Attribution Non-Commercial (BY-NC)

1,6K vues

Attribution Non-Commercial (BY-NC)

- Principles of Econometrics 4e Chapter 2 Solution
- Stats Cheat Sheet
- A Study on Factors Affecting the Capitalization Rate
- Regression
- Hotel Development in NYC
- Regression analysis, Linear or Nonlinear Regression? That Is the Question. | Minitab
- General Stepwise Regression (GSR)
- 1928324
- Factors That Influence Standard Automated Perimetry Test
- Final Ppt Peripheral Cues
- Week 05
- STAT7004_ASS2
- Development of Time Estimation Model for Multistoried Building Structural Systems
- Fingleton Slides Peebles2009
- chapter 08 part 2
- ICAS-96
- A Meta–analysis of the Impact of Parity on Dystocia and Stillbirth in Holstein Cattle
- ecmc4
- Imf Detminants
- correlationandregression-111121213514-phpapp02

Vous êtes sur la page 1sur 41

INDUSTRY PROFILE

Real estate in United States is one of the largest markets in the world. In fact, it is so significant to world

economic activity that the availability of easy money and the subsequent Housing Bubble triggered the Sub-

Prime Crisis and eventually the global Financial Crisis of 2008 - 2009 that brought the world's economy to its

knees. The US real estate market is divided into 2 sectors: commercial real estate and residential real estate.

Most discussion tends to focus on residential real estate (i.e. houses), but commercial real estate is also a

critical sector of the economy, and is made up of offices, shopping malls, factories, warehouses and other

commercial buildings.

In order to be successful in real estate investment, an investor needs to understand house price trends, assess

the condition and value of the investment property, and secure a suitable mortgage or other form of real

estate finance. The US real estate industry has been experiencing wonderful growth due to the relatively

steady good economy. In 2006, some markets had major gains in occupied space, others saw record sales

transactions. The market has begun to tighten, developers remained cautious possibly eye toward the future,

particularly predictions of escalating rental rates.

Developers

Development is an idea that comes to fruition when consumers – tenants or owner- occupants acquire

and use the space put in place by the development team. Land, labor, capital management and

entrepreneurship are needed to transform an idea into reality. Developers balance the needs of diverse

providers and consumers of the real estate product. The developers have to demonstrate the project's

feasibility to the capital markets and pay interest or assign Equity positions in return for funding.

Appraisers

Appraisers can be a part of every stage of the property development process. Appraisers are primarily

responsible for valuation of the project. They estimate the market value of the property and typically prepare

a formal document called appraisal. Appraisal may be necessary when a developer transfers ownership, seeks

financing and credit, resolves tax matters, and establishes just compensation in condemnation proceedings.

Appraisers can also evaluate a project as input to market studies and feasibility studies. Some of the familiar

names in the US Real Estate markets include CB Richard Ellis, Cushman and Wakefield and Grubb and

Ellis.

Property managers

Property managers focus on the day operation of the asset. Property managers carry responsibility for

all respects of the physical space in accordance with the asset manager's plan. The responsibilities of a

property manager include:

• Marketing and leasing

• Maintenance and repair

• Tenant relations including rent collection

• Insurance

• Accounting

• Human resource management

• Providing timely information to the asset manager about events affecting the property.

Some of the major property managers include Trammel Crow Company and Grubb and Ellis Company.

Real Estate brokers and leasing agents are hired to act in the name of the developer or asset manager

in leasing and selling space to prospective tenants or buyers. Their function, particularly in leasing large

industrial and commercial spaces is to carry out one of the most complex financial negotiations in the

development process. Leasing agents must balance all the various uses' individual needs against the

developer's financial model.

Lenders

A) Construction Lenders are usually commercial banks, which are responsible for financial during

project construction and for seeing that the developer completes the project within the budget and according

to the specifications.

B) Permanent lenders seek to originate safe loans generating the maximum possible return. The

market value of the completed project is very critical in that it serves as the primary collateral for the loan.

COMPANY PROFILE

ZENTA KNOWLEDGE SERVICES PVT. LTD.,

About Zenta:

Zenta which is founded in 2001 is a world-class knowledge process outsourcing (KPO) and business process

outsourcing (BPO) and Company, offering a full range of back-office, voice and on-site support solutions

such as Credit Card Servicing, Consumer Lending Servicing, Accounts Receivable Management, Mortgage

Servicing and Real Estate Capital Market Analytics. The Company serves in the area of Consumer Credit

services, Insurance and Financial Services, and Commercial and Residential Real Estate services. With

4,500+ employees worldwide, Zenta has operations in six locations across three continents. Zenta is a

preferred employer in India. Zenta pioneered the concept of developing and delivering higher level offshore

solutions for the real estate industry. The unique onshore/offshore approach combines US domain expertise,

a proven process migration methodology and a large team of highly trained offshore finance professional.

Zenta allows the clients to focus on their core business by utilizing its cost effective resources and scalable

platform to execute non- core activities.

