements, and 2) provide a space in<br />
which he could defend himself against attack. In effect, he created defensible space which was delineated<br />
by the size <strong>of</strong> the rock and the depth <strong>of</strong> the cave. No doubt, he soon began to carve out niches and<br />
dig out<br />
more dirt to make the raw cave more to his own liking. When the cavewoman joined<br />
him, the world<br />
<strong>of</strong> “customized real estate solutions” was born. Over time, the caveman<br />
was forced to defend his turf against thee elements and<br />
invaders – both animal and<br />
human – so it became important that he stake out his turf and set boundaries which<br />
would put others on notice.<br />
Space-Time, Money-Time <strong>Nature</strong><br />
Space‐Time,<br />
Money‐Timee <strong>Nature</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong><br />
Exhibit 3-1 presentss a stylized version <strong>of</strong><br />
Money‐time<br />
the Space-Time, Money-Time dual nature<br />
<strong>of</strong> real estate. The circular arrows refer to<br />
the three distinct constituencies involved<br />
in real estate: Space-Users, Space-<br />
Space‐time<br />
Producers, and Infrastructure<br />
Providers/Facilitators. Each <strong>of</strong> these constituencies depends on<br />
Exhibit 3- 1<br />
both the spatial and capital sides <strong>of</strong> the equation when dealing<br />
with real estate. This definition notes the fact that real estate has two elements: a spatial one referred to as<br />
the “Space-time” element, and a temporal one<br />
referred to as the “Money-time” element.<br />
Definition <strong>of</strong> <strong>Real</strong> <strong>Estate</strong><br />
On the<br />
surface, it might appear that a formal definition <strong>of</strong> real estate would be ratherr trivial; a piece <strong>of</strong><br />
property, a plat <strong>of</strong> dirt, a homestead, a house. In reality the real estate product construct is more<br />
complicated than that since it is not just the dirt that has value, but the rights that it bestows over time. In<br />
something <strong>of</strong> a poetic sense, real estate can be<br />
defined as<br />
“Artificially delineated space over time with a<br />
fixed reference point to the earth.”<br />
Spatial Elements <strong>of</strong><br />
<strong>Real</strong> <strong>Estate</strong><br />
Space-Time Elements<br />
The spatial dimension <strong>of</strong> real estate is to synthesis <strong>of</strong> the<br />
elements that distinguish as an asset. The specific<br />
elements and the roles they play include:<br />
Over Time<br />
Artificially<br />
Delineated<br />
Space<br />
Fixed<br />
Reference<br />
Point<br />
<strong>Real</strong> <strong>Estate</strong><br />
68
Chapter3: <strong>Multi</strong>-<strong>Dimensional</strong><br />
<strong>Nature</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong><br />
<br />
<br />
<br />
Artificially Delineated. The “artificially<br />
delineated” refers to the fact that real estate ownership<br />
entails control over a finite parcel <strong>of</strong> real<br />
estate for which the boundaries are clearly established.<br />
These boundaries define the<br />
geographic scope or areaa <strong>of</strong> which it is<br />
Exhibit 3- 2<br />
comprised.<br />
Over Time. The “over time” element refers to the fact that while the physical space may live<br />
forever<br />
–subject to events <strong>of</strong> epic proportions—control or ownership <strong>of</strong> that space lasts for a much more<br />
finite time. Initially, the period <strong>of</strong> ownership <strong>of</strong> the cave was coterminous with the period <strong>of</strong><br />
time the<br />
caveman was healthy and strong enough to defend it. Over time, when social and political systems<br />
were created, this period was extended beyond the life<br />
<strong>of</strong> the owner through the<br />
ability to pass on<br />
ownership rights to successors or designees, includingg third-party buyers.<br />
Fixed Reference Point. The “fixed reference” point is designed to<br />
provide a spatial anchor or<br />
reference point<br />
to the earth. Since each property has a unique location, it can be<br />
unambiguously<br />
defined to allow the owner to stake claim<br />
to the property, and to transfer or pledge rights to other<br />
parties.<br />
Money-Time Elements<br />
The money side <strong>of</strong> the equation relates to the capital-intensive nature <strong>of</strong>f real estate, as well as to the<br />
economic mobility <strong>of</strong> money. On<br />
the capital-intensive sidee <strong>of</strong> the equation is the fact<br />
that real estate assets<br />
are expensive on both per unit and per project<br />
bases. For example, a 3,500 square foot house may<br />
cost<br />
$100/SF which translates to $350,000 total cost. When landd costs <strong>of</strong> $150,000 are added, the acquisition<br />
cost could be around $500,000 or so depending on the market. If the same 3,500 building was an upscale<br />
<strong>of</strong>fice building, the cost/SF may be $200 for a $750,000 total cost. Since commercial<br />
uses might support a<br />
higher land cost <strong>of</strong> $300,000, the<br />
total commercial cost could be $1,000,000.<br />
Residential vs. Commercial Land Use<br />
While these costs might seem<br />
reasonable, the fact is that in<br />
most transactions, the full<br />
amount must be given to the<br />
seller before they will release<br />
their claim on the asset. As<br />
such, real estate is capital<br />
intensive. Since few<br />
buyers<br />
have an<br />
extra $500, 000-<br />
$1,000,000 sitting around,<br />
most would seek a mortgage to<br />
purchase the property. This<br />
introduces the “temporal<br />
dimension” to the problem<br />
since the mortgage must be<br />
paid <strong>of</strong>f over time. Without<br />
Residential Use<br />
Building<br />
Size: 3,500sf<br />
Cost/sf:<br />
$100<br />
Building<br />
Cost: $350,000<br />
Land Cost: $150,000<br />
Total Cost: $500,000<br />
Commercial Use<br />
Building Size: 3,500sf<br />
Cost/sf: $200<br />
Building Cost: $700,000<br />
Land Cost: $300,0000<br />
Total Cost: $1,000,000<br />
Exhibit 3- 3<br />
gettingg into detailedd financial analysis at this stage, a simple example may put this money-time part <strong>of</strong> the<br />
equation into perspective. In general, borrowers who use leverage may take out a mortgage for 80% or so<br />
<strong>of</strong> the cost. In orderr to support that loan, the lender “underwrites the deal” looking at<br />
whether the property<br />
is worth the cost, and whether the borrower has the incomee potential (i.e., ability to pay) and the will to<br />
© JR <strong>DeLisle</strong>, PhD<br />
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<strong>Multi</strong>-<strong>Dimensional</strong> <strong>Nature</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong><br />
pay (e.g., credit scores, prior loan repayment history) over time. Thus use <strong>of</strong> debt helps with the acquisition<br />
and transfer, but now shifts the problem to a repayment one where the lender must be compensated for<br />
advancing the funds. The lender typically charges some market-based interest rate and the borrower pays<br />
that rate plus part <strong>of</strong> the principal or loan balance each month. The amount <strong>of</strong> that loan is a function <strong>of</strong> the<br />
rate and the term over which the principal is repaid (this is known as<br />
amortization and will be explained later).<br />
One might argue that the money-time part goes away if the buyer<br />
merely spends their own money and doesn’t have to worry about<br />
repaying a mortgage. The reality is the money-time dimension is<br />
ever present even though it may not be explicitly considered in<br />
decision-making. That is, if the buyer puts up the full equity <strong>of</strong><br />
$500,000 for the house or $1,000,000 for the commercial property,<br />
there is still a money-time element that should be considered.<br />
Namely, the buyer could have invested the money in some other<br />
asset and earned money on that investment. Thus, the decision to use cash is an implicit decision to forego<br />
earnings on other alternatives. For example, if the buyer could earn 5% in a venture with about the same<br />
risk as the property, the residential buyer would be giving up $25,000/ year (i.e., $500,000 * 5%) while the<br />
commercial buyer would be giving up $50,000/year. So, in effect, whether a property is purchased for allcash<br />
or all-debt, the transaction has a temporal, capital dimension.<br />
Illustration <strong>of</strong> Money‐Time Dimension <strong>of</strong> <strong>Real</strong> <strong>Estate</strong><br />
The money‐time component comes into play again at the time denoted Value T2. This date could represent the<br />
sale <strong>of</strong> the property or negotiation <strong>of</strong> a new lease. Once again, the Value * Rate = Income equation holds but the<br />
income is now the income to support the T2 price (or the P2 income to yield the Rate). If the property sells for<br />
more at T2, the next buyer must be willing to put up more capital, or take out a higher loan. At this point, the<br />
mathematical analysis that went into the first transaction is<br />
Value T3 repeated. This is an<br />
important element <strong>of</strong> the Money‐<br />
Time equation; the<br />
ability to obtain Value T2 as Value T1<br />
Value T2<br />
an exit<br />
strategy for the initial buyer<br />
Exhibit 3- 4 only<br />
Value = Income<br />
works if the Income increases or<br />
* Rate<br />
meets<br />
Rate<br />
the P2 requirements.. The same<br />
is true<br />
at the time Value T3 is<br />
Income<br />
Value =Rate<br />
assessed,<br />
signifying that Value * Rate = Income<br />
the<br />
money‐time<br />
Income Time P‐3<br />
Income Time P‐1 Income Time P‐2<br />
dimension is<br />
always<br />
present with real<br />
estate<br />
ownership or<br />
control <strong>of</strong> rights.<br />
Cost T1‐1<br />
Cost T2<br />
Cost T3<br />
Cost T1<br />
The reality is the<br />
money-time<br />
dimension is ever<br />
present even though<br />
it may not be<br />
explicitly considered<br />
in decision-making.<br />
Commentary 3- 1<br />
The Money‐Time Dimensions <strong>of</strong> <strong>Real</strong> <strong>Estate</strong> are illustrated in Exhibit 3‐3. The numbers will be discussed later but<br />
it’s useful to approach the topic from a conceptual level at this point. The x‐axis is time and the y‐axis is money or<br />
value. During the period up to T1, the project is being developed as noted in the Cost T1‐T1 in red. Once the<br />
project is completed, it moves into the revenue generating phase which is T1‐T2. In order to justify the T1<br />
investment, the project must generate P‐1 Income (V T1 * Rate). During this period the owner or tenant enjoys<br />
the space‐time component but must satisfy the money‐time requirements.<br />
70
Chapter3: <strong>Multi</strong>-<strong>Dimensional</strong><br />
<strong>Nature</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong><br />
Implications <strong>of</strong> ST/MT Dimensions<br />
Recognition <strong>of</strong> the dual Space-Time and Money-Time scope <strong>of</strong> real estate has a number <strong>of</strong> important<br />
implications. In particular, it dictates that real estate pr<strong>of</strong>essionals must have an eye on both elements, with<br />
special<br />
attention to the degree to which they are integrated or aligned. For example, the recent collapse <strong>of</strong><br />
the commercial real<br />
estate market was based in part on the failure to remember “lessons learned” from the<br />
past. Unfortunately,<br />
the real estate industry seems to have a short memory span which is due in large part<br />
to the absence <strong>of</strong> critical thinking<br />
and the tendency to “go with the flow.”<br />
Example <strong>of</strong> Spatial/Capital Disconnect/Reconnect<br />
Space‐Time/Money‐Time Disconnect<br />
Exhibit 3‐5 presents a visualization <strong>of</strong> the real<br />
estate cycle and the recent disconnect<br />
between the spatial and capital sides. Over<br />
the long term, real estate values are driven<br />
70‐80% or so by market fundamentals and the<br />
other 20‐30% or so<br />
are driven by capital<br />
markets. This proportion changes over time,<br />
as in the latter part<br />
<strong>of</strong> the decadee <strong>of</strong> the 2000s<br />
when<br />
capital markets became disconnected<br />
from<br />
real estate fundamentals. During this<br />
phase, the infusionn <strong>of</strong> excess capital with little<br />
consideration for real estate fundamentals<br />
created a feeding frenzy where buyers were<br />
chasing deals thus bidding prices up to<br />
unsustainable levels. As a result <strong>of</strong> the<br />
Exhibit 3- 6<br />
disconnect, which was some 10 years in the<br />
