The Nine Percent Solution

August 1996, Vol 21, No 2 Abstract: Real Estate capitalization rates vary more by property type than over the real estate cycle. The tendency to cycle around some constant has been a source of much discussion and misunderstanding. Investor surveys of expected returns tend to confirm this phenomenon and paradox. In bifurcating the capitalization rate into… Read more

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REITs and the Private Market: Are Comparisons Meaningful?

August 1996, Vol 21, No 2 Abstract: This article presents a discussion of publicly traded equity REITs and individual real estate assets that are exchanged in the private marketplace. It is general in nature intending to highlight some reasons for the confusion as opposed to a more academic explanation of the pricing anomalies between the REIT… Read more

Pricing Risk: Choosing a Discount Rate

August 1996, Vol 21, No 2 Abstract: Though the discounted cash flow analysis is a widely used method to estimate value for a real estate investment, the most reliable way to arrive at a discount rate is still being debated. This article proposes a compromise between the traditional 12 percent real estate return assumption and an… Read more

Office Capitalization Rates: Why Do They Vary Across Metropolitan Markets?

August 1996, Vol 21, No 2 Abstract: The object of this article is to shed light on the extent and underlying determinants of inter-metropolitan differentials in office capitalization rates. The authors present a cross-sectional model which accounts for the partial adjustment of such rates and synthesizes both the direct income capitalization and the discounted cash flow… Read more

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Capitalization Rates, Discount Rates and Reasonableness

August 1996, Vol 21, No 2 Abstract: It has become increasingly popular for purchasers of valuation services to require both a direct capitalization analysis and a discounted cash flow analysis. As with other approaches to value, these two are basically alternative ways to view the market’s approach to pricing, and performed correctly they should replicate each… Read more

Capitalization Rates for Regional Shopping Centers: Anchor Department Stores vs. Mall stores

August 1996, Vol 21, No 2 Abstract: When direct capitalization is used to value regional shopping centers and their separately owned components (anchor department stores [anchors] and mall stores [malls]), little published research is available to help identify the appropriate levels of capitalization rates for anchors as compared with malls. Anecdotal information suggests that most practitioners use either the same capitalization rate for... Read More

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