The May 2007 realignment of the Company’s services under the Zenta brand reflects the new corporate

vision of building a world-class Knowledge and Business Process Outsourcing Company focused on the real

estate and financial services industries. As a fully integrated global enterprise, Zenta now offers real estate

and financial services customers a broad array of services from its centers of excellence around the globe.

Zenta Solutions

From origination and throughout the customer lifecycle, Zenta delivers deep, end-to-end servicing solutions.

Zenta's specialized focus on the financial services industry and our management expertise and experience,

are the reasons we have been chosen to provide high-end business processing for some of the world's most

prestigious banks and financial institutions. Instead of coordinating multiple vendors, Zenta's complete

solution set makes it possible for clients to work with one company only - providing a single source for all

their business processing needs. Zenta's end-to-end solutions include Credit card servicing and Commercial

Realty Services, Residential Realty Services and Account Receivables management, Healthcare Revenue

Cycle Management and Residential Mortgage Services.

Zenta’s executive, client facing and management teams are based in the U.S. and are comprised of leaders

with deep and broad industry expertise from top Fortune 1000 companies. They deliver the depth of

experience necessary to build long-term, strategic relationships with our clients and provide easy access to

Zenta's decision-makers. In addition, an experienced delivery team has extensive expertise in operating

global delivery centers while adhering to the highest industry and quality standards.

Zenta believes in long-term partnerships - but with flexible engagement models. Put simply, we partner with

clients to transform the way they do business. As the global operating model gains momentum, we help

clients meet their business challenges by designing and implementing complex solutions that deliver rapid

and enduring savings, allow clients to quickly introduce new products or services, augment highly skilled

internal resources and minimize large-scale investments. We believe these accomplishments will be achieved

through the innovative ways in which data is captured, collated, analyzed and disseminated.

Our proven ability to scale rapidly, both in volume and skill sets, enables us to create high-impact programs

for our clients. We engage with clients at the early stages of their offshoring program to develop an offshore

"roadmap" that best meets their objectives. Furthermore, we build flexible client relationships and have

experience working on a variety of engagement models.

RESEARCH METHODOLOGY

Property valuation forms the basis of real estate inventory decision making. Property valuation is

done not only at the time of making the inventory decision, but throughout the period of ownership of the

asset. Decisions are also made periodically about rehabilitation, modernization, expansion, conversion of the

property to another use, demolition of the existing improvements and ever abandoning the asset.

The purpose of this study is to facilitate the company to value the property in various states of US

Real Estate market using the capitalization rate which in turn enables the company to analyse and

recommend investment strategies for clients such as lending institution, bankers or owners etc through a risk

return analysis of the income streams of different commercial and Real estate properties.

SCOPE OF THE STUDY

• The project seeks to study the various factors to be considered while estimating the capitalization rate.

• To understand the most relevant and reliable methodology for income producing properties.

• To conclude a market value for some subject property in US real estate market.

PRIMARY OBJECTIVES

• To scrutinize the vital factors which affects the capitalization rate of the property and to find out the

importance of each factor.

SECONDARY OBJECTIVES

• To study the impact of property type in determining capitalization rate.

• To determine the effect of location in Real estate market.

• The study is limited only to real estate market in certain states in U.S.A

• The study is restricted only to vital factors which affect the capitalization rate.

• Only secondary data has been used in the study.

STUDY METHOD

Description study method is chosen for the study because of the vast amount of data available in

different books, magazine and websites relating to US real estate. The focussed study of the data can give

good insight into factors influencing capitalization rate.

DATA COLLECTION

For the purpose of the study, secondary data was collected through,

The materials available about US real estate in various websites like realestatejournal.com,

realtyrates.com, bloomberg.com.

The materials maintained in the organization about the properties.

Research publication of other institutes and organization like REIS, PULASKI, CBRE.

REVIEW OF LITERATURE

LITERATURE REVIEW

Sirmans and Webb (1978, 1980) and Ricks (1969) used the ACLI data source. They estimated

imputed equity yields on the investments by hypothesizing average holding periods with no price

appreciation and imputing tax rates. They relate the yield and its variance to alternative investments by using

only the cap rate.

Nourse (1987) uses the REIS data source to estimate the impact of change in capitalization rate for

real estate. His model, however does not take into account the potential variation driven by property types.

Evans (1990) used ACLI data source to estimate the time-series properties for capitalization rates. His

study focuses on comparing the stochastic nature of the stock market earnings/price ratio with real estate

capitalization rate.

Froland (1987) uses the ACLI data source to explain variation in capitalization rate and the

interaction of those rates with the capital market. Froland finds that the capitalization rate is a function of the

mortgage contract rate, the spread between Treasury bills and bonds and the corporate earning price ratio.

However his study has several significant problems like the impact of variation is not considered does not

specify the relationship between the capitalization rate and the independent variables and the interpretation of

his correlation coefficients is weakened by autocorrelation present in the dataset.

Guntermann and Smith (1987) derived estimates of equity rates and costs of capital for property

REITs, mortgage REITs, and homebuilders/developers. While operating properties and REITs had a before-

tax cost of capital of 16.6%, homebuilders/ developers’ cost of capital was substantially greater at 34.9%.

