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Lecture 02 Final - Jan 22 09

Lecture 02 Final - Jan 22 09 - Real Estate Market and...

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1 Real Estate Market and Financing Chapter 3 Lecture 2
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2 Real Estate Investment Analysis I. General Characteristics of All Real Estate Markets 1. Highly Stratified Markets Distinctions exists between urban areas and submarkets within urban areas Unique location in geographic space is always a potential source of market power. 2. Heterogeneous Products Real Estate assets can be characterized as bundles of attributes including location, architectural features, amenities, square footage, floor plate design, etc. (Con’t)
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3 Real Estate Investment Analysis I. General Characteristics of All Real Estate Markets (con’t) 3. Market Transactions are Private, Complex, and costly Market information often proprietary leading to high search costs. Large numbers of potential participants are involed in these transactions. These include: real estate brokers, title insurance brokers, lenders, lawyers, accountants, investment middlemen (syndicators, investment bankers), secondary market participants, insurance brokers among others. (con’t)
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4 Real Estate Investment Analysis I. General Characteristics of All Real Estate Markets (con’t) 4. Structure markets are frequently in disequilibrium Supply and demand adjust very slowly. There are long lead times between investment decisions and project completion dates which further increases investment uncertainty. Have very severe real estate market cycles – periods of excess supply or excess demand. These result in overbuilding followed by periods of recession and under-building.
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5 Real Estate Investment Analysis I. General Characteristics of All Real Estate Markets (con’t) 5.Mortgage markets integrated into national capital markets whereas product markets are not. Are currently no instruments to “hedge” price uncertainty for real estate assets. Many such instruments in mortgage markets.
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