making, the commercial real estate market collapsed in an unprecedented confluence <strong>of</strong> seemingly independent,<br />
but related, events.<br />
Space‐Time/Money‐Time Reconnect<br />
Once it was clear the easy, cheap,<br />
plentiful credit days had played out,<br />
the capital markets pulled back,<br />
dropping values some 20%. Then,<br />
investors began to think about risk<br />
again, driving cap rates up and values<br />
down. Finally, the economic recession<br />
hit real estate,<br />
driving vacancy rates<br />
up and rents down. At that point, the<br />
house <strong>of</strong> cards<br />
had collapsed, leaving<br />
many owners under water and<br />
creating an unprecedented surge in<br />
distressed assets. How it all plays out<br />
remains to be seen, but the costs have<br />
Exhibit 3- 5 been huge for<br />
those caught standing<br />
when the music stopped. While some<br />
argued it was better this time than in<br />
the 80s which was due to overbuilding, overpaying corrected faster and harder.<br />
© JR <strong>DeLisle</strong>, PhD<br />
71
<strong>Multi</strong>-<strong>Dimensional</strong><br />
<strong>Nature</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong><br />
Lessons Learned:<br />
Importance<br />
<strong>of</strong> ST/MT to Spatial and Money Players<br />
The ST/MT dimensionality <strong>of</strong> real estate argues that all parties should<br />
be aware <strong>of</strong> the full spectrum and<br />
not be lulled<br />
into focusing on their<br />
particular niche. This point can be demonstrated by lookingg at: 1) the<br />
importance <strong>of</strong> a developer understanding capital sources, 2) the<br />
importance <strong>of</strong> capital understanding developers and spatiall markets,<br />
and 3) all parties understanding the “dirt beneath the deal.” ” Assume the<br />
case <strong>of</strong><br />
a local developer who is content to focus on spatiall market<br />
fundamentals in their local market, relying on<br />
market strength and<br />
experience to manage risk. While<br />
that may make sense andd allow the<br />
developer to do what they do well, either they<br />
or members <strong>of</strong> their<br />
extended team <strong>of</strong> pr<strong>of</strong>essionals must pay attention to the economy and<br />
capital<br />
markets.<br />
… The failure <strong>of</strong><br />
developers to<br />
monitor capital<br />
markets can add<br />
unnecessary risk as<br />
in the recent<br />
downturn were many<br />
developers were<br />
stuck with projects<br />
The failure to monitor such activity can add unnecessary risk as in the<br />
recent downturn were many developers were stuck with projects that that cannot be sold<br />
cannot<br />
be sold or financed since capital has flowed away from real or financed since<br />
estate. In cases where they must be sold, developers have been facing a<br />
steep discount which has translated to the record levels <strong>of</strong> distressed<br />
capital has flowed<br />
assets. While many developers relied on consultants or others for such away from real<br />
monitoring and advice, it is important to recognize that these parties<br />
earn fees whether or<br />
not a deal works. That is not the case with<br />
estate.<br />
developers and will be even more important when recoursee debt re-enters the picture<br />
in the aftermath <strong>of</strong><br />
the current debacle. On the other<br />
hand, a locall developer who didn’t track capital flows may have sold<br />
projects up to the peak <strong>of</strong> the market at higher<br />
cap rates than necessary, only to fuel excess pr<strong>of</strong>its<br />
for<br />
flippers who were better at playing the option game.<br />
CMBS Delinquency Rates<br />
The case <strong>of</strong> the danger <strong>of</strong> investors and capital sources<br />
eschewing real estate fundamentals is relatively easy to<br />
demonstrate; one only has to point to the collapse <strong>of</strong><br />
the CMBS market. As noted in Exhibit 3-7, CMBS<br />
delinquency rates dramatically increased after<br />
2008.<br />
Indeed, in mid-20100 delinquency<br />
rates on some<br />
issuances were pushing double digit levels.<br />
Exhibit 3- 7<br />
CMBS Issuance Activity<br />
This was a dramatic<br />
shock to many investors who saw<br />
securitized investment as a safe way to capture superior<br />
risk-adjusted cash flow returns as well as safety <strong>of</strong><br />
principle by relying<br />
on the underlying collateral value to<br />
bail them out in case <strong>of</strong> defaults. The end result <strong>of</strong> this<br />
“lesson<br />
learned” was an almost complete shutdown <strong>of</strong> the<br />
CMBS<br />
industry which has created a shortage <strong>of</strong> capital<br />
and has contributed to the collapse <strong>of</strong> the commercial<br />
market. Unfortunately, there is no easy solution to the<br />
shortage <strong>of</strong> debt capital going forward.<br />
72<br />
Exhibit 3- 8
Chapter3: <strong>Multi</strong>-<strong>Dimensional</strong> <strong>Nature</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong><br />
Market Monitoring: The Money-Time Side<br />
The Money‐Time Perspective<br />
The dependence <strong>of</strong> real estate on the economy and capital<br />
markets adds another dimension to the interdisciplinary nature <strong>of</strong><br />
the asset class. That is, not only is it important to understand the<br />
wide array <strong>of</strong> pr<strong>of</strong>essionals that are directly engaged in the<br />
industry, attention must also be placed on the bigger picture<br />
which sets the context or environment within which the industry<br />
operates. While not arguing that all real estate pr<strong>of</strong>essionals<br />
should become economists or financial wizards, this<br />
interdependence suggest that key economic, capital market<br />
indicators should be considered in making real estate decisions. The<br />
relevance <strong>of</strong> these indicators will vary by property type and location.<br />
The Money-Time Perspective<br />
© JR <strong>DeLisle</strong>, Ph.D.<br />
Exhibit 3- 9<br />
Money‐Time Market Monitoring<br />
<br />
<br />
<br />
<br />
<br />
<br />
<br />
<br />
Macro‐economic Markets. The convergence between real estate and other markets that has occurred over<br />
the past decade has placed added emphasis on the importance <strong>of</strong> reviewing the macro‐economic<br />
environment that forms the backdrop against which individual real estate decisions must be made. As such,<br />
it is important to explore the overall macro‐economic environment, paying special attention to the elements<br />
that affect the demand/supply balance, both for the spatial asset and the investment it represents.<br />
Economic Environment. Due to the capital intensive nature <strong>of</strong> real estate and the durable nature <strong>of</strong> most<br />
real estate conditions, it is important to monitor the general condition <strong>of</strong> the overall economy. This<br />
monitoring should address the current situation, as well as the economic outlook that will likely prevail<br />
during the overall product life cycle.<br />
Economic Indicators. This market tracking should provide a brief overview <strong>of</strong> the macro‐economic situation,<br />
addressing such factors as GDP growth, inflation, interest rates, employment, stock market performance and<br />
other variables that provide insight into the overall economic climate within which individual real estate<br />
decisions must be made.<br />
Economic Outlook. In addition to pr<strong>of</strong>iling the current economic environment, it is important to take a<br />
longitudinal perspective, covering the past, the current situation and expected future conditions. The<br />
importance <strong>of</strong> timing and the appropriate temporal frame that should be embraced will depend on the<br />
proposed use and market cycles that will affect usage decisions over the planning horizon.<br />
Capital Markets. Since real estate must compete with other asset classes for capital, it is important to review<br />
the general market conditions that provide the competitive setting in which project or site‐specific decisions<br />
must be based. Of particular note are the expected returns from various asset classes, costs <strong>of</strong> capital for<br />
various ventures, and capital flows.<br />
Overall Market Conditions. Since the real estate asset class competes for capital with other asset classes, it is<br />
important to monitor trends that are occurring in the broader capital market. These trends cover a variety <strong>of</strong><br />
factors ranging from relative attractiveness <strong>of</strong> real estate versus other asset classes, to the yield<br />
requirements necessary to remain competitive and attract sufficient capital to maintain market balance.<br />
Trends and Cycles. In addition to capital flows, the exploration <strong>of</strong> the broader capital markets should reflect<br />
the general trends and cyclical swings that can provide insights into the rationale underlying relative capital<br />
flows. This insight will be particularly important in evaluating the "durability" or stickiness <strong>of</strong> capital<br />
allocations to real estate versus other asset classes. This insight should help analysts quantify the future<br />
demand for real estate as the capital markets return to a more traditional or balanced state.<br />
Emphasis on Implications. To avoid the tendency to get overwhelmed with interesting materials that are<br />
merely “noise,” attention should be focused on the implications <strong>of</strong> the capital markets on the specific real<br />
estate activities or decisions at hand.<br />
© JR <strong>DeLisle</strong>, PhD<br />
73
<strong>Multi</strong>-<strong>Dimensional</strong><br />
<strong>Nature</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong><br />
Market Monitoring: The Spatial Side<br />
Space‐Time Perspective<br />
Some traditionalists<br />
s argue that estate has<br />
been characterized fundamentally<br />
as a<br />
"local"" market. As such, they contend that<br />
one can<br />
be successful by concentrating<br />
their attention on a specific market without<br />
paying<br />
attention to externalities or macro<br />
factors<br />
that affect the broader national and<br />
regional markets. Despite the appeal <strong>of</strong><br />
this approach, the emergence <strong>of</strong> the public<br />
markets and the globalization <strong>of</strong> the<br />
economy and capital flows --both<br />
in<br />
general and with respect to real estate-- has<br />
made it increasingly<br />
evident thatt focusing<br />
attention on the local market alone is no<br />
longer valid. That is not to suggest that<br />
Exhibit 3- 10<br />
local market insight<br />
and presencee is not<br />
critical, but that such a narrow focus is too myopic and will expose an investor or developer to the<br />
risk <strong>of</strong><br />
wipeouts when the fundamental nature <strong>of</strong> the market changes.<br />
<br />
<br />
<strong>Real</strong> <strong>Estate</strong> Capital Market Monitoring. Given thee cyclical nature <strong>of</strong> the real estate market and the<br />
associated ebbb and flow <strong>of</strong><br />
capital to the<br />
asset class, a continuous monitoring <strong>of</strong> the demandd for real<br />
estate investments should be maintained, with emphasis on emerging trends. This will help evaluate<br />
the relative returns and access to capital<br />
by property type. This iss particularly important for<br />
investments in<br />
properties that have narrower appeal and/or capitall access and hurdle rates that differ<br />
from those <strong>of</strong><br />
the broader "commercial"<br />
" market. These differences may be found by property type<br />
(e.g., hotel, special use), scale and product positioning.<br />
Property Type Emergingg Trends. Despite the highh degree <strong>of</strong> diversity within<br />
the major property<br />
types, the overall market structure and demand is <strong>of</strong>ten subject to a number <strong>of</strong> macro-trends<br />
that<br />
affect the broader sector. These macro trends and national forces can also ripple down to individual<br />
markets and property sub-types and thus may be relevant to a local study. This is particularly true<br />
where the tenancy is likely<br />
to be national or regionall in scope, or where capital<br />
sources willl be<br />
drawn from outside the immediate market area. In analyzing thesee trends, the analyst should<br />
focus<br />
on the major structural changes that are occurring, rather than shorter term cyclical changes. In many<br />
cases, it will be difficult to<br />
distinguish between the two sources creating a situation in whichh the<br />
outcomes and<br />
consequences must be tempered by probability assessments thatt quantify the<br />
likelihood they will emerge.<br />
74
