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Information, knowledge, and awareness: a column on resources for real estate analysts and valuers.

This is the first edition of TAJ's new Resource Center column about resources for appraisers and real estate market analysts. It will report on books, articles in a variety of publications, presentations, and websites. It will look at current happenings, trends in and influences on the real estate market, and the psychology and sociology of the people who make the market and the properties in it. It will also examine public policy, finance, appraisal techniques, and all manner of information for appraisers. In sharing this information, we hope you'll find that this new column offers interesting facts, observations, recommendations, and even some opinions.

In this initial column, we take a look at some resources available in the Appraisal Institute's Lure Library, on the Internet, and in other publications.

New in the Lum Library

First, let's look at four publications that are recent additions to the Lum Library (

Towers, Turbines and Transmission Lines: Impacts on Property Value

Edited by Sandy Bond, Sally Sims, and Peter Dent

(West Sussex, UK: Wiley-Blackwell, 2013) 337 pages

Towers, Turbines and Transmission Lines is a worthy resource for appraisers facing valuation problems involving properties with a variety of possible adverse influences. It is primarily useful for residential property damage studies, but many of the tools presented are of use for commercial analysis as well.

The text focuses on the effects of stigma, media attention, and risk perceptions on property value and marketability. Case studies and chapters cover specifics concerning high-voltage overhead transmission lines (HVOTLs), cell phone towers, and wind farms. There are references galore, useful to the researcher, analyst, and appraiser.

The book includes an introduction and overview of methodologies, followed by a three-part collection of articles (chapters) on each of the types of structures. The chapters provide a reference source, including case studies and resulting guidelines for studies of possible negative influences on value from these externalities. These give the reader insight into study methods in New Zealand, Australia, the United Kingdom, and North America.

The three editors, Sandy Bond, PhD, Sally Sims, PhD, and Peter Dent, PhD, are academics from New Zealand and the United Kingdom. Article authors consist of the editors plus Ben Hosen, Elaine Worzala, PhD, and David Wyman, PhD, from the United States. All are talented researchers and writers; together, they provide a broad-spectrum view of the problems of value diminution and possible ways to value properties.

Dent and Sims, particularly, point out the need for the valuer to understand more than the math and spreadsheets, i.e., the valuer needs to understand the thinking and perceptions of market participants, especially lenders and buyers/investors. The seeds of stigma and perceptions (whether planted by media or otherwise) as well as physical tangible realities are discussed extensively throughout the book.

Methods of assessing value diminution are addressed; these can be divided into two broad categories: market participant surveys and analysis of actual sales transaction data. Market participant surveys include the notion of contingent valuation and hypothetical valuation, or valuation based on buyer-stated preference rather than actual behavior evidenced by transaction data. This may be placed under the broad-spectrum moniker of "surveying stakeholders" (or would-be or hypothetical stakeholders). The other method, analysis of actual sales transaction data, includes using a hedonic pricing model, particularly some form of regression analysis, with the statistical analysis normally needing subject and sales data property characteristics, environmental/market area characteristics, and the influence feature characteristics. This may be placed under the general label "hedonic statistical analysis."

An introduction to the general methods used to evaluate value diminution is the substance of Chapter 2, with information on risk and behavior. It covers the following methodologies, pointing out the pros and cons of each:

* Conventional sales comparison, to gauge value loss.

* Regression analysis, to identify the marginal impact of specific variables

* Hedonic modeling, to identify attribute preferences and implicit prices.

* Spatial hedonic modeling, or quantitative analysis using spatial statistics, to measure spatial heterogeneity and spatial dependence.

* Qualitative analysis, to identify the "why" and the causal relationships.

"Risk Perception, Stigma and Behavior" is the focus of Chapter 3. The chapter notes the importance of studying risk not only in terms of technical quantitative analysis, but social and perceptual analysis as well--the latter involving the "complex interplay between a set of stimuli involving psychological, sociological and cultural perspectives."

This chapter explains buyers' perspectives and continues with good discussions about perceptions and risk management, property-related stigma and its assessment, and behavioral research relative to real estate and influences on buyers, the market, and property values. As with all the chapters, there are plentiful references that alone would make the text worthwhile.

The remainder of the book includes separate parts dedicated to each type of structure: high-voltage overhead transmission lines, cell phone towers, and wind farms. Each section has an excellent overview of the problems and analysis involved and devotes separate chapters for the United Kingdom, New Zealand, and North America.

This book is a collection of important materials discussing information and misinformation about externalities; the psychology and sociology of the market; statistical/hedonic regression; the influence of health fears; the role of the media; the invisible and the visibly ugly; purchase versus rent decisions; changing influences with distance; disguising the adverse and ugly; radiation and EMF; study methodologies involving public opinion and interviews; data identification, collection, and analysis; and the art and technical adjustments in data analysis--what a collection of important topics for the analyst and valuer concerned with the possible effect on value and marketability. The analyst's thought processes and methods, of course, may be important to you because they have application beyond the specific adverse influences or disamenities discussed.