Their study concluded that the data sources and procedures permit the estimation of cost of capital and equity

rates with satisfactory precision and reliability for the majority of investment or appraisal applications.

Froland (1987) compared cap rate movements with competitive yields in the asset

trading markets using quarterly cap rates for apartments, retail, office, and industrial

properties for the first quarter of 1970 through the second quarter of 1986. He found

particularly strong correlations of the cap rate with mortgage rates, ten-year bond rates, and

the earnings/price ratio. In addition, inflationary expectations as measured by the Treasury

bond-bill spread were inversely related to cap rates. Froland also reported negative

correlations between cap rates and indicators of economic cycles, including capacity

utilization, national vacancy rate, and the percentage change in real GNP. Using a stepwise

regression approach, between 86% and 95% of the variation in cap rates was explained by the

mortgage rate, the eight-quarter bond-bill spread, and the price earnings ratio. Froland’s

empirical results were not bound through a theoretical framework and no tests or corrections

for autocorrelation appeared in the study.

A study by Evans (1990) noted the sensitivity of the multifamily and nonresidential real

estate cap rates to the earnings/price ratio in the stock market. This study of quarterly cap

rates for 1966–1988 reported a strong positive relation of real estate cap rates lagging the

earnings/price ratio by one period. Although short of statistical significance, a somewhat

lesser positive correlation occurred in the same quarter and a negative correlation occurred in

the second quarter. Evans concluded that these results were not consistent with the theory that

real estate markets are information efficient.

Ambrose and Nourse (1993) examined mean quarterly capitalization rates for

commercial/retail, office buildings, commercial services, industrial, and hotel properties for

1966 through 1988. The theoretical base for their study is the traditional WACC model that

has been used so extensively in the finance literature. Their empirical model related cap rates

to a local variable, the spread between long-term and short-term Government bond rates, the

earnings/price ratio of the S&P 500, and debt-to-equity components. The debt-to-equity

components were estimated from the average loan-to value and property mortgage costs.

Using seemingly unrelated regression (SUR), they reported that cap rates were not closely

tied to either the S&P 500 or the bond risk premium spread. Using a cross-sectional/time-

series regression approach, they found that Weighted cost of debt of .98, not significantly

different from one. Also, the return on equity was estimated at 4.85% and was statistically

different from zero. The intercept and slope coefficients were found to vary significantly by

property type; however, the panel data regression did not permit separate slope coefficients

by area.

model consistent with the WACC and CAPM. Unlike other studies that have used the ACLI

database, this study uses National Real Estate Index panel data for office,

warehouse/distribution, retail, and apartment properties. These data consist of twenty-one

MSAs for fifteen half-year periods starting in the second half of 1985. The empirical model

uses a one factor (location) fixed-effects model with correction for autocorrelation for each

location fixed effect. Consistent with Evans (1990), we include one- and two period lags for

market variables. Also, separate results are reported for each property type, permitting

separate slope estimation for each variable while retaining the benefits of panel data reported

for each property type, permitting separate slope estimation for each variable while retaining

the benefits of panel data.

CAPITALIZATION RATE

The capitalization rate in the real estate literature refers to the ratio of Net Operating

Income to property value which is the inverse of the price earnings ratio in the stock market.

This rate has a particularly important role in property valuation, because the income

capitalization method converts the expected income stream from commercial property into an

estimate of asset value by dividing the net operating income stream by the capitalization rate.

Most investors associate movements in cap rates with changes in asset values, e.g., falling

cap rates signal rising property values-changes in income or asset prices (or both) can cause

cap rates to move up or down. This is because there is a positive correlation between the

property income and the asset values, the movements in one variable frequently dilute the cap

rate effects of movements in the other. For example, when rents (income) are rising, property

values also tend to increase, such that both the numerator and denominator of the cap rate

equation increase; and when rents are falling, property values usually fall, although this has

not been the case for the last few years.

A market cap rate is determined by evaluating the financial data of similar properties

which have recently sold in a specific market. It provides a more reliable estimate of value

than a market Gross Rent Multiplier since the cap rate calculation utilizes more of a

property's financial detail. The GRM calculation only considers a property's selling price and

gross rents. The Cap Rate calculation incorporates a property's selling price, gross rents, non

rental income, vacancy amount and operating expenses.

If we have a seller and an interested buyer for particular piece of income producing

property, the seller is trying to get the highest price for the property or sell at the lowest cap

rate possible. The buyer is trying to purchase the property at the lowest price possible which

translates into a higher cap rate. The lower the selling price the higher the cap rate. The

higher the selling price, the lower is the cap rate. In summary, from an investor's or buyer's

perspective, the higher the cap rate, the better. Investors expect a larger return when investing

in high risk income properties.

The Cap rate may vary in different areas of a city for many reasons such as

desirability of location, level of crime and general condition of an area. You would expect

lower capitalization rates in newer or more desirable areas of city and higher cap rates in less

desirable areas to compensate for the added risk. In a real estate market where net operating

incomes are increasing and cap rates are declining over time for a given type of investment

property such as office buildings, values will be generally increasing. If net operating income

is decreasing and capitalization rates are increasing over time in a given market place,

property values will be declining.