Chapter3: <strong>Multi</strong>-<strong>Dimensional</strong><br />
<strong>Nature</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong><br />
The Three Factor<br />
Spatial Model<br />
The<br />
Full <strong>Dimensional</strong>ity <strong>of</strong> <strong>Real</strong> <strong>Estate</strong><br />
Overview<br />
While the term “real estate” may<br />
seem<br />
fairly clear and logical, in reality<br />
it is a<br />
complex concept that entails a wide<br />
variety<br />
<strong>of</strong> attributes. Unfortunately, there<br />
is no definitive source that unambiguously<br />
establishes what is included in the spatial<br />
dimension <strong>of</strong> the asset, resulting in a<br />
potential long and inconsistent list <strong>of</strong><br />
spatial elements. While the scope<br />
<strong>of</strong><br />
detailed items included in the real estate<br />
product construct can vary depending on<br />
the question at hand, three major<br />
attribute<br />
categories must be included: Static,<br />
Environmental and Linkages.<br />
Exhibit 3- 11<br />
Static Attributes<br />
The static attributes<br />
<strong>of</strong> a site thatt are comprised <strong>of</strong> key physical elements that can have a material impact<br />
on the potential uses and value <strong>of</strong> a property.<br />
Site Attributes<br />
<br />
<br />
<br />
<br />
<br />
<br />
Site Attributes. With respect to the site itself they include such natural items as size, shape,<br />
topography, soils, water-table and vegetation. They can also include manmade attributes such as<br />
streets, land coverage, utilities and open space.<br />
Size, Shape and Frontage.<br />
In many cases, the physical dimensions <strong>of</strong> a site will have a significant<br />
impact on the optimal use decision, especially where the site has characteristics<br />
that differ from those<br />
<strong>of</strong><br />
the broader market. Thus, it is important to quantify<br />
the site in a manner that allows it to be<br />
compared to other sites thatt are similar in<br />
scope and physical layout<br />
Soil Conditions and Permeability. The type and condition <strong>of</strong> the underlying soils should be<br />
considered in the use decision. This type<br />
<strong>of</strong> analysis iss <strong>of</strong>ten deferred to other experts, and may be set<br />
aside until the due diligencee or underwriting period <strong>of</strong>f the project. The importance <strong>of</strong> soils will<br />
depend on the intensity <strong>of</strong> the development proposal, as well as the<br />
other natural features <strong>of</strong> the site.<br />
Topography.<br />
The topographical features<br />
<strong>of</strong> a site cann have a number <strong>of</strong> strategic and tactical impacts<br />
on<br />
the optimal use decision and should be carefully considered in acquisition and usage decisions.<br />
<strong>Dr</strong>ainage and Water Run<strong>of</strong>f. The impact <strong>of</strong> various developmentt patterns on drainage and run-<strong>of</strong>f<br />
will trigger heated debates. Such concerns should be approached with a cautious, disciplinedd eye. In<br />
some cases, storm water drainage and the<br />
need for retention pondss may have a significant impact on<br />
the optimal use<br />
decision, especially in terms <strong>of</strong> the maximum scale<br />
<strong>of</strong> development<br />
Environmenta<br />
al Conditions/Resources.<br />
In the current state <strong>of</strong> heightened awareness <strong>of</strong> global<br />
warming and ecological impacts <strong>of</strong> land use, natural resources thatt are on site, or environmental<br />
© JR <strong>DeLisle</strong>, PhD<br />
75
<strong>Multi</strong>-<strong>Dimensional</strong><br />
<strong>Nature</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong><br />
<br />
impacts <strong>of</strong> uses <strong>of</strong> particular sites can create significant concerns that translate to regulatory policies<br />
and practices that are designed to protectt scarce, material resources.<br />
Utilities. In most urban areas, it is generally assumed that utilities will be a fungible commodity,<br />
having little impact on optimal use decisions. In reality however, the different needs for basic utilities<br />
and services by<br />
property type and sub-type can have a significant impact on the<br />
types <strong>of</strong> usess and<br />
users that can be adequately<br />
served on a given site.<br />
Static Attributes<br />
Building Attributes<br />
If theree is an existing<br />
building or buildings on<br />
a site, the improvements<br />
should<br />
be pr<strong>of</strong>iled. The<br />
relativee "positioning" <strong>of</strong><br />
existing assets in terms<br />
<strong>of</strong> their<br />
generic versus<br />
customized pr<strong>of</strong>ile will<br />
be <strong>of</strong> particular<br />
importance to<br />
competitive<br />
marketability and<br />
potential re-use or<br />
repurposing options.<br />
Exhibit 3- 12<br />
With respect to the<br />
structures, static attributes include the design, materials, scale, features, quality and other items that define<br />
a building or structure. In addition to providing a quantitative assessment <strong>of</strong> existing improvements, the<br />
analysis should also<br />
point out their general condition and current use. This discussion<br />
should also review<br />
the parking, landscaping, outbuildings and other improvements to the site that are noteworthy. In<br />
addition,<br />
the analysis <strong>of</strong> structure should address:<br />
<br />
<br />
<br />
Size and Shape. In most assignments, the size and shape <strong>of</strong> existing improvements and site<br />
allocations for building, parking and open space should be noted.<br />
Materials and<br />
Quality. By<br />
definition, the bricks and d mortar elements <strong>of</strong> real estate represent an<br />
eroding asset, as time and changing market forces cann have a material impact on<br />
the relative<br />
positioning <strong>of</strong> various improvements.<br />
Condition and<br />
Effective Age. Property management t and maintenance programs can be used<br />
to<br />
differentiate among investments, with a high correlation between deferred and preventive<br />
maintenance and operating costs. Thus, the current condition <strong>of</strong> existing buildings is <strong>of</strong>ten a key<br />
76
Chapter3: <strong>Multi</strong>-<strong>Dimensional</strong><br />
<strong>Nature</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong><br />
consideration in the determination <strong>of</strong> whether they cann be renovated or rehabbed, or whether<br />
they<br />
merely need to<br />
be replaced to serve the current market.<br />
Parking and Site Plan. Other factors <strong>of</strong> interest will bee parking indices, on-site traffic circulation, and<br />
ingress-egress<br />
points.<br />
Environmental/Neighborhood Attributes<br />
In the context <strong>of</strong> real estate with its "fixed location," there are a numberr <strong>of</strong> distinct, but related, geographic<br />
definitions that are used in assessing the market context within which a particular site<br />
is situated. One <strong>of</strong><br />
the critical decisions that must be<br />
made in assessing the environmental/neighborhood<br />
attributes <strong>of</strong><br />
a site is<br />
the delineation or specification <strong>of</strong> the relevant<br />
neighborhood and/or submarket area. The delineation <strong>of</strong><br />
such areas will depend on a number <strong>of</strong> factors<br />
ranging from<br />
legal and physical boundaries, to roads and<br />
highways and governmental boundaries. In addition to being influenced<br />
by the particular site and its<br />
general orientation and logistics, delineation <strong>of</strong> appropriatee geographic areas <strong>of</strong> interest will depend on<br />
general practices and perceptions<br />
held in the local market.<br />
Neighborhood Attributes<br />
Neighborhood Delineation<br />
In general, the neighborhood for a<br />
site is defined as the<br />
geographic<br />
area that comprises the immediate<br />
environmental context within<br />
which the side is located. These<br />
neighborhoods are rather narrowly<br />
defined, focusing on<br />
proximity<br />
and a sense <strong>of</strong> identity. Factors<br />
that affect neighborhood<br />
designations include<br />
<br />
<br />
<br />
<br />
Land Use. The type <strong>of</strong> land<br />
use, the intensity <strong>of</strong> use, the<br />
quality <strong>of</strong> construction, the<br />
level <strong>of</strong> maintenance and<br />
other physical descriptors that can be observed.<br />
Demographi<br />
cs. With respect to demographics, thee criteria are<br />
somewhat less visible, but cover<br />
similar concepts including<br />
standard demographic elements <strong>of</strong> age, income, educational attainment,<br />
household size and composition and ethnicity.<br />
Connections/<br />
/Identity. In addition to uses and users, neighborhoods are also delineated on<br />
the bases<br />
<strong>of</strong> connections, both physical in terms <strong>of</strong> roads and sidewalks, but also perceptual in terms <strong>of</strong> having<br />
a sense <strong>of</strong> identity, <strong>of</strong> some overriding aura that envelops the area. In some communities (e.g.,<br />
Seattle) neighborhoods are formally defined areass that are somewhat broader than a traditional<br />
neighborhood<br />
d, but have sufficient scale<br />
and homogeneity to create a common area for purposes <strong>of</strong><br />
community outreach and representation.<br />
© JR <strong>DeLisle</strong>, PhD<br />
77
<strong>Multi</strong>-<strong>Dimensional</strong><br />
<strong>Nature</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong><br />
Submarket Areas<br />
Submarkets are based on some <strong>of</strong> the same<br />
premises ass neighborhoods, althoughh they tend to<br />
push the<br />
envelope outward<br />
a bit to enfold a broader area that has greater scale and diversity, but is still bound<br />
together by some common thread.<br />
<br />
<br />
Third Party Delineations. Proprietary submarket delineations are made by national and local firms<br />
that track local real estate activity. In general, theyy are relatively broad geographic areas that have<br />
sufficient scale and activity to justify treatment ass distinct areas (e.g., South Lake Union, South<br />
Seattle, the Eastside). Since analysiss <strong>of</strong> real estate opportunities hinges on such data, these<br />
delineations can have a significant effect on how the real estate market views a particular site in<br />
terms <strong>of</strong> "comparable" dataa and should not be overlooked.<br />
Customized<br />
Submarket Delineations. An individual analyst can generally conduct more precise<br />
and revealing<br />
analysis <strong>of</strong><br />
markets by piercing beneath the broad delineations created by various<br />
vendors, focusing on the submarkets that are appropriate for a given site based<br />
on subjective criteria<br />
dictated by the site itself and the nature <strong>of</strong> the decision for which the analysis has been undertaken.<br />
Submarkets and Trade Area Delineation<br />
<br />
Trade Areas. The focus <strong>of</strong><br />
neighborhood<br />
ds and submarket<br />
delineation is to identify relevant<br />
geographic areas that provide the<br />
spatial context within which a site<br />
operates. On the other hand, the<br />
notion <strong>of</strong> "trade areas" focuses on the<br />
issue <strong>of</strong> marketability, <strong>of</strong> delineating<br />
the geographic area that will general<br />
the demand for goods and services<br />
that are <strong>of</strong>fered on a particular site.<br />
The geographic scope <strong>of</strong> various trade<br />
areas will depends on the nature <strong>of</strong><br />
use being considered for a particular<br />
site, and the nature <strong>of</strong> demand in terms<br />
Exhibit 3- 13<br />
<strong>of</strong> magnetismm (i.e., drawing power) or convenience that determines the ultimate productivity<br />
for the<br />
use on the site. For example, in the case<br />
<strong>of</strong> retail uses, three trade<br />
areas are typically delineated:<br />
primary which is the area within which 70% <strong>of</strong> saless will be drawn, secondary within whichh another<br />
20% <strong>of</strong> sales will be drawn, and tertiary, from withinn which the final percent <strong>of</strong> sales will emanate.<br />
In addition to site-specific factors (e.g., scale, linkages), delineation <strong>of</strong> trade areas will depend on the type<br />
and pr<strong>of</strong>ile <strong>of</strong> the potential users in terms <strong>of</strong> market draw and market capture ratios. In the case <strong>of</strong><br />
"walkable retail," the trade area may be co-terminus with the neighborhood, with the<br />