Recommendation: This 557-page work is a good meaty one. It's a great thought stimulator for appraisers looking to broaden their practices, particularly into areas of specialty.

Tax Benefits and Appraisals of Conservation Projects

By Larry Kueter and Mark Weston

(Washington, DC: Land Trust Alliance, 2007)

270 pages

Another new acquisition in the Lure Library is Tax Benefits and Appraisals of Conservation Projects. For appraisers preparing valuations or reviewing appraisals for conservation projects, this publication has a wealth of information on the Internal Revenue Code (IRC), Treasury Department regulations, and court rulings. Conservation transactions are coming under ever-increasing scrutiny, so it is critical that the appraiser understand the laws covering the topic, as well as the concepts, regulations, and requirements involved.

This text is a learning guide as well as a reference work. It is well organized with specific learning objectives and progress checks.

Chapter 1 includes material from the IRC itself, an explanation of what the term and concept conservation purposes means, applicable tax court cases, a case study, examples of conservation easements that do not satisfy the IRC or the Treasury regulations, and material on the matter of conflicting duties. Quite valuable sample documents and additional resources are provided; these references are an appreciated part of each chapter.

The types of tax benefits of donating a conservation easement provide the subject matter of Chapter 2. The material includes exercises involving charitable income tax deductions and phased easement donations, estate tax benefits, and the 40[degrees]/o exclusion of IRC 2031(c).

Appraisal challenges and guidance for valuers make up the 90+ pages of Chapter 3. The content covers the IRC and Treasury regulation appraisal requirements, important appraisal concepts and methods of valuation, and common mistakes made in conservation easement appraisals. Material is also included providing guidance for reviewing conservation easement appraisals. There is an exercise illustrating examples of Form 8283 problems. Reviewing appraisals prepared for conservation purposes is also an important part of the chapter.

Recommendation: This Land Trust Alliance publication has a good collection of IRC and Treasury Department regulations, tax court decisions, sample documents, extensive resources and references, and a very worthy glossary covering its topics. If you are doing, or are interested in doing or reviewing, such appraisal work this book is for you.

Real Estate Market Analysis: Methods and Case Studies, Second Edition

By Deborah L. Brett and Adrienne Schmitz

(Washington, DC: Urban Land Institute, 2009) 271 pages

A third new addition to the Lum Library is Real Estate Market Analysis: Methods and Case Studies, second edition. This text is an introductory-to-intermediate level book, starting at the 101 level with material about what real estate market analysis is, why it is done, who uses it, and how it fits into the big picture of real estate development. Chapter 2 goes on to concepts of defining and analyzing market areas and the supply and demand in a market area. The analysis of supply and demand factors continues in Chapter 3, looking at economic indicators--history, current conditions, and trends--and documenting expected future development/construction activity as well as presenting findings.

The remaining chapters cover market analysis of specific property types: residential, retail, office and industrial, hotels and resorts, and mixed-use properties. The book includes an appendix with a good "webliography" and a helpful glossary.

Recommendation: This book is respectable and a worthy, recommended resource of additional information for appraisers taking the Appraisal Institute market analysis courses as well as appraisers who use market analysis to varying degrees of depth in their professional work.

Real Estate Development: Principles and Process, Fourth Edition

By Mike E. Miles, Gayle L. Berens,

Mark J. Eppli, and Marc A. Weiss

(Washington, DC: Urban Land Institute, 2007)

669 pages

Real Estate Development: Principles and Process, fourth edition, also has been added to the Lure Library's collection. This is a large, broad-spectrum book on real estate development. The text covers this huge topic in eight parts.

Part I provides an overview of general characteristics of developers and their partners; demographics and economics; land supply and demand; market and feasibility studies; necessary forecasting; and working with others, such as planners, engineers, architects, environmental experts, attorneys and accountants, marketers, appraisers, and regulators.

Part II looks at the history of land development in the United States (yes, there are lessons to be learned from history).

Part III is about real estate finance. Here the text looks at the background and logic of financing, including estimating value from the lender's perspective and the effects of leverage. This part also contains a chapter on discounted cash flow, including material on discount rates and internal rates of return, and an interesting case study.

Part IV is about ideas, from the inception of an idea for a development, to consideration of risks, to market research, to refinement of the original idea. This part also addresses site selection, negotiation, collection of other players' ideas, financial feasibility, and control of risk.

Part V is about planning and analysis, including the roles of the public sector and public/private sector partnerships. Some practical problems and policy issues are also discussed, including a look at affordable housing.

Part VI on planning and analysis includes chapters on feasibility studies and market analyses. The discussion looks at practical matters, such as preliminary plans and cost estimates, public sector considerations, level-two feasibility, and techniques of risk control. Market analysis is addressed as a continuing dynamic, rather than static, process in the development sequence of events. Forecasting models and methods for both supply and demand are also addressed.