The cap rate (R) equals (expected) net operating income NOI1 divided by the value

of the property (V) as follows (Ellwood, 1970),

expenses from a property's gross income. Operating expenses includes advertising, insurance,

maintenance, property taxes, property management, repairs, supplies, utilities, etc. Operating

expenses do not include the following Appraisers use the Income Approach, Cost

Replacement and Market Comparison methods to estimate the value of property. The Income

Approach utilizes the theory of Capitalization.

The property value for determining the cap rate is based on the sales price in a

competitive market commonly called the market value. Brueggeman and Fisher (1993) noted

that the cap rate is not an internal rate of return on investment (IRR) because it does not

consider changes in projected future income (or changes in the value of a property over time

because of changes in the income stream). If the income stream is expected to grow at a

constant growth rate (g) into the foreseeable future, Brueggeman and Fisher (1993) show that

the value of a property is estimated as the present value of a perpetual stream of future net

operating income cash flows using discount rate r:

Rearranging equation, the cap rate equals the total required return on the property less the

expected growth rate as given:

(1) The Opportunity Cost of Capital (OCC),

(2) Growth Expectations in the property’s future cash flows, and

(3)Risk perceptions and preferences among investors regarding the property

The following table shows the movement of capitalization rate for 1992-2010. These

movements are due to various factors which internally or externally affect the property. There

has been initial increase over the capitalization rate but after 1998, a decline can be noted.

1992 7.00%

1994 6.80%

1996 8.20%

1998 9.00%

2000 9.00%

2002 9.50%

2004 8.00%

2006 9.74%

2008 6.25%

2010 10.00%

Table 2.1 4Q Moving Average of Capitalization rate 1988-2006

The capitalization rate differs from property to property. It ranges from high in Retail

property to low in hotel property. The following table provides the capitalization rate for the

various property types from 2005 – 2010.

Retail 9.30% 9.00% 9.00% 8.25% 7.50% 7.50%

Office 8.40% 8.75% 8.75% 8.50% 8.00% 7.50%

Multifamily 7.90% 7.60% 7.25% 5.80% 5.50% 6.80%

Industrial 8.70% 8.60% 8.50% 8.25% 7.80% 7.00%

Table 2.2 Cap rate for various property types from 2005 – 2010

• Property Type

The Property type is the category to which it belongs. The various types of properties

are Retail, Office, Mixed Use, Hotel, Multi-family, Self storage and Industrial

properties.

• Location

Location means the state in which the subject property is situated.

• Loan To Value

Loan to value is the portion of the amount borrowed compared to the cost or value of

the property purchased. A higher LTV ratio means higher leverage and thus greater

risk.

• Market

Market means a city/region in which the subject property is located and included the

geographic location, economy, employment trends etc. of the region.

The age of the property is measured as the time gap between its year built and present

date.

• Mortgage Constant

The relationship between annual mortgage loan requirement and the initial mortgage

loan principal expressed as a decimal or percentage, for level payment mortgage loan.

• Lease Term

Lease term is the term during which the tenant agrees to stay in the property by

entering into a lease agreement with the landlord.

• Interest rate

Interest rate is the percentage of a sum of money charges for its use. It is the return on

an investment.

• Inflation

Inflation is the loss in purchasing power of money and increase in the general price

level. Generally measured by the consumer price index published by Bureau of Labor

Statistics

• Number of Tenants

Number of tenants occupied in the property is the number of tenants. It may be single

tenant for the office property and multi-tenant for the retail property.

Debt service coverage ratio is the relationship between annual net operating income of

a property and annual debt service of the mortgage loan on property. Lenders and

investors calculate the ratio to assist them in determining the likelihood of the

property generating enough income to pay the mortgage payments. From lenders

view point the higher the ratio the better.

Net operating income is the effective gross income less direct operating costs but

excluding depreciation, amortization and interest expense. It is synonymous with

operating cash flow before debt service.

Equity yield rate is the rate of return on the equity portion of the investment taking

into account periodic cash flow and proceeds from resale. It considers the timing and

amount of cash flows after annual debt service but not income tax.

• Discount Rate

Discount rate is rate of interest charged by Federal Reserve System to banks who

borrow money from the Federal Reserve. An increase in the rate not only discourages

from borrowing but also serves as a signal to money market that the interest rates are

probably going to increase. Accordingly, interest rates charged by banks to customers

usually increases as a result of increase in discount rate. The term is also used to

explain the compound interest rate used in the approach to value to convert expected

future cash flows into present value.

DATA ANALYSIS AND INPERPRETATION

Descriptive analysis:

deviation) that summarize and interpret some of the properties of a set of data (sample) but do

not infer the properties of the population from which the sample was drawn. Generally the

measures of central tendency (mean, median and mode) and measures of dispersion such as

standard deviation are the tools used in Descriptive Statistics.

All the above factors that affect the Capitalization Rate are used in the Descriptive Statistics.