bulk <strong>of</strong> saless coming<br />
from local residentss and employees. On the other hand, specialty retailers and big-box tenants may draw<br />
from a large trade area that extends beyond the immediate environs and<br />
outside the boundaries <strong>of</strong><br />
the local<br />
market<br />
itself.<br />
78
Linkage Attributes<br />
Linkages and Connectivity<br />
Linkage analysis should focus on<br />
key<br />
ancillary facilities that are relevant to a<br />
particular site and/or property. The<br />
identification <strong>of</strong> such facilities should<br />
be based on two drivers; the general<br />
submarket in the broader market in<br />
which it is situated, and the market,<br />
submarket or trade area within which it<br />
competes for space users and/or market<br />
support.<br />
<br />
<br />
<br />
<br />
<br />
Chapter3: <strong>Multi</strong>-<strong>Dimensional</strong><br />
<strong>Nature</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong><br />
Physical Connectivity. The<br />
key<br />
facilities will vary depending on<br />
the nature and scale <strong>of</strong> potential<br />
users, but will typically include:<br />
Exhibit 3- 14<br />
major retail centers or nodes,<br />
centers <strong>of</strong> <strong>of</strong>fice and other employment,<br />
housing and recreation; discussion should also summarize<br />
current land form breakdowns, along with other factors that affect real estate utilization decisions.<br />
Two dimensions <strong>of</strong> linkages<br />
are important to the real estate market; the physical path, and the<br />
perpetual path or the "perceived linkage"<br />
among key uses that are ancillary to, or supportive <strong>of</strong>, the<br />
recommended<br />
use.<br />
Vehicular Connectivity. Vehicular and pedestrian circulation routes in the immediate environs will<br />
be<br />
one <strong>of</strong> the key issues that affect the potential uses <strong>of</strong> many sites. In this analysis, special attention<br />
should be paid<br />
to major arterials and other "connections" that provide linkages to other sub-markets<br />
or<br />
to major transportation corridors. In addition to pointing out the<br />
corridors, the discussion should<br />
indicate the traffic flows within, and through, the neighborhood.<br />
Pedestrian Connectivity. With respect to pedestrians, attention should also be paid to streett and<br />
sidewalk corridors, along with special walking paths and bike routes. The levell <strong>of</strong> detail will depend<br />
on<br />
the type <strong>of</strong> uses being explored.<br />
Transit Connectivity. Where appropriate, special attention should<br />
be paid to mass transit and other<br />
forms <strong>of</strong> transportation that serve the neighborhood orr submarket. This is particularly important in<br />
light <strong>of</strong> the renewed interestt in “transit-oriented-development” and<br />
urban infill. Modes <strong>of</strong> public<br />
transit should include bus, light rail, and bus rapid transit (BRT).<br />
Qualitative Connectivity.<br />
In addition to<br />
the proximity and speed <strong>of</strong> connections, linkages are also<br />
affected by some <strong>of</strong> the more qualitative dimensions <strong>of</strong> the linkage<br />
routes. Examples <strong>of</strong> such<br />
variables<br />
include lighting, crime rates, maintenance <strong>of</strong> uses, types <strong>of</strong> uses, traffic levels, pedestrian corridors,<br />
bike paths and other attributes that affect<br />
the quality <strong>of</strong> the connections. This type <strong>of</strong> analysis is<br />
particularly important in cases where a site is on the fringe <strong>of</strong> a neighborhood, with the usage<br />
decision<br />
hinging on whether the developer can effectively linkk the site to the desired area, or whether it will be<br />
doomed to be in a different,<br />
and <strong>of</strong>ten less attractive and viable, sub-market.<br />
© JR <strong>DeLisle</strong>, PhD<br />
79
<strong>Multi</strong>-<strong>Dimensional</strong> <strong>Nature</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong><br />
The Asset Class Debate<br />
Is <strong>Real</strong> <strong>Estate</strong> an Asset Class?<br />
Background<br />
The question <strong>of</strong> whether<br />
real estate is a distinct<br />
asset class or merely an<br />
industry sector is one <strong>of</strong><br />
the most critical issues to<br />
face the industry. The<br />
sheer fact that this<br />
question remains<br />
unresolved some 20 years<br />
after the debates first<br />
surfaced punctuates the<br />
plight <strong>of</strong> the discipline (or<br />
lack there<strong>of</strong>). The ultimate<br />
Significance <strong>of</strong> Debate<br />
•If Asset Class, fiduciary standard<br />
requires allocation to real estate for<br />
diversifcation benefits<br />
•If Industry Sector, fiduciary standard not<br />
require real estate but may include<br />
depending on competitive nature <strong>of</strong><br />
investment<br />
Criteria for Asset Class<br />
•Unique Assets<br />
•Unique Market<br />
•Meaningful Distinction<br />
•Significant Opportunities<br />
Exhibit 3- 15<br />
resolution <strong>of</strong> the issue will determine how the industry business should be conducted by pr<strong>of</strong>essionals, as<br />
well as how investors and others should approach it. The failure to resolve this debate in the affirmative<br />
will doom the industry to repeat the past and fail to move forward as a unique discipline. It will also<br />
determine how it is approached vis-à-vis other asset classes. For example, if real estate is deemed an asset<br />
class, fiduciary standards require allocation to real estate for diversification benefits which will set the<br />
standard for non-fiduciary accounts as well. Further, as an asset class, formal education and training will<br />
be required to address its uniqueness and the uniqueness <strong>of</strong> the market in which it operates. At the same<br />
time, the rationale for allocating investments to real estate will be re-affirmed and investors and others will<br />
have clear guidance on how to approach it from a<br />
fundamentally sound basis.<br />
… if real estate is deemed an<br />
Criteria for Asset Class<br />
asset class, fiduciary standards<br />
At the most basic level, the major asset classes <strong>of</strong> a country<br />
consist <strong>of</strong> those assets which make up the majority <strong>of</strong> its require allocation to real estate<br />
investable wealth. According to some sources, stocks, for diversification benefits<br />
bonds and real estate make up over 90% <strong>of</strong> the world's<br />
which will set the standard for<br />
investable institutional-grade wealth. These investments<br />
can be disaggregated into a number <strong>of</strong> major asset classes<br />
non-fiduciary accounts as<br />
including: large and small capitalization domestic stocks; well. Further, as an asset class,<br />
international stocks; long-term and intermediate-term formal education and training<br />
Treasury and corporate bonds; U.S. and global bills;<br />
will be required to address its<br />
mortgage-backed securities and direct real estate ownership.<br />
The remaining investable institutional wealth is composed uniqueness and the uniqueness<br />
<strong>of</strong> precious metals and other assets, which are closely held <strong>of</strong> the market in which it<br />
and are traded infrequently. Each <strong>of</strong> the major asset classes operates.<br />
can in turn be subdivided into a number <strong>of</strong> sectors. The<br />
inability to assign real estate to an existing asset class<br />
provides some industry support for the acceptance <strong>of</strong> real estate as a distinct asset class. However, in order<br />
80
Chapter3: <strong>Multi</strong>-<strong>Dimensional</strong><br />
<strong>Nature</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong><br />
to resolve the issue it is necessary<br />
to explore the general criteria that must be satisfied<br />
to achieve<br />
designation as an asset classes: unique assets and unique market mechanism, meaningful distinctions and<br />
significant opportunities.<br />
Unique<br />
Assets and Unique Market Mechanism<br />
•<strong>Real</strong> asset base, value derived<br />
•Localized demand<br />
•Lumpiness,<br />
inherent residuals<br />
•Fixed location; vulnerablee to<br />
externalities<br />
Unique<br />
<strong>Nature</strong><br />
Operational<br />
Dimension<br />
•Asset & Property<br />
Management Control<br />
•Rent roll & Leasing<br />
management<br />
•Tenant improvements<br />
•Capital expenditures<br />
Performance<br />
& Risk<br />
Management<br />
Unique<br />
Market<br />
Mechanism<br />
•Period cash<br />
throw‐<strong>of</strong>f<br />
•Operating ratios<br />
•Market Value fluctuations<br />
•Proacitve risk management<br />
•Financial ratios<br />
•Inelastic supply,<br />
elastic demand<br />
•Inefficient<br />
Market<br />
•Negotiated priciing<br />
•Inherently<br />
behavioral<br />
Exhibit 3- 16<br />
Unique<br />
Assets & Operational Dimension<br />
<br />
<br />
<br />
<br />
<strong>Real</strong> Asset Base. <strong>Real</strong> estate is comprised <strong>of</strong> land andd improvements; while the<br />
bricks and mortar are<br />
a wasting asset, the land typically has an<br />
enduring value which may be independent <strong>of</strong> existing usage;<br />
despite the existence <strong>of</strong> common asset composition <strong>of</strong>f land and improvements, real estate is not<br />
comprised <strong>of</strong> fungible products, but products which are fixed in location.<br />
Partially Derived Asset Value. The value <strong>of</strong> the underlying land is a function <strong>of</strong> externalities, <strong>of</strong><br />
linkages and infrastructure investments which are not t controllable by owners; real estate values are<br />
subject to windfalls and wipeouts associated with government entitlements.<br />
Production Function. Unlike other intangible assets which can be<br />
created by paperwork, commercial<br />
real estate must be producedd through a long, capital-intensive, labor-intensive process; this production<br />
requires the coordination <strong>of</strong><br />
a wide number <strong>of</strong> participants rangingg from technicians to regulators.<br />
Risk Characteristics. The unique risks associated with real estate area key feature that distinguishes<br />
it as an asset class. s For example, real estate investors face a range<br />
<strong>of</strong> micro risks associated<br />
with an<br />
individual building (e.g., quality <strong>of</strong> construction, deferred maintenance), as well as loss <strong>of</strong> tenants due<br />
to<br />
bankruptcy or store closings. On the other hand, they also face more macro risks as in the case<br />
erosion in market rents due to an imbalance in supplyy and demand, and a change in value associated<br />
with increasing<br />
interest rates or investor returns.<br />
© JR <strong>DeLisle</strong>, PhD<br />
81
<strong>Multi</strong>-<strong>Dimensional</strong> <strong>Nature</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong><br />
<br />
<br />
Durable Product. Unlike many other asset classes and sectors, real estate assets cannot be easily<br />
recycled; in addition to requiring on-going maintenance and insurance, risk exposures associated with<br />
real estate investments (e.g., environmental) cannot be extinguished by merely transferring title in<br />
return for some consideration; environmental exposures can be traced back to prior owners who have<br />
presumable transferred interests.<br />
Management Control. Investors – especially nondiscretionary investors– operating on their own or<br />
with the advice and assistance <strong>of</strong> a range <strong>of</strong> service providers can exert direct control over business<br />
operations. This control can operate a different levels, focusing on individual investments or<br />
balancing portfolios to achieve specific goals and objectives.<br />
Unique Market & Performance Attributes<br />
The nature <strong>of</strong> market, price-setting and underlying demand<br />
functions are unique; in the aggregate the sectors within the asset<br />
class must exhibit some underlying commonalities which affect<br />
performance and can be quantified.<br />
<br />
<br />
<br />
<br />
<br />
<br />
Imperfect Market. Interests in real estate, unlike the vast<br />
majority <strong>of</strong> assets, are traded in an imperfect market, in<br />
which information is scarce and costly, transaction costs are<br />
high, the number <strong>of</strong> transactions is low relative to the total<br />
number <strong>of</strong> assets, and prices are set through decentralized<br />
negotiations between buyers and sellers.<br />
Price-setting Process. Prices are established on a<br />
