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Lecture 04 Product Market Analysis - Jan 29 09

Lecture 04 Product Market Analysis - Jan 29 09 - Product...

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Product Market Analysis Income Producing Properties
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2 Overview Real Estate Markets Business of Real Estate: Landlords own property and tenants pay rent Market Rent Demand/Supply Economic influences Developing an investment analysis.
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3 Introduction Real estate is the largest component of national wealth and the largest component of annual net private investment . Tangible Assets at Market Value and Loan/Asset Ratio, 2001 Q3, $ billion 0 1000 2000 3000 4000 5000 6000 7000 8000 9000 10000 11000 12000 13000 14000 15000 Residential Real Estate Non-Res. Real Estate Business Equipment Consumer Durables Inventories Billions of dollars Loan/Asset = 40% Loan/Asset = 43% Loan/Asset = 56%
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4
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5 Two Major Categories I. Residential Single Family Multi-family (apartments) I. Non-Residential Commerical (office, retail) Industrial Hotel/motel Recreational (country clubs, sports complexes) Institutional (government, hospital, university)
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6
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7 Characteristics of real estate markets Boom and bust cycles (sustained periods of excess supply or excess demand). Business cycle effects (Effect of fluctuations in market fundamentals such as interest rates, income levels, employment, taxes, household formation, employment levels).
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8 Business of Real Estate Most Real Estate used by businesses is leased 1. Most tenants find leasing to be more cost effective Capital better spent in business Don’t want to be in the Real Estate business 2. Leasing increases flexibility 3. Time and cost of operating, managing and repairing facility
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9 Market rent is the price at which an owner can lease the space. Market rent is a function of Market Fundamentals (economy) and supply and demand for space by tenants.
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10 Rental Market Equilibrium:
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