Taking questions on the linked December 2014 Commercial Real Estate Research Piece
[{"id": "cmt3s01", "text": "The linked article is a research piece my group published earlier this week. I'm happy to discuss if anyone has questions. I'd also appreciate any comments/feedback.\n\nIt seems like there are very few research authors in CRE (and really finance/economics in general) who are using Reddit. If this is not appropriate please let me know! ", "replies": [{"id": "cmuktxl", "text": "Report looks awesome, thanks for sharing.  When I have a little more time next week was planning on reading through and if I have any questions will certainly let you know.", "replies": [], "depth": 2}], "depth": 1}, {"id": "cmt9djg", "text": "God, that cap rate trend just scares the shit out of me.  Nice research report, thanks for sharing.  ", "replies": [{"id": "cmv79j6", "text": "Agreed - although much of it makes sense due to declining treasury rates. Hopefully cap rates don't decline below Treasuries like what happened in 2007...", "replies": [], "depth": 2}], "depth": 1}, {"id": "cmtapec", "text": "Great information, thanks.", "replies": [], "depth": 1}, {"id": "cndiqtv", "text": "I am of the opinion that looking at real estate from a national level is simply bad practice. I feel you can only examine it on the local level and MAYBE a regional level but even so is a stretch. \n\nWhat are your thoughts on proper research methodology when examining CRE for personal investments, for portfolio managers looking for diversification across all asset classes and then decision making for CRE asset classes? ", "replies": [{"id": "cndz2dz", "text": "When examining performance of CRE portfolios since the 2007 peak, property type and geography were arguably more important than skill in deal selection amongst firms. Also recall the 2001 cycle where the recession almost exclusively impacted office-properties in technology markets. Or the 1987-1994 cycle that was regionally staggered over time. Identifying risk in year 1995-2000 San Francisco office is something many (most?) of the CRE research community can claim for itself. The same is true, to a lesser extent, for year 2014-2015 apartments. tldr; CRE is not as efficient as the stock market. \n\nGetting more to your first point: I'd agree that misapplication of a macro view can be more detrimental than no macro view, and would also agree that this is often done by firms (such as deciding a portfolio can no longer consider any new apartment deals under any circumstances). In practice, a basic \"front-end\" allocation strategy for mortgages could be adjusting pricing by perhaps 5 to 25bps on favored or unfavored types/geographies. For equity, underwritten yields could be adjusted by around 25 to 100bps. (Modifying other types of underwriting or due diligence parameters may be preferable to pricing/yield).\n\nThanks for the comment! I appreciate feedback.", "replies": [{"id": "cne5x2w", "text": "I understand that this published report is just to give a macro view of trends across various asset types. \n\nDo you do reports specifically tailored for clients? Would you say you are using more qualitative or quantitative data when drawing a final conclusion?\n\nHow about data collection. I would GUESS (only a guess) that the most successful managers in each submarket are vertically integrated and have their own internal leasing teams resulting in data on their vacancy to be impossible to receive. I am guessing you get data from brokers who are in charge of leasing for properties owners who do not have the same type of internal leasing. Do you think its possible that your data is skewed towards the weakest performing properties or do you think you have the ability to compile accurate information?\n\n", "replies": [{"id": "cne7tgn", "text": "Thanks for the comment - yes, there are different research reports/analysis for different clients. The quantitative modeling is setup via many subjective estimates, so it's difficult to answer which aspect is more significant. If we were living in a time that had accurate data on 20 or 30 boom/bust cycles, then modeling could be much more quantitative. Since there is only data on 3 or 4 boom/bust cycles, the relationships between inputs must be qualitatively considered very carefully (and are frequently adjusted) whenever the models are run. There are also many additional qualitative factors that aren't practical to put in a quantitative model. \n\nIn the case of smaller properties (below $2 million) and apartments, there are likely more vertically integrated managers, but my research group is geared towards institutional investors where the large brokerages (CB/Cushman/etc.) do most of the leasing. Even in cases where property managers find a tenant directly, there is a good chance the lease will end up getting tracked and modeled via CRE appraisers, mortgage holders of the property, etc.", "replies": [{"id": "cne8zde", "text": "Who typically orders/subscribes to your reports? ", "replies": [{"id": "cneozv5", "text": "Reports are primary for existing investors, but they are also sometimes made for potential investors. There is currently not a pay-for-research stand alone platform. Investor accounts range from around $100 million to $10 billion. There are also a few reports that are available to anyone who wants them (including the report linked in this post).", "replies": [{"id": "cnesnkm", "text": "Do you know how these investors typically utilize these reports? ", "replies": [{"id": "cnhq0ts", "text": "There are a variety of uses - risk management, relative value, auditing &amp; regulatory, new product development, underwriting support, etc. For all of these groups the reports serve as a starting point for discussing and finding solutions to specific problems.", "replies": [{"id": "cnhqsxy", "text": "How indepth are the full reports?\n\nWhat do they generally cover?\n\nOr do you release reports based on clients requests?  ", "replies": [{"id": "cnicpgs", "text": "They are based on client requests. A recent client request was creating a buy/sell/hold view on the four core property types in each of the 50 largest MSA's (this was largely based on current cap rates and projected NOI). Another report summarizes CRE capital market conditions, such as who are the largest buyers/sellers, etc. ", "replies": [{"id": "cnrnybh", "text": "How do you think your clients typically utilize your reports? Is it generally for their macro level decision making?\n\nIf so is it normally institutional funds which act as capital partners? I can't see how a local operator could really utilize these unless theyre determining which asset classes they be in. ", "replies": [{"id": "cnsvevy", "text": "They are generally only for macro decisions, not for local operators. The research group sometimes offers a macro perspective on individual deals and with local operators, but it's typically a small factor compared to everything else that should be considered.", "replies": [], "depth": 12}], "depth": 11}], "depth": 10}], "depth": 9}], "depth": 8}], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}]