transaction-by-transaction basis. They are the result <strong>of</strong><br />
…information is scarce<br />
and costly, transaction<br />
costs are high, the number<br />
<strong>of</strong> transactions is low<br />
relative to the total number<br />
<strong>of</strong> assets, and prices are set<br />
through decentralized<br />
negotiations between<br />
buyers and sellers.<br />
negotiations in which buyers and sellers start with their subjective value beliefs and try to arrive at a<br />
mutually agreeable price. While both parties might be able to see study the rent roll, the owner might<br />
have better insight on the likelihood that tenants will renew leases. Thus, imbalances in information<br />
create an unequal footing that may affect prices. The parties also have to rely on projections <strong>of</strong><br />
market conditions, leading to uncertainty that can affect the ultimate price.<br />
Illiquidity. <strong>Real</strong> estate has generally been recognized as an illiquid asset; unlike other assets, there is<br />
no established ready market and no clearinghouse for secondary transactions although such initiatives<br />
are being launched; due to the lumpiness <strong>of</strong> investments and the inefficient nature <strong>of</strong> the market,<br />
transactions which do occur require a significantly longer period <strong>of</strong> time than other asset classes.<br />
Localized Demand. Despite the increase in globalization <strong>of</strong> financial markets, real estate remains<br />
largely a local market product; demand is a function <strong>of</strong> relative supply in the context <strong>of</strong> physical<br />
space and logistics.<br />
Lumpiness. Unlike most other institutional investment classes, real estate remains a "lumpy"<br />
investment, an investment with high per unit values stemming from the capital intensive nature <strong>of</strong> the<br />
assets; an exception is the growing body <strong>of</strong> securitized products.<br />
<strong>Nature</strong> <strong>of</strong> Returns. <strong>Real</strong> estate returns are comprised <strong>of</strong> two elements; income and capital; income<br />
returns are partially determined by existing leases and foreseeable leases; capital returns are<br />
established by required investor yields (i.e., cap rates), projected net income levels and anticipated<br />
asset demand.<br />
82
Chapter3: <strong>Multi</strong>-<strong>Dimensional</strong><br />
<strong>Nature</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong><br />
<br />
Pattern <strong>of</strong> Returns. Institutional real estate has relatively low correlations with<br />
other asset classes<br />
ncluding stocks and bonds;<br />
returns differ in part due to the dual sources <strong>of</strong> returns --income and<br />
appreciation--<br />
and the contractual nature <strong>of</strong> the underlying leases not available to other asset classes.<br />
Meaningfully Different and Significant Assetss<br />
The asset class must exhibit underlying product and market fundamentals which distinguish performance<br />
and are<br />
subject to prediction.<br />
Meaningfully<br />
Different & Significant Asset Class<br />
•Measurable<br />
performance<br />
•Possible High<br />
Rewards<br />
•Property & location<br />
diversity<br />
•Sub‐property<br />
type<br />
diversity<br />
•Variety <strong>of</strong> investments<br />
Meaningful<br />
Asset Class<br />
Heterogeneous<br />
Asset Class<br />
•Competitive returns<br />
•Possible above‐market<br />
returns<br />
•Core, Value‐add &<br />
Opportunistic<br />
Viable Asset<br />
Class<br />
Significant<br />
Asset Class<br />
•Domestically over $3‐<br />
$5 trillion<br />
•Private and public<br />
•Many nvestment<br />
options<br />
Exhibit 3- 17<br />
Meaningful & Measurable Performance<br />
A number <strong>of</strong> return series are available to gauge real estatee performance; sources range from industry<br />
benchmarks published by trade groups including NCREIF on the equity<br />
side and the American Council <strong>of</strong><br />
Life Insurers (ACLI) on the debt<br />
side; return series are alsoo published by a number <strong>of</strong> consultants and other<br />
facilitators; available indices can<br />
be used to establish performance bogeys which can<br />
be stratified along<br />
major sector lines.<br />
<br />
<br />
Heterogeneou<br />
us Asset Class. Most investment classess or market sectors are relatively homogeneous;<br />
although real estate has the common thread <strong>of</strong> an underlying real asset base and<br />
an income<br />
component, institutional-grade investments can be aggregated into<br />
property type and locational<br />
subclasses.<br />
Long-term Cycles. Most other asset classes have short-to-intermediate investment cycles; core<br />
institutional real estate investments – excluding opportunistic investments which focus on timing<br />
strategies– have long term (e.g., 10-12 year) cycles, varying in length by submarket and property<br />
specific factors.<br />
© JR <strong>DeLisle</strong>, PhD<br />
83
<strong>Multi</strong>-<strong>Dimensional</strong> <strong>Nature</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong><br />
Significant Size and Viable Opportunities<br />
In the aggregate, comprises a significant level <strong>of</strong> wealth. At the same time, it includes a number <strong>of</strong><br />
investment opportunities for which the reward and/or risk reduction is associated with understanding the<br />
asset class.<br />
Size <strong>of</strong> the Pie<br />
Size <strong>of</strong> the Pie: U.S. Trends in Investable <strong>Real</strong> <strong>Estate</strong><br />
<br />
<br />
<br />
Size <strong>of</strong> the Pie. Estimates <strong>of</strong><br />
relative levels <strong>of</strong> investable<br />
wealth suggest the value <strong>of</strong><br />
commercial institutional grade<br />
real estate in the US<br />
approaches $5 trillion. This<br />
value is significantly higher<br />
when looking at the aggregate<br />
global value <strong>of</strong> real estate. In<br />
terms <strong>of</strong> market share, it<br />
appears commercial real estate<br />
comprises some 20% <strong>of</strong> total<br />
Public Debt<br />
9%<br />
1982: $529 Billion<br />
Public<br />
Equity<br />
1%<br />
Private<br />
Debt<br />
72%<br />
© JR <strong>DeLisle</strong>, Ph.D.<br />
Private<br />
Equity<br />
18%<br />
Public Debt<br />
10%<br />
1990: $1.4 Trillion<br />
Public<br />
Equity<br />
2%<br />
Private<br />
Debt<br />
59%<br />
Private<br />
Equity<br />
29%<br />
Source: Geltner<br />
Public Debt<br />
19%<br />
2002: $2.7 Trillion<br />
Public<br />
Equity<br />
6%<br />
Private<br />
Debt<br />
48%<br />
Private<br />
Equity<br />
27%<br />
2010: $3-5 trillion<br />
wealth; within the asset class,<br />
Exhibit 3- 18<br />
significant holdings are<br />
attached to the major asset classes (i.e., property type and location) affording the ability to establish<br />
meaningful portfolios within the asset class.<br />
Investment Opportunities. A diverse array <strong>of</strong> investment opportunities are available to institutional<br />
investors; investments may take the form <strong>of</strong> a variety <strong>of</strong> structures and investment vehicles; due to the<br />
lumpiness <strong>of</strong> investments, opportunities to structure a meaningful real estate portfolio can be executed<br />
at the individual property level, the fund or co-investment level, and the portfolio level.<br />
Reward for Understanding. <strong>Real</strong> estate investment performance depends on the careful<br />
coordination <strong>of</strong> a number <strong>of</strong> factors <strong>of</strong> production, operation and consumption; understanding the<br />
strategic and dynamic forces <strong>of</strong> demand and supply can provide high rewards; failure to understand<br />
such fundamentals can create wipeouts; due to market imperfections, ability to make informed<br />
decisions can provide a competitive edge which can be used to beat the overall market.<br />
84
Chapter3: <strong>Multi</strong>-<strong>Dimensional</strong> <strong>Nature</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong><br />
Interdisciplinary <strong>Nature</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong> Asset Class<br />
Interdisciplinary <strong>Nature</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong><br />
Interdisciplinary Spectrum: A Life Cycle Approach<br />
Money-Time<br />
Value<br />
Income<br />
Costs Construction/ Time ====><br />
Acquisition Cost<br />
Planning Acquisition/Production Operation Disposition<br />
Acquisition Team Acquisition Officer Accounting Team Asset Manager<br />
Appraiser Architect Asset Manager Disposition Team<br />
Broker Engineer Investor Relations Officer Appraiser<br />
Consultant(s) Closing Attorney Lease Adminstrator Broker<br />
Cost Estimator Conduits Leasing Representative Closing Attorney<br />
Developer Contractor Lessee Consultant(s)<br />
Environmental Officer Construction Lender Management Company Financial Analyst<br />
Financial Analysts Due Diligence Officer Portfolio Manager General Partner<br />
Financial Advisor Escrow Agent Property Manager Investment Committee<br />
Feasibility Analyst Equity Investor(s) Risk Manager Joint Venture Partner<br />
Market Analyst General Partner Servicing Agent Limited Partner(s)<br />
Other Stakeholders Grantor/Grantee Management Company<br />
Guarantor<br />
Market Analyst<br />
Interim Lender<br />
Portfolio Manager<br />
Investment Committee<br />
Property Manager<br />
Interior Designer<br />
Risk Manager<br />
Joint Venture Partner(s)<br />
Tax Advisor<br />
Landscape Architect<br />
Lease Abstractor<br />
Limited Partner(s)<br />
Marketing Manager<br />
Mortgage Banker/Broker<br />
Permanent Lender<br />
Project Manager<br />
Subcontractor(s)<br />
Tax Advisor<br />
Title Search/Abstractor<br />
© JR <strong>DeLisle</strong>, PhD<br />
Exhibit 3- 19<br />
85
<strong>Multi</strong>-<strong>Dimensional</strong> <strong>Nature</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong><br />
A Life Cycle View <strong>of</strong> <strong>Real</strong> <strong>Estate</strong> Participants<br />
<strong>Real</strong> estate is an interdisciplinary field focused on the creation,<br />
acquisition, operation and or disposition <strong>of</strong> real estate assets.<br />
Further complicating the discipline is the fact that different<br />
skills sets and/or expertise are required during the distinct<br />
phases <strong>of</strong> a property’s life cycle. At the same time, the real<br />
estate asset or portfolio <strong>of</strong> assets must be managed in a<br />
continuous manner to avoid short-term situations which could<br />
lead to insolvency <strong>of</strong> the enterprise or compromise long-term<br />
values. As such, real estate pr<strong>of</strong>essionals and those in ancillary<br />
fields should be aware <strong>of</strong> the fundamental premises <strong>of</strong> the<br />
various disciplines and understand the roles they play and<br />
standards to which they must perform. The need to synthesize<br />
inputs from these diverse disciplines creates the need for a<br />
generalist approach to real estate education. Under this model,<br />
students must develop a basic understanding <strong>of</strong> the related<br />
disciplines and the “best practices” that are embedded in each <strong>of</strong><br />
them. While no individual can master the full array <strong>of</strong> skills<br />
and perspectives involved in the real estate enterprise, this broad<br />
approach is necessary to create, maintain and capture value over<br />
the full product life cycle.<br />
The intellectual demands<br />
embedded in this broad,<br />
interdisciplinary<br />
framework are much<br />
higher than if real estate is<br />
approached as a narrow<br />
field or if players focus on<br />
the particular phase <strong>of</strong><br />
activity in which they are<br />
directly engaged. In effect,<br />
the level <strong>of</strong> performance<br />
achieved at each phase has<br />
a material –and <strong>of</strong>ten<br />
irrevocable impact—on<br />
future performance.<br />
The intellectual demands embedded in this broad, interdisciplinary framework are much higher than if real<br />
estate is approached as a narrow field or if players focus on the particular phase <strong>of</strong> activity in which they<br />
are directly engaged. In effect, the level <strong>of</strong> performance achieved at each phase has a material –and <strong>of</strong>ten<br />
irrevocable impact—on future performance. Thus, real estate pr<strong>of</strong>essionals must be capable <strong>of</strong> drawing<br />
from these related disciplines and applying the relevant concepts to the problem or decision at hand.<br />
Furthermore, they must be able to make the appropriate adjustments to extend these concepts to the<br />
imperfect and idiosyncratic real estate market. The ultimate goal <strong>of</strong> this approach is to create critical<br />