Part VII is about contract negotiation and formal commitments, finalizing design and construction and decisions about major tenants or users, and financial matters such as public/private sector relationships in the development. Again, risk control is an important part of the stages discussed.

Part VIII is about property and portfolio management; it includes the enterprise/business concept and some fundamentals of management of an enterprise. The roles of corporate real estate directors, asset managers, and portfolio managers are included. There is considerable emphasis on the marketing plan and process, sales, and management of space. The final chapter consists of "Some Closing Thoughts and a Note about the Future." It addresses important trends and evolving critical issues, including changes in financial markets. The appendix includes case studies and a good glossary.

Recommendation: I recommend Real Estate Development: Principles and Process even though it's long. Appraisers, particularly those dealing with proposed construction, should have a basic understanding of the development environment, its components and complexities, and the trends. This book has a lot of sound, useful material that will give depth to your data gathering, thinking and analysis, and conclusions as you conduct both market analysis and property valuation. It is a good reference and thought stimulator.

On the Internet

The Urban Land Institute also offers data resources on the Internet. Its semiannual ULI Consensus Forecast lays out expectations for commercial real estate transaction volume through 2015 and the outlook for several real estate types nationwide. The forecasting is the result of a survey of "38 of the country's top real estate economists and analysts" conducted by ULI and cosponsored by Ernst and Young. A summary of the most recent forecast is available on the ULI website at

The ULI Consensus Forecast reports that after a recession-induced $60 billion in commercial real estate transaction volume in 2009, total transaction value increased to $141 billion in 2010, $229 billion in 2011, and $290 billion in 2012. Current expectations are for transaction value to reach about $310 billion in 2013, $340 billion in 2014, and $360 billion 2015-increases of 6% to 10% in each of the next couple of years. The survey also includes forecasts by specific property type, i.e. apartment, office, industrial/ warehouse, hotel, and retail properties.

Recommendation: Forecasts are often interesting, but there is rarely good, reflective follow-up. The ULI Consensus Forecast is on the macro level, so it has limited use to analysts and appraisers involved in understanding and forecasting in specific markets for even more specific properties. The ULI forecasts are not by geographic market or metro area unfortunately, but they do contribute information on the national scene and influence.

Other Publications and Resources

You also may want to check out the perspectives offered in articles from other publications.


The Australia and New Zealand Property Journal (ANZPJ), the joint journal of the Australian Property Institute and the Property Institute of New Zealand, has two interesting articles on external factors that are causing changes in real estate.

"Black Swan Events-Natural Disasters Driving Change in the Property Industry?" is the title of a fine article in the ANZPJ March 2013 issue. A black swan event is an unexpected event that could not be specifically forecast or planned for ahead of time. These events "are extraordinary and unexpected shocks that can cause extensive damage ... and can include earthquakes, pandemics (SARS) and major technical failures (Chernobyl nuclear disaster)" One of this article's main examples is Hurricane Sandy, which hit the Northeast United States in 2012 and caused billions of dollars in damage. In Australia, black swan events include recent floods, storm damage, and disastrous bushfires. The underlying theme of the article is that although black swan events are rare, they do a lot to drive change in aspects of the property industry.

Property casualty insurance is obviously affected by natural disasters, for example. The property insurance industry reacts by limiting the availability of insurance for such risks; and even if available, deductibles and premiums increase. But beyond the obvious effect on property insurance, a host of other things are affected, many of which are of considerable interest to the valuer:

* Building code changes for commercial and residential improvements, which usually increase cost of construction.

* Public infrastructure change, expansion, or strengthening, paid for ultimately by higher taxes. (This may involve a variety of things, such as bridge, storm sewer, and drainage-way improvements.)

* Utility company infrastructure change and strengthened requirements.

* Lender requirements change for building features, components, or design in view of potential natural disasters.

* Risk management strategies change. For example, in the case of climate change, whether the changes are long or short term, human caused or part of natural cycles, the potential for loss from climate change, or in the shorter term, weather changes, must be considered by insurance actuaries addressing probabilities of bad things happening to property.

Cost approaches, income approaches, and sales comparisons are all affected over the longer term (not just immediately after the event) by natural disasters. Can appraisers put a probability of a natural disaster or other black swans in appraisal calculations? No, but these events do cause change in building construction requirements and codes, market standards, lender requirements, and even the competitive position of an appraised property.

Recommendation: Take a look at this article, which is available at Consider whether the cost approach reflects current building code requirements, including upgrading to better defend against natural disasters. Does the income approach realistically reflect property casualty insurance premiums? Do your sales comparisons consider the subject relative to comparables with respect to current code requirements and preparation for natural disasters? This article from ANZPJ is not just for valuers