Real Estate Finance and Investments: Lecture 3

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Real Estate Finance and Investments Lecture 3

• Market Research

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Why Market Research is Needed

• Investment analysts and portfolio managers need
  market information at every stage in their
  decision-making efforts
• Market information is required not only for
  rational acquisition decisions, but for managing
  the existing investment portfolio
• Market research is also need to facilitate
  operating management decisions

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Extent of Market Research

• Costs vs. Benefits
• Role of Prevailing Market Conditions
• Role of Complexity
• Avoiding Analysis Paralysis

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Market Research Design

• Formulate nature of problem
• Data Collection and Analysis
• Proceed from general to specific
• Four quadrant forecasting matrix

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Four-Quadrant Forecasting Matrix
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Four-Quadrant Forecasting Model

• Initial Market Forecast This information
  generated by other sources more reliable than
  self-generated market forecast
• Collect physical, economic, demographic
  information relating to property and peer-group
  properties organize it in a way that relates it
  to macrolevel (market) forecast

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Four-Quadrant Forecasting Model

• Link reorganized data for Subject and peer-group
  to similar data for region of MSA.
• Forecast relevant regional or MSA variables (ie.
  Rental and vacancy rates) by using observed past
  relationships between these and other variables
  (construction activity, demographics, economic
  trends)

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Four-Quadrant Forecasting Model

• e) Relate forecast of relevant regional or MSA
  variables (vacancy and rental rates) to the same
  variables for Subject and its peer-group
  properties, by using observed past relationship
  and incorporating any observed trend in the
  relationship.

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Preparing the Research Report

• Summarizes procedures employed and describes
  conclusions reached
• Everything in research report should be explained
  in terms of its bearing on the conclusion
• Report format is determined by nature of research
  problem and needs of user

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Data Sources

• Primary
• Secondary

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Primary Data Sources

• Statistics gathered by researcher precisely for
  problem at hand
• Can be gathered by communication or by
  observation

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Secondary Data Sources

• Less costly and time consuming to generate
• Never precisely in desired form
• Available from agencies

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Descriptive Research

• Examples
• Describing profile of typical tenants
• Estimating proportion of people in a specific
  population who behave in a particular manner
• Describes aspect of problem
• Requires planning and catalog system
• Cross-sectional or time series

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Statistical Research

• Permit reliable generalizations to be drawn after
  examination of a limited portion of the total
  pool of information
• Descriptive statistics
• Inferential statistics

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Geographic Information Systems (GIS)

• (GIS) relate information to geographic location
  series of map overlays
• Computerized systems

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Geographic Information Systems (GIS)