thinkers who can ask the appropriate questions <strong>of</strong> the experts from the related disciplines that ultimately<br />
have to be called upon to ensure a project is sustainable and has a value today and tomorrow. It also<br />
provides a framework that allows individual players to focus on the role they play in the enterprise team.<br />
Planning Stage<br />
<br />
Acquisition Team. Acquisition <strong>of</strong>ficers are focused on several key<br />
tasks: sourcing potential acquisitions; pricing potential purchases;<br />
negotiating the acquisition agreement; and, closing the deal. Depending<br />
on the scale <strong>of</strong> the operation, the acquisition team may have the final<br />
say in closing deals. However, in larger operations or those that provide<br />
third-party advisory services or operate under a fiduciary standard,<br />
deals may have to be approved by an Investment Committee. Similarly,<br />
if the party is acting as an agent, the ability to close will depend on the<br />
degree <strong>of</strong> discretion that has been established by the advisory contract.<br />
86
Chapter3: <strong>Multi</strong>-<strong>Dimensional</strong> <strong>Nature</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong><br />
<br />
<br />
<br />
<br />
<br />
<br />
Appraiser. A person or entity who performs valuation services in compliance with relevant<br />
pr<strong>of</strong>essional standards and best practices. Depending on the jurisdiction and pr<strong>of</strong>essional regulations,<br />
may require license or certification to be eligible to provide such services for a fee. The appraiser<br />
may also perform feasibility analysis or other consulting studies as part <strong>of</strong> an overall business.<br />
Broker. A pr<strong>of</strong>essional who acts on behalf <strong>of</strong> another party in the sourcing or placement <strong>of</strong> products<br />
or businesses and serves as an intermediary between buyers and sellers <strong>of</strong> goods and services. This<br />
party is generally compensated on transaction volume although fee arrangements may be negotiated.<br />
Depending on jurisdiction and governing laws, may need to be licensed or certified to conduct<br />
business.<br />
Consultant(s). A broad category <strong>of</strong> pr<strong>of</strong>essionals who provide analysis,<br />
conduct research, provide decision-support, or make recommendations<br />
regarding a course <strong>of</strong> action for a client. Such services may be focused<br />
on a particular business decision or situation, or may be provided in an<br />
on-going relationship through a retainer or other contractual<br />
arrangement.<br />
Cost Estimator. The pr<strong>of</strong>essional charged determining the likely costs<br />
to be incurred in the production <strong>of</strong> improvements or other development and construction activities in<br />
a given market setting with respect to specified products and<br />
quality levels.<br />
Developer/Development Team. A person (or company)<br />
who takes the lead in converting unimproved property into<br />
improved property through the procurement and deployment <strong>of</strong><br />
resources, management <strong>of</strong> risk, and coordination <strong>of</strong> the factors <strong>of</strong><br />
production. The developer operates as the quarterback or team<br />
leader who manages the overall venture and ensures that other<br />
players complete their obligations and deliver promised goods and<br />
services in a timely manner. In some respects, this party is a<br />
visionary who starts with a concept and then becomes a tactician<br />
who puts the overall package together, marshaling appropriate<br />
space-time, money-time resources, as well as securing tenants and<br />
managing the production process.<br />
Environmental Officer. The party responsible for<br />
providing a formal review that is conducted prior to a loan or transaction to determine the existence<br />
and extent <strong>of</strong> any environmental problems or exposures that may<br />
need remediation or cloud the title.<br />
The developer operates<br />
as the quarterback or<br />
team leader who<br />
manages the overall<br />
venture and ensures that<br />
other players complete<br />
their obligations and<br />
deliver promised goods<br />
and services in a timely<br />
manner.<br />
Financial Analysts. A group <strong>of</strong> pr<strong>of</strong>essionals who analyze the<br />
financial conditions <strong>of</strong> companies and investments looking at such<br />
items as financial statements, earnings forecasts, executive interviews<br />
and industry trends.<br />
Financial Advisor. A pr<strong>of</strong>essional money manager or advisor who<br />
provides financial advice to clients for a fee, commission or other form <strong>of</strong> compensation. In some<br />
cases, the advisor will operate as a fiduciary and will be held to a standard <strong>of</strong> pr<strong>of</strong>essional conduct<br />
which specifies the minimal standards <strong>of</strong> conduct a service provider or agent must satisfy in serving a<br />
client. In addition to maintaining high pr<strong>of</strong>essional standards, a fiduciary must act with loyalty,<br />
exclusivity, and act in the best interest <strong>of</strong> the client.<br />
© JR <strong>DeLisle</strong>, PhD<br />
87
<strong>Multi</strong>-<strong>Dimensional</strong> <strong>Nature</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong><br />
<br />
Feasibility Analyst. Third party –or sometimes internal—analyst who performs studies that explore<br />
solutions to a range <strong>of</strong> real estate problems including: a site in search <strong>of</strong> a use as embedded in a<br />
development project. Feasibility analysts also conduct “investor in search <strong>of</strong><br />
involvement” studies in which an investor is searching for an investment<br />
option that will satisfy goals and objectives. This type <strong>of</strong> analysis is essentially<br />
a consulting study in which the consultant seeks optimal solutions for a client<br />
in light <strong>of</strong> specified goals and objectives, subject to various constraints,<br />
preferences and market forces.<br />
Market analysis is<br />
conducted to help<br />
determine the degree<br />
<strong>of</strong> saturation and to<br />
help quantify the<br />
competitive<br />
environment within<br />
which a new or<br />
existing venture will<br />
operate.<br />
Market Analyst. Pr<strong>of</strong>essional within a<br />
firm or operating on a third party basis who explores the level <strong>of</strong><br />
demand and supply in a given market or trade area It involves the<br />
process <strong>of</strong> reducing aggregate data to factors relevant to a site focusing<br />
on competitive demand and supply elements beyond control <strong>of</strong><br />
developer.<br />
Other Stakeholders. Various parties, entities or individuals<br />
potentially affected, or impacted by proposed actions or developments.<br />
While some <strong>of</strong> these parties may not be “privy <strong>of</strong> contract” and have<br />
legal standing, in some jurisdictions they can have a significant impact<br />
on land use decisions and development. Thus, their concerns and<br />
relative positions should be considered by real estate decision-makers<br />
and affected third parties.<br />
Acquisition/Production Players<br />
<br />
<br />
<br />
Acquisition Team. In medium to large-size firm that are<br />
searching for new investments, a position as head <strong>of</strong><br />
acquisitions may be created. This individual may spearhead a<br />
team charged with sourcing new investment activities. This<br />
front-line position is <strong>of</strong>ten compensated on an incentive basis,<br />
with bonuses depending on the value <strong>of</strong> acquisitions. As such,<br />
acquisition teams have something <strong>of</strong> a bias toward doing deals,<br />
although many organizations have a system <strong>of</strong> checks and<br />
balances to ensure they do not get too exuberant and focus too<br />
much on the volume side and not enough on the performance<br />
side <strong>of</strong> the acquisitions.<br />
Architect. The pr<strong>of</strong>essional that focuses on designing buildings<br />
and spaces to satisfy spatial demands <strong>of</strong> the most likely users <strong>of</strong><br />
the space as well as other parties who will be affected by its<br />
design, materials, finishes and other physical elements.<br />
Engineer. The pr<strong>of</strong>essional that concentrates on the design,<br />
specification and operation <strong>of</strong> buildings, structures, systems<br />
and other physical elements associated with a project or<br />
facility.<br />
…acquisition teams<br />
have something <strong>of</strong> a<br />
bias toward doing deals,<br />
although many<br />
organizations have a<br />
system <strong>of</strong> checks and<br />
balances to ensure they<br />
do not get too exuberant<br />
and focus too much on<br />
the volume side and not<br />
enough on the<br />
performance side <strong>of</strong> the<br />
acquisitions.<br />
88
Chapter3: <strong>Multi</strong>-<strong>Dimensional</strong> <strong>Nature</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong><br />
<br />
<br />
<br />
<br />
Closing Attorney. Commercial real estate transactions are <strong>of</strong>ten<br />
complex legal agreements, exposing the buyer or investor to a number <strong>of</strong><br />
risks. On the residential front, some <strong>of</strong> these risks are managed through<br />
laws designed to protect consumer. On the commercial front, there are less<br />
protections which may trigger the need to retain a lawyer to affect the<br />
closing and to make sure risks are properly managed.<br />
Conduits. The entities, companies or individuals who serve as an<br />
intermediary, providing a pooling and matchmaking service between two parties as in the case <strong>of</strong><br />
CMBS origination or other mortgage packaging functions.<br />
Contractor. The party or entity in charge <strong>of</strong> physically erecting a property, combining materials,<br />
supplies, tools, expertise and labor to build a project or physical improvements. The term applies to<br />
those who manage the production <strong>of</strong> new buildings; the expansion,<br />
remodeling, alteration, or renovation <strong>of</strong> existing buildings; or, the<br />
provision <strong>of</strong> the initial equipment <strong>of</strong> buildings.<br />
Construction Lender. A third party source <strong>of</strong> capital who advances<br />
money to a developer or investor to construct, or renovate/rehab, a<br />
property. Typically assumes a short-term position that will be retired<br />
through a permanent loan take-out or the sale <strong>of</strong> components. To protect<br />
lender, funds are advanced through draws to ensure that value is created<br />
as funds are disbursed.<br />
Due Diligence Team. Since acquisition teams are on sourcing deals and tying up investments, a<br />
system <strong>of</strong> checks and balances must be put in place to ensure the risk <strong>of</strong> potential investments are<br />
fully understood and priced into the final <strong>of</strong>fer. This service is typically covered under the “due<br />
diligence” umbrella. Due diligence teams underwrite a variety <strong>of</strong> risks associated with the underlying<br />
property, parties to the transaction, tenants who comprise the rent roll, and other elements <strong>of</strong> the deal<br />
which create potential risks.<br />
Escrow Agent. Third parties who serves as a repository for<br />
closing costs and other disbursements along with key documents<br />
and fees.<br />
Equity Investor(s). The party or parties that provide the<br />
ownership capital associated with the development or acquisition <strong>of</strong><br />
a property. This type <strong>of</strong> investment position is opposite to a<br />
mortgage or debt position that conveys no rights or claims in a<br />
property beyond those specified in the mortgage agreement related<br />
to interest and principal payments. The investor may own the<br />
property outright as a developer/owner or through some partnership<br />
or otherwise structured venture.<br />
Due diligence teams<br />
underwrite a variety<br />
<strong>of</strong> risks associated<br />
with the underlying<br />
property, parties to<br />
the transaction,<br />
tenants who comprise<br />
the rent roll, and<br />
other elements <strong>of</strong> the<br />
deal which create<br />
potential risks.<br />
General Partner. In the case <strong>of</strong> a partnership, the<br />
managing player who makes the key management and operating<br />
decisions regarding a real estate venture. This party typically has<br />
both the authority and responsibility to make decisions and<br />
