Commercial Real Estate Prices and Cycles
Sunday, Jan. 5, 2020 8:00 AM - 10:00 AM (PDT)
- Chair: Robert Kurtzman, Federal Reserve Board
Leverage Cycles in a Mature Asset Class: New Evidence from a Natural Laboratory
AbstractWe model leverage cycles in the natural laboratory of a mature asset class, namely US Commercial Real Estate. In this setting we can observe entrepreneurs' asset values as well as debt balance. We model capital-market yields, as conditioned by market-wide leverage, an indicator of debt availability. Using a VAR framework, we examine variance decompositions and impulse-response functions. We show that leverage constitutes the primary driver of innovations in capital-market yields and vice versa. We further find evidence for flight to quality as well as knock-on effects that affect low-leverage entrepreneurs in the market.
The Value of Daylight in Office Spaces
AbstractThe presence of natural light in indoor spaces improves human health, well-being, and productivity, particularly in workplace environments. Do the social benefits of daylight translate into economic value as measured by what office tenants are willing to pay? Using a sample of 5154 office spaces in Manhattan, we pair urban daylight simulation with a hedonic valuation model to determine the marginal value of daylight in offices. Holding all other factors constant, we find that occupied spaces with access to high amounts of daylight (as measured by 55% spatial daylight autonomy) have a 5–6% value premium over occupied spaces with low amounts of daylight (as measured by less than 55% spatial daylight autonomy). We simulate the distribution of daylight on each office floor individually, taking into account architectural and location-specific characteristics. Then, using the hedonic model, we determine the added value of daylight in the office spaces. The results show, for the first time, that an estimated 74% of office spaces throughout Manhattan have low daylight, and that in a dense urban environment with differentiation in daylight levels, tenants value high daylight. Daylight value is independent of other building, neighborhood, and contract characteristics. By revealing the added value of daylight in commercial office spaces, we suggest that daylight is a key design driver and thus, should be considered in design, policy, planning, and project financing.
The True Value of Green: Separating the Wheat from the Chaff
AbstractThis study examines the actual environmental performance compared to the eco-certification label for office buildings with respect to the behavior of tenants and landlords. Using several recently available databases on individual tenant leases, tenant profiles, building-level environmental performance and building characteristics, we are able to assess which type of tenants are willing to pay a premium for occupying green space and also the incremental rent premium associated with a named green label in contrast to prior studies. We find that tenants have the ability to distinguish actual environmental performance from eco-certification; i.e., separating the wheat from the chaff.
- R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location
- G1 - General Financial Markets