Descriptive Statistics

Mean Std. Deviation N

From this descriptive statistics we can able to identify that there are some deviations in the

variables taken for analysis. Among all the factors Loan to Value (LTV) is the factor which

is highly deviated from its actual mean.

CORRELATION ANALYSIS

of the observations generally helps to visualize whether the variables are correlated. This plot

is called as Scatter Diagram. If the observations tend to flare out or narrow it may suggest

that the variance over the samples is not constant.

The correlation coefficient formula is:

r= n∑xy - ∑x * ∑y

The correlation coefficient r, a value between +1 and -1, expresses the degree of

association between X and Y.

In order to scrutinize the vital factors which affect the capitalization rate of the property, in

this study we take Capitalization Rate as a dependent Variable and all the other factors as a

independent variable.

2.8

PROPERTY TYPE

2.3

1.8

1.3

0.8

0.05 0.06 0.07 0.08 0.09 0.1

Cap Rate

5.5

4.5

Quantified Location

3.5

2.5

1.5

0.5

0.05 0.06 0.07 0.08 0.09 0.1

Cap Rate

80

70

60

50

40

30

20

10

0

0.05 0.06 0.07 0.08 0.09 0.1

Cap Rate

20

15

Lease Term

10

0

0.05 0.06 0.07 0.08 0.09 0.1

CapRate

0.08

0.075

0.07

Interest Rate

0.065

0.06

0.055

0.05

0.05 0.06 0.07 0.08 0.09 0.1

Cap Rate

0.031

0.029

0.027

Inflation

0.025

0.023

0.021

0.019

0.05 0.06 0.07 0.08 0.09 0.1

Cap Rate

0.13

0.12

0.11

Discount rate

0.1

0.09

0.08

0.07

0.06

0.05

0.05 0.06 0.07 0.08 0.09 0.1

CapRate

0.09

Mortgage Constant

0.085

0.08

0.075

0.07

0.065

0.06

0.055

0.05

0.05 0.06 0.07 0.08 0.09 0.1

CapRate

0.9

0.85

0.8

0.75

0.7

LTV

0.65

0.6

0.55

0.5

0.45

0.4

0.05 0.06 0.07 0.08 0.09 0.1

Cap Rate

2.2

1.8

DSCR

1.6

1.4

1.2

1

0.05 0.06 0.07 0.08 0.09 0.1

Cap Rate

Interpretation:

In the table 4.1, we can see four factors (Age of the Property, Inflation, Lease Term and

LTV) are negatively related with Capitalization Rate. And the Remaining Factors (Location,

Property Type, Interest Rate, No of Tenant, Discount Rate, DSCR and Mortgage Constant)

are positively related with Capitalization Rate. But seeing the significance level, only four

independent variables (Age of the Property, Interest Rate, Discount Rate and Mortgage

Constant) have significance level below 10%. Remaining Seven independent variables have

significance level more than 10%.

Therefore considering the significance level, only the below mentioned four independent

variables are considered for regression analysis.

• Age of the Property

• Interest Rate

• Discount Rate and

• Mortgage Constant

4.3 MULTIPLE LINEAR REGRESSION ANALYSIS:

Multiple linear regressions are used to predict the variance in an interval dependent,

based on linear combinations of independent variables. Multiple regression can establish that

a set of independent variables explains a proportion of the variance in a dependent variable at

a significant level (through a significance test of R2), and can establish the relative predictive

importance of the independent variables. One can test the significance of difference of two

R2's to determine if adding an independent variable to the model helps significantly. Using

hierarchical regression, one can see how most variance in the dependent can be explained by

one or a set of new independent variables, over and above that explained by an earlier set.

The estimates (b coefficients and constant) can be used to construct a prediction equation and

generate predicted scores on a variable for further analysis.

The multiple regression equation takes the form y = b1x1 + b2x2 + ... + bnxn + c. The b's

are the regression coefficients, representing the amount the dependent variable y changes

when the corresponding independent changes one unit. The c is the constant, where the

regression line intercepts the y axis, representing the amount the dependent y will be when all

the independent variables are 0. Associated with multiple regression is R2, multiple

correlation, which is the percent of variance in the dependent variable, explained collectively

by all of the independent variables. Multiple regression shares all the assumptions of

correlation: linearity of relationships, the same level of relationship throughout the range of

the independent variable, interval or near-interval data, absence of outliers, and data whose

range is not truncated. Here,

R2 - coefficient of determination, gives the proportion of the variance of one variable that is

predictable from the other variable.

Standard Error - The standard error of a statistic is the standard deviation of the sampling

distribution of that statistic.

F-Ratio – F-ratio is the test statistic used in analysis of variance to compare the magnitude of

two estimates of the population variance to determine whether the two estimates are

approximately equal.

Significance Level - The probability of a false rejection of the null hypothesis in a statistical

test.

Multiple linear regression analysis was done using SPSS. As discussed earlier only the below

mentioned factors are considered for regression analysyis.

Dependent variable : Capitalization rate

Independent variables : Age of the Property, Interest Rate, Discount Rate and

Mortgage Constant.