commitments and is the lead party.<br />
Grantor/Grantee. The Grantor is a person or party who conveys or transfers a property or interest to<br />
a third party. The Grantee is a person or party who purchases a property or interest.<br />
© JR <strong>DeLisle</strong>, PhD<br />
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Guarantor. The party who provides the guarantee related to some financial agreement or other<br />
performance requirement. The Guaranty is a form <strong>of</strong> credit enhancement in which a third party<br />
backstops or ensures performance <strong>of</strong> some specified financial obligation <strong>of</strong> another party or business<br />
activity.<br />
Interim Lender. In some larger projects or where a developer/investor may be undercapitalized in<br />
terms <strong>of</strong> a reserve, a standby commitment may be obtained. This standby could kick in to fill the gap<br />
between the disbursement <strong>of</strong> a permanent loan funds are made and when the construction lender is<br />
due for a take-out. This might be related to construction delays or the inability to hit preleasing or<br />
other underwriting requirements established by the permanent lender. The interim loan could also be<br />
a gap loan, helping close the void the may emerge between total available equity and total permanent<br />
loan commitments. This could be due to cost overruns or the inability to hit loan-to-value or debt<br />
coverage ratios.<br />
Investment Committee. In medium to larger operations, a<br />
formal investment committee may be appointed to determine<br />
the resolution <strong>of</strong> acquisition, renovation/rehabilitation or<br />
disposition decisions. Investment committees are particularly<br />
true in firms in which the party acts as a fiduciary for third<br />
parties and must make sure that adequate protections are built<br />
in to avoid biased decisions that are driven by internal or<br />
personal factors rather than investment performance or clients’<br />
needs. The composition <strong>of</strong> investment committees varies, but<br />
typically includes the senior leaders from the major business<br />
units in the firm.<br />
Interior Designer. A design pr<strong>of</strong>essional charged with<br />
designing, laying out, finishing out, specifying and furnishing<br />
the interior or common areas <strong>of</strong> a building or, in some cases,<br />
tenant spaces.<br />
Joint Venture Partner(s). In some large-scale projects, the<br />
ownership structure may be a joint venture. In such cases, the<br />
legal entity is formed for a specific project or series <strong>of</strong> projects.<br />
The parties share in control according to some predetermined<br />
Investment committees<br />
are particularly true in<br />
firms in which the<br />
party acts as a<br />
fiduciary for third<br />
parties and must make<br />
sure that adequate<br />
protections are built in<br />
to avoid biased<br />
decisions that are<br />
driven by internal or<br />
personal factors rather<br />
than investment<br />
performance or<br />
clients’ needs.<br />
agreement. On the other hand, they assume joint and severable liability for all actions <strong>of</strong> the venture<br />
or the other partner.<br />
Landscape Architect. A pr<strong>of</strong>essional that focuses on the design, materials, composition and<br />
construction <strong>of</strong> outdoor spaces to complement buildings and other on-site improvements.<br />
Lease Abstractor. A pr<strong>of</strong>essional who can review a lease and extract the key components <strong>of</strong> a lease<br />
agreement including such items as names <strong>of</strong> the parties, delineation <strong>of</strong> the space, specification <strong>of</strong><br />
consideration, time frame, options, concessions, and covenants. The abstract also indicates the<br />
responsibilities <strong>of</strong> the parties and may cover tenant credit.<br />
Limited Partner(s). In the case <strong>of</strong> a limited partnership, the entity includes limited partners whose<br />
liabilities in a venture are limited to their equity position; a party who trades liability limits for<br />
management and operational control or oversight.<br />
Marketing Manager. An in-house or third party who develops and implements a marketing strategy.<br />
This strategy outlines a marketing program for a specific product, service or business. The program<br />
addresses how the marketing mix <strong>of</strong> product, price, place, promotion and physical distribution will be<br />
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blended over time. It also establishes the budget, strategies and tactics that will be incorporated as<br />
well as the metrics that will be used to judge the performance <strong>of</strong> the overall program.<br />
Mortgage Banker/Broker. An individual or entity that originates<br />
mortgages for a third party. The banker may use personal equity to<br />
originate and/or warehouse loans. These mortgages are held while a<br />
pool is being assembled; such holdings are for a relatively short term<br />
until the completed pool can be transferred to other sources <strong>of</strong> capital.<br />
As such, the position exposes the party to interest rates and other<br />
financial risks which may leave them in a negative equity position.<br />
This position is opposed to that <strong>of</strong> a Mortgage Broker who originates<br />
mortgages for a third party or portfolio investor as a correspondent or agent.<br />
Rather than taking equity positions, they rely on other sources <strong>of</strong> capital to support individual<br />
transactions.<br />
Permanent Lender. The mortgagee or party that advances capital to fund a real estate transaction. In<br />
return, this party receives a promissory note that documents the borrower's obligation to repay the<br />
mortgage as well as a pledge <strong>of</strong> the underlying property interest which collateralizes the loan. In<br />
some cases this may be a direct lender or the primary lender who originates, underwrites and initiates<br />
a mortgage or loan, providing funds to the borrower and engaging in a contractual obligation.<br />
Project Manager. A pr<strong>of</strong>essional charged with the oversight <strong>of</strong> the construction or redevelopment <strong>of</strong><br />
an individual property to ensure the project gets built per specs, on time and on budget. Since there<br />
are a number <strong>of</strong> moving parts and associated risks, the project<br />
manager is <strong>of</strong>ten critically important to ensure the project makes<br />
satisfactory process and that obstacles that periodically arise are<br />
addressed in a timely manner.<br />
Since there are a<br />
number <strong>of</strong> moving<br />
parts and associated<br />
risks, the project<br />
manager is <strong>of</strong>ten<br />
critically important<br />
to ensure the project<br />
makes satisfactory<br />
process and that<br />
obstacles that<br />
periodically arise<br />
are addressed in a<br />
timely manner.<br />
Subcontractor. In many complex projects, contractors will<br />
retain third-party specialists to perform certain construction-related<br />
tasks. These parties are under contract to the contractor who<br />
coordinates the overall process (aka, General Contractor) but have a<br />
direct lien (i.e., mechanics lien) against the underlying property in the<br />
event <strong>of</strong> a payment problem or other dispute.<br />
Tax Advisor. The taxation <strong>of</strong> commercial real estate projects<br />
is complex and can have a significant impact on after tax returns.<br />
This caveat is true for individual parties, as well as for any special<br />
purpose entities that may have been created to conduct business. In<br />
the cases <strong>of</strong> partnerships, rules <strong>of</strong> eligibility must be satisfied at<br />
inception, and must also be maintained to avoid dissolution <strong>of</strong> the<br />
partnership which could have extremely significant tax consequences.<br />
Title Searchers/Abstractors. Third party pr<strong>of</strong>essionals who<br />
conduct the investigation, review or analysis <strong>of</strong> the public records to trace the chain <strong>of</strong> title for a<br />
property and identify any liens, claims or inconsistencies that would somehow cloud the title and/or<br />
limit its validity or coverage.<br />
© JR <strong>DeLisle</strong>, PhD<br />
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<strong>Nature</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong><br />
Operational Players<br />
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Accounting Team. Close attention must<br />
be paid to the books during the<br />
operational phase <strong>of</strong> a project, accounting for all revenues, expenses and<br />
other cash and/or accrual items. Depending on the nature <strong>of</strong> ownership,<br />
current capital account balances must be maintained for both the equity and debt positions. In<br />
effect, a<br />
real estate project is an enterprise for which a numberr <strong>of</strong> periodic reports must be prepared. At the<br />
same time, accountants must be able to generate special reports that may be triggered by some<br />
deviation from<br />
the pro forma, budget or other projections.<br />
Asset Manager. While all real estate projects possess some<br />
Asset managers are<br />
underlying commonalities, there is significant heterogeneity<br />
among property types and locations. Depending on the nature <strong>of</strong> specialists who are<br />
the asset and its tenancy, there may be different drivers <strong>of</strong> value focused on one or<br />
and/or critical success factors that require specialized skills and<br />
more property types<br />
close attention. Indeed, a number <strong>of</strong> emerging trends and<br />
unexpected events can disrupt the “rules <strong>of</strong> engagement” and<br />
and servee as a<br />
put the value <strong>of</strong> individual assets at risk, or require some<br />
resourcee for portfolio<br />
proactive intervention to maintain and/or<br />
enhance value. Asset managers who operate<br />
managers take on the role as specialists who stay on top <strong>of</strong> these<br />
at a more<br />
strategic<br />
elements, staying connected<br />
with the market. Asset managers<br />
are specialists who are focused on one or<br />
more property types level and<br />
property<br />
and serve as a resource for portfolio managers who operate at a managers who operate<br />
more strategic level and property managers who operate at at tactical level<br />
tactical level dealing with the day-to-dayy operations.<br />
dealing with the day-<br />
Investor Relations Officer. The individual or team charged<br />
with managingg relationships with investor-clients andd analysts to-day operations.<br />
for public companies, partnerships, ventures and funds<br />
providing investment or real estate services.<br />
Lease Administrator. A party charged the creation, compliance, collections and disbursement <strong>of</strong><br />
funds as specified in the lease and as necessary to maintain and operate a property. The administrator<br />
may also be charged with monitoring rent roles and overseeing tenant relationships.<br />
Leasing Representative. An agent or employee <strong>of</strong> the property management or<br />
leasing company<br />
who representss the ownership position in<br />
lease negotiations, operations and management working as a<br />
liaison between<br />
tenants and<br />
ownership with an agencyy responsibility to the owner.<br />
Lessee. The party to a contract who obtains the right to use or occupy space for<br />
a given period <strong>of</strong> time<br />
subject to certain restrictions and in return for some form <strong>of</strong> compensation or<br />
remuneration.<br />
Also known as tenants, in the aggregatee these parties provide the<br />
revenue stream<br />
for a leased property. The combinationn <strong>of</strong> tenants can affect the<br />
risk/return relationship which affects value.<br />
Management<br />
Company. The company<br />
or party whoo handles on-going<br />
operations for a project, overseeing maintenance, administration and other<br />
operational items. In many cases, these services are provided by third parties. In<br />
the<br />
case <strong>of</strong> larger integrated companies, management mayy be providedd in-house.<br />
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Portfolio Manager. Once a certain scale <strong>of</strong> operations has<br />
…the portfolio been achieved and several properties have been assembled, the need to<br />
manager is the manage investments takes on a different scale to ensure that they whole<br />
is worth more than the sum <strong>of</strong> the parts. At this level, management<br />
quarterback <strong>of</strong> the<br />
focuses attention on the “bundle <strong>of</strong> assets,” trying to maintain<br />
