Fall/Winter 1992, Vol 17, No 2

Abstract: Many income-producing properties have been overvalued by appraisers and analysts in the current real estate recession by failing to account for asymmetric effects of the real estate cycle on risk-adjusted discount and capitalization rates. Because changes in rents are driven by unpredictable, exogenous factors when a market is overbuilt, higher risk premiums must be applied to the discount and capitalization rates to reflect the uncertain duration and level of gap between present and required rents.