Model Summary

Change Statistics

R Adjusted R Std. Error of R Square Sig. F

Model R Square Square the Estimate Change F Change df1 df2 Change

1 .644a .415 .321 .760519% .415 4.428 4 25 .008

a. Predictors: (Constant), Mortgage Constant, Age of the Property, Discount

Date, Interest Rate

R Square = 0.415 (41.5%). The independent variables explain 41.5% of dependent variable

(Capitalization Rate). Significance level is 0.8%

ANOVAb

Sum of

Model Squares df Mean Square F Sig.

1 Regression 10.245 4 2.561 4.428 .008a

Residual 14.460 25 .578

Total 24.705 29

a. Predictors: (Constant), Mortgage Constant, Age of the Property, Discount

Date, Interest Rate

b. Dependent Variable: Cap rate

A one-way between subjects ANOVA was conducted to know the effect of Receivables and

Payables on Operating profit of the firm. There is a significant effect of cash management on

operating profit of CUMI at the 5% level of significance

Coefficientsa

Standardize

Unstandardized d

Coefficients Coefficients Collinearity Statistics

Model B Std. Error Beta t Sig. Tolerance VIF

1 (Constant) 2.298 2.546 .902 .375

Age of the

-.011 .007 -.254 -1.627 .116 .964 1.038

Property

Interest Rate .137 .495 .051 .277 .784 .694 1.442

Discount Rate .338 .108 .506 3.114 .005 .887 1.127

Mortgage

.236 .254 .168 .930 .361 .718 1.393

Constant

a. Dependent Variable: Cap rate

F – Table value at 0.05% significance level and degrees of freedom (12, 17) = 2.38

As, the F critical value is less than the F statistic (3.38) obtained, the null hypothesis is

rejected.

H0: There is no significant relationship between Capitalization rate and other factors.

H1: There is significant relationship between Capitalization rate and other factors.

The figure shows in the regression plot between the Capitalization Rate and predicted

factors of capitalization rate.

0.1

0.095

0.09

0.085

0.08

0.07

0.065

0.06

0.055

0.05

0.05 0.06 0.07 0.08 0.09 0.1

Predicted Y

REGRESSION EQUATION:

+ 0.0001 * Property type + 0.7037* Interest rate + 0.0718* Equity yield + 0.0000 * As is

value + 0.1451 * Inflation +0.0006 * Lease term + 0.2846 * Discount rate – 0.0001 * Age

of property + 0.3117 * Mortgage constant + 0.0000 * NOI- 0.0071 * No of tenant.

Interpretation:

The R-Squared statistic indicates that the model as fitted explains 73% of the variability in

Capitalization Rate. The adjusted R-squared statistic, which is more suitable for comparing

models with different numbers of independent variables, is 52% and is also significant. The

standard error of the estimate shows the standard deviation of the residuals to be 0.0064.

Also, ANOVA shows that F value is greater than F critical value and the null hypothesis is

rejected. Thus, there is significant relationship between Capitalization rate and other factors.

Since the P-value in the ANOVA table is less than 0.05, there is a statistically significant

relationship between the variables at the 95.0% confidence level. From the regression line

plot it can be seen that 95% of the predicted values fall in a narrow band. From this we can

say that the regression line is a good fit. Hence the estimating regression equation can be

used to predict the Capitalization Rate.

4.5 MOVEMENT OF CAPITALIZATION RATE WITH REGARD TO PROPERTY

TYPES

Retail:

The following table shows the movement of capitalization rate for the retail property.

1 5.75% 10/1/2010 2.22%

2 6.50% 8/7/2010 2.27%

3 7.50% 10/4/2010 2.20%

4 8.00% 10/20/2010 2.42%

5 9.00% 8/30/2010 2.22%

6 8.50% 9/5/2010 2.26%

7 8.00% 12/29/2010 2.36%

8 7.00% 11/30/2010 2.10%

9 7.50% 1/13/2011 2.44%

Figure 4.27 Movement of Cap rate for retail property with respect to US Treasury bill

Office:

The following table shows the movement of capitalization rate for the office property.

1 8.00% 9/8/2010 2.29%

2 6.50% 1/1/2011 2.33%

3 7.75% 7/10/2010 2.52%

4 7.88% 5/3/2010 2.49%

5 7.44% 11/20/2010 2.21%

6 7.25% 10/24/2010 2.45%

7 7.50% 1/8/2010 2.03%

Table 4.19 Movement of Cap rate and US Treasury rate - Office

Figure 4.28 Movement of Cap rate for office property with respect to US Treasury bill

Multi-Family:

The following table shows the movement of capitalization rate for the Multi-family property.

Appraisal US

S. No Cap rate Date Treasury

1 8.35% 8/1/2010 2.38%

2 6.00% 10/1/2010 2.22%

3 7.75% 10/10/2010 2.33%

4 5.25% 11/15/2010 2.18%

Figure 4.19 Movement of Cap rate for Multi-Family property with respect to US

Treasury bill

Industrial:

The following table shows the movement of capitalization rate for the industrial property.

Appraisal US

S. No Cap rate Date Treasury

1 8.00% 5/3/2010 2.49%

2 6.50% 1/5/2011 2.33%

3 6.75% 9/15/2010 2.32%

Figure 4.30 Movement of Cap rate for Industrial property with respect to US Treasury

bill

Mixed Use:

The following table shows the movement of capitalization rate for the mixed use property.

Appraisal US

S. No Cap rate Date Treasury

1 6.50% 9/1/2010 2.20%

2 8.00% 12/19/2010 2.29%

3 8.00% 1/1/2011 2.33%

Figure 4.31 Movement of Cap rate for retail property with respect to US Treasury bill

Self Storage:

The following table shows the movement of capitalization rate for the self-storage property.

Appraisal US

S. No Cap rate Date Treasury

1 7.75% 11/3/2010 2.29%

2 8.00% 11/13/2010 2.18%

Figure 4.32 Movement of Cap rate for retail property with respect to US Treasury bill

Hotel:

The following table shows the movement of capitalization rate for the hotel property

Appraisal US

S. No Cap rate Date Treasury

1 8.00% 9/19/2010 2.28%

2 9.28% 11/9/2010 2.18%

Figure 4.33 Movement of Cap rate for retail property with respect to US Treasury bill

CHAPTER 5

5.1 FINDINGS

By analyzing the various factors affecting the capitalization rate the following were observed:

• It is observed from the 4 quarter moving average that for the past 10 years the

capitalization rates for the properties are showing a downward trend. This means the

value of the properties is continuously increasing.

• Discount rate, Interest rate, Lease term and Number of tenants are assessed as an

important indicator for determining the capitalization rate.

• Property type, Location and Market is identified as the best indicator while

considering the factors which affect the capitalization rate.

• It is observed that, higher the quality of the property, lower the capitalization rate and

higher the quality of the tenants, lower the capitalization rate.

• As is value and Age of the property have inverse relationship with the capitalization

rate.

• It is assessed that higher the demand for the specific types of property, the lower the

Capitalization rate.

5.2 SUGGESTIONS

• Investors should take into consideration the factors such as Property type, Location

and Market while investing in the Real Estate Market.

• Not only the property type but also the number of tenants in the property should be

considered since single-tenant property is more risky than the property occupied by

multi tenants.

• Investors should take into consideration the per capita income while deciding the

location of the property.

• The investors should consider the lease term while investing in properties as very low

lease term leads to roll over risk and higher cost of tenant improvements.

• The investor must consider the property type as some properties such as hotels are

more risky due to unpredictable occupancy rate.

• The investors can use the regression model developed in this study to estimate the

capitalization rate of the property.

CHAPTER 6

CONCLUSION

A capitalization rate is simply a ratio of a property’s net operating income (NOI) to its

market value, much like the inverse of a price earnings ratio in the stock market. Both space

and capital market forces affect cap rates. Space market forces influence cap rates directly

through income, while capital market forces affect pricing.

The results from this study indicate that differences across property types are

important in evaluating capitalization rates. The capitalization rates are strongly related to

capital market returns. Factors that seem important today may become outdated and

irrelevant after few years. This is a dynamic, competitive, and highly complex industry. The

framework of factors presented in the text will indubitably help the investors to achieve their

set objectives, gain a competitive advantage, and maximize the return on the real estate

property. Real estate capitalization rates have plunged amid fierce competition for core assets

with secure and predictable cash flows. The real estate industry is capital intensive and relies

heavily on debt.

APPENDIX

Property Classification

Classification of Property type - Based on risk in that property

Hotel 3

Office / Retail 2

Industrial / Mixed

Use / Multifamily / 1

Self storage

Location and Market Classification

Classification for Location and Market - Based on per capita income of the County

Less than $25,000 5

$25,000 - $50,000 4

$50,000 - $75,000 3

$75,000 - $1,00,000 2

More than $1,00,000 1

REFERENCES

Books Referred:

Websites:

• www.zenta.com

• www.cbre.com

• www.pulawski.com

• www.realestatejournal.com

• www.realtyrates.com

• www.articlesbase.com

• www.census.gov

• www.reis.com

• www.ncreif.com

• www.bloomberg.com

- Principles of Econometrics 4e Chapter 2 SolutionTransféré parHoyin Kwok
- Stats Cheat SheetTransféré parEdriana Isabel Bougrat Fermin
- A Study on Factors Affecting the Capitalization RateTransféré parmtamilv
- RegressionTransféré paraviniman
- Hotel Development in NYCTransféré parcrainsnewyork
- Regression analysis, Linear or Nonlinear Regression? That Is the Question. | MinitabTransféré parAlbyzia
- General Stepwise Regression (GSR)Transféré parDipanjan Das Majumdar
- 1928324Transféré parBogdanDorlea
- Factors That Influence Standard Automated Perimetry TestTransféré pararistos58
- Final Ppt Peripheral CuesTransféré parBhavik Parmar
- Week 05Transféré parKshipra Koranne
- STAT7004_ASS2Transféré parswonder22
- Development of Time Estimation Model for Multistoried Building Structural SystemsTransféré parAnurag Gogna
- Fingleton Slides Peebles2009Transféré paravcs1
- chapter 08 part 2Transféré parapi-232613595
- ICAS-96Transféré parGiannis Giorgos
- A Meta–analysis of the Impact of Parity on Dystocia and Stillbirth in Holstein CattleTransféré parFiras R. Abdulateef
- ecmc4Transféré parajayikayode
- Imf DetminantsTransféré parAnuvanshKumar
- correlationandregression-111121213514-phpapp02Transféré parVrajeshBhavsar
- Multi Linear Regression Handout 2x1Transféré parAbhishek Sarda
- Trotter Et Al (2016) - Climate Change and Electricity DemandTransféré parThiago Soares
- 4442-21657-1-PB (1)Transféré parSneha Chaudhry
- Problem Set 2Transféré parRaga
- understand_appraisal_1109_(1).pdfTransféré parrubydelacruz
- HKSA AKTIVITASTransféré parNusaibah Romadhoni
- Tata_vistara.pdfTransféré pardev1853
- The Contingent Valuation Method in Excavation Preservation the Ancient Eleusinian Sacred Way in Greece_Odysseas KopsidasTransféré parAnonymous kqqWjuCG9
- CAPITAL STRUCTURE THEORIES.docxTransféré parTHEOPHILUS ATO FLETCHER
- output_rkecil.docTransféré parsofinal eightson

- reportTransféré parmtamilv
- Fun Know YourselfTransféré parSabari Venkatesh
- New Microsoft Word DocumentTransféré parmtamilv
- GD topics1Transféré parmtamilv
- CorrelationTransféré parmtamilv
- Part 2 - CopyTransféré parmtamilv
- Part 1Transféré parmtamilv
- Balanced ScorecardTransféré parmtamilv
- Balanced ScorecardTransféré parmtamilv
- Bonafide-HarishTransféré parmtamilv
- BONAFIDE- AffarTransféré parmtamilv
- Chapter 5Transféré parmtamilv
- Chapter 3Transféré parmtamilv
- Chapter 1Transféré parmtamilv
- 1st halfTransféré parmtamilv
- karthiga_ZentaTransféré parmtamilv
- Executive SummaryTransféré parmtamilv
- Project Tamil DineshTransféré parmtamilv
- Correlation TamilTransféré parmtamilv
- RegressionTransféré parmtamilv
- RegressionTransféré parmtamilv

- Course_in_Credibility_Theory_and_its_Applications_----_(Pg_289--290).pdfTransféré parRaymond Ye
- Rasch Model EssayTransféré parFendi Ameen
- Descriptive Stat VarianceTransféré parMuzaffarA
- Tute Exercise 5Transféré parashley_kasner
- Measures of Dispersion.pptTransféré parJawedIqbalforex
- Forecasting Wheat Price Using Backpropagation And NARX Neural NetworkTransféré partheijes
- ForecastingTransféré parTeresse Dacanay
- Isi Mtech Qror 06Transféré parapi-26401608
- The Role of Time Management and Its Impact on Students BR1Transféré parscribidee
- Ludovic SupportTransféré parSrinath Srinivasaiah
- Using Real Data For Decision AnalysisTransféré parphi slamma jamma
- 9abs304-Probability & StatisticsTransféré parsivabharathamurthy
- PerformanceTransféré parBea Modena
- Clustering ValidacaoTransféré parAndrey de Souza
- Bayesian Adaptive User Profiling with Explicit & Implicit Feedback (slides)Transféré parphilip zigoris
- IpoTransféré parGde Rahmadi
- Output Dalam Bentuk Ms WordTransféré parmubarok
- Automatic Identification of Formation Iithology from Well Log Data: A Machine Learning ApproachTransféré parJoão Augusto
- Aima Assignment Gm03 SOLUTION NOV 12Transféré parAbhimit Kumar
- DataAnalysis-and-interpretation.pdfTransféré paremi_konohana
- The Uncertainty of Information Systems Cause or Effect of VucaTransféré parBlue
- Stat BudgetedTransféré parGerry Areola Aquino
- Privacy BookTransféré parkewlinside
- Sixth Form Prospectus 2012-2013Transféré parbourneacademy
- Fuzzy Regression MethodologyTransféré parMarios Shazam Spiliotopoulos
- Geostatistical AnalystTransféré parauank
- why use bic and aic.pdfTransféré parNasir Ahmad
- Doctorate in Business AdministrationTransféré paress_ay
- VaR for Philippine Fixed Income Market.pptTransféré parJoshy_29
- Philosophies of Principals Steeber & Graham Brown - National FORUM of Educational Administration and Supervision Journal - Dr. William Allan Kritsonis, Editor-in-Chief - www.nationalforum.comTransféré parAnonymous sewU7e6

## Bien plus que des documents.

Découvrez tout ce que Scribd a à offrir, dont les livres et les livres audio des principaux éditeurs.

Annulez à tout moment.