investment team,<br />
solvency, capture periodic returns and enhance value <strong>of</strong> the aggregate<br />
making sure that holdings. This function is somewhat strategic, focusing attention on<br />
the portfolio<br />
decisions that affect the longer-term including asset assemblage,<br />
diversification and risk/return pr<strong>of</strong>iles. In essence, the portfolio<br />
composition,<br />
manager is the quarterback <strong>of</strong> the investment team, making sure that<br />
operation and the portfolio composition, operation and support are adequate to<br />
support are<br />
achieve the goals and objectives for which the portfolio was<br />
adequate to achieve assembled.<br />
Property Manager. An individual or company the directs or<br />
the goals and<br />
performs the actions taken during the ownership or operating period to<br />
objectives for ensure that a property is adequately maintained and serviced. This<br />
which the portfolio party focuses on daily operations including cleaning, utility charges,<br />
was assembled.<br />
routine repairs, security, tenant calls and other on-going obligations.<br />
Risk Manager. A pr<strong>of</strong>essional charged with manage the<br />
uncertainty associated with the acquisition or operation <strong>of</strong> property. The process, which is on-going,<br />
includes such tasks as identification <strong>of</strong> exposures, determination <strong>of</strong> alternative approaches, selection<br />
<strong>of</strong> an approach, implementation and monitoring and feedback to increase confidence levels or to<br />
reduce uncertainty to a tolerable level.<br />
Servicing Agent. The agent who provides loan servicing including collection <strong>of</strong> mortgage payments<br />
and escrows, dispersal <strong>of</strong> funds, documentation <strong>of</strong> payments, notifications <strong>of</strong> late payments, and<br />
overall loan management. The agents providing these services are compensated by fees that are<br />
based on the outstanding mortgage balances. They may also receive incentives that can be associated<br />
with performance or the provision <strong>of</strong> special services.<br />
Disposition/Reposition Players<br />
While the act <strong>of</strong> selling or otherwise disposing <strong>of</strong> an asset may appear to<br />
be a discrete act, in reality it is part <strong>of</strong> the continuum <strong>of</strong> the overall life<br />
cycle <strong>of</strong> an asset or portfolio <strong>of</strong> assets. In some respects, it can be<br />
considered the act <strong>of</strong> harvesting the value <strong>of</strong> the real estate, <strong>of</strong> converting<br />
the asset to cash to be redeployed for other purposes. Since it reflects the<br />
culmination <strong>of</strong> the investment cycle, many <strong>of</strong> the players involved in this<br />
phase <strong>of</strong> the enterprise are the same players that were involved in the<br />
planning, acquisition/production, and operational phases. Indeed, in the<br />
dynamic environment within which real estate operates, many owners<br />
will subject assets to hold/sell analysis on an annual basis as part <strong>of</strong> a<br />
proactive management style. This type <strong>of</strong> analysis should be focused on<br />
the future value rather than on recent history to avoid disposing <strong>of</strong> an<br />
asset that may have provided disappointing performance over the short<br />
term, but is positioned to provide strong, competitive performance going<br />
forward.<br />
…in the dynamic<br />
environment within<br />
which real estate<br />
operates, many<br />
owners will subject<br />
assets to hold/sell<br />
analysis on an<br />
annual basis as part<br />
<strong>of</strong> a proactive<br />
management style.<br />
© JR <strong>DeLisle</strong>, PhD<br />
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The interest in annual hold/sell analysis is enhanced when the investor/owner is<br />
required to mark assets to market. In effect, that act <strong>of</strong> “mark-to-market”<br />
creates unrealized gains or losses which become part <strong>of</strong> the historical return<br />
series for an asset. These positions are “unrealized” in the sense that they<br />
have not been locked in through a transaction, but are paper positions based<br />
on appraised values. However, the fact that they have not been realized does<br />
not imply that they are trivial. Indeed, in a number <strong>of</strong> situations changes in the<br />
aggregate value <strong>of</strong> the underlying assets has significant impact on related events.<br />
For<br />
example, in commingled funds, beneficiaries can periodically withdraw or add to their holdings, the<br />
current market value becomes the benchmark that is used to determine their pro rata situation. Similarly, in<br />
the REIT industry, analysts and investors track how the aggregate value <strong>of</strong> stock compares to the<br />
cumulative value <strong>of</strong> the underlying assets. This ration is referred to as Net Asset Value (NAV) ratio. It<br />
indicates if NAV is at a premium (i.e., stock trades above collateral value) or discount (i.e., stock trades<br />
below collateral value) which suggests if a stock is temporarily overvalued or undervalued.<br />
In the case <strong>of</strong> repositioning or redevelopment activity, the relevant players and key decision-makers take<br />
on something <strong>of</strong> the same persona as the initial development team. However, a distinguishing element <strong>of</strong><br />
the real estate asset class at the disposition phase <strong>of</strong> the cycle is the “insider information” that hands-on<br />
experience in the day-to-day operation <strong>of</strong> the project has provided to the manager over time. This insight –<br />
…a distinguishing element<br />
<strong>of</strong> the real estate asset class<br />
at the disposition phase <strong>of</strong><br />
the cycle is the “insider<br />
information” that hands-on<br />
experience in the day-to-day<br />
operation <strong>of</strong> the project has<br />
provided to the manager<br />
over time. This insight<br />
which is legal in real<br />
estate…<br />
which is legal in real estate—allows the current manager to<br />
make decisions based on how the asset responded to various<br />
externalities (e.g., market cycles, tenant turnover) in the past,<br />
providing something <strong>of</strong> a precursor <strong>of</strong> how it may behave in the<br />
future. This can provide an “informational advantage” over the<br />
market which may not be privy to such information. On the<br />
other hand, the experience with the asset may create certain<br />
biases to sell or hold based on personal preferences, comfort or<br />
other factors that have created a bond between the<br />
investor/owner and the asset. To ensure that such relationships<br />
do not distort the process, the decision-makers should pay<br />
special attention to the need for an objective, dispassionate<br />
decision that is consistent with the goals and objectives for<br />
ownership and/or other forms <strong>of</strong> involvement.<br />
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Chapter3: <strong>Multi</strong>-<strong>Dimensional</strong><br />
<strong>Nature</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong><br />
Summary Chapter 3<br />
<strong>Nature</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong>. <strong>Real</strong> estate is both a financial asset<br />
and a physical resource, a resource that is comprised <strong>of</strong> the<br />
Conceptss<br />
site itself and the externalities<br />
that surround<br />
it and connect<br />
it to other parcels or activities.<br />
<br />
<br />
Static, Environmental and Linkages<br />
Space‐Time, Money Time Components<br />
<strong>Dimensional</strong>ity<br />
<strong>of</strong> <strong>Real</strong> <strong>Estate</strong>. <strong>Real</strong> estate is<br />
comprised <strong>of</strong>f<br />
three major types <strong>of</strong> attributes: static or physical,<br />
environmental or neighborhood, and linkages or<br />
connections. Since these threee attribute categories are<br />
<br />
<br />
<br />
<br />
Capital Markets<br />
Spatial Markets<br />
Neighborhoods & Submarkets<br />
Unique Assets, Unique Markets<br />
always changing, the real estate product is always<br />
Operational <strong>Nature</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong><br />
changing.<br />
<strong>Real</strong>l <strong>Estate</strong> Performance Characteristics<br />
<strong>Real</strong> <strong>Estate</strong> Asset Class. <strong>Real</strong> estate is an asset class and Life Cycle Management<br />
satisfies each <strong>of</strong><br />
the tests: it is unique, it is meaningful, andd<br />
it is significant. As such, real estate should develop its ownn<br />
theoretical foundation, drawing on other behavioral,<br />
Space‐Time<br />
physical and social sciences where appropriate.<br />
Interdisciplinary<br />
<strong>Nature</strong>. Although it is a separate asset<br />
class, real estatee remains an interdisciplinary<br />
field, drawingg<br />
on<br />
a number <strong>of</strong> related disciplines. These disciplines comee<br />
in<br />
at different stages <strong>of</strong> the product life cycle.<br />
Best Practice Standards. The intellectual demands<br />
embedded in this broad, interdisciplinary framework are<br />
much higher than if real estatee is approached as a narrow<br />
field or if players focus on the particular phase <strong>of</strong> activity in<br />
which they are directly engaged.<br />
Questions to Ponder<br />
SEL Dimensions. How important are the three dimensions <strong>of</strong> real estate? Which <strong>of</strong> them are controllable<br />
and which are not? Since all three are changing over time, is real estate a tangible asset or an intangible<br />
one? How can the SEL be combined with market segmentation to create better spatial solutions?<br />
Space‐Time, Money‐Time.<br />
Which <strong>of</strong> the two components <strong>of</strong> real estate are more important? Can<br />
you<br />
operate in one area <strong>of</strong> the market or do you have to pay attention to<br />
both? What key forces drive<br />
the<br />
money side <strong>of</strong> the market?<br />
Alignment <strong>of</strong> Interest. Since there are three major player groups, how<br />
can their interests be aligned to<br />
result in better real estate decision‐making? Space producers are typically on the front line, while space<br />
users are dependent on the options that are created for them. Does this equation work or is it just an<br />
example <strong>of</strong> a “field <strong>of</strong> dreams?” How can<br />
developers avoid having their dreams turn into nightmares? How<br />
can the demand side be better represented in the process or is it working well the way it is?<br />
Asset Class Debate. Where do you come<br />
down on the asset class vs. industry sector debate? Is it<br />
just a<br />
matter <strong>of</strong> semantics or is it<br />
real? Who is on what side <strong>of</strong> the debate and why are they there? Who<br />
should<br />
lead the charge and what’s<br />
at stake?<br />
Interdisciplinary <strong>Nature</strong>. Given the diverse array <strong>of</strong> pr<strong>of</strong>essionals and related disciplines that must be<br />
marshaled to<br />
support the real estate market, is it truly a discipline orr just a compilation <strong>of</strong> other?<br />
What is<br />
the essence <strong>of</strong> the pr<strong>of</strong>ession and how is<br />
it doing under the status quo? What will the future <strong>of</strong> the<br />
industry look<br />
like and how should individuals prepare for the changess that are coming?<br />
Barriers to Entry. Given the absence <strong>of</strong> a formal discipline, there are few barriers to<br />
entry in real estate.<br />
The exceptions may be in certain service areas such as appraisal, brokerage, construction, etc. Should the<br />
real estate industry pursue<br />
licensing and advocate for designations for developers and other key players?<br />
Should theree be some competency testing in real estate? If so, who would set the standards and how<br />
would it be administered?<br />
Scope <strong>of</strong> Inquiry. The sheer number <strong>of</strong> players involvedd in the real estate industry can be daunting. How<br />
should a young pr<strong>of</strong>essional approach the field? Is it more importantt to develop expertise in a narrow field<br />
where one can add value or should they focus on understanding how<br />
it all comes together?<br />
© JR <strong>DeLisle</strong>, PhD<br />
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<strong>Multi</strong>-<strong>Dimensional</strong> <strong>Nature</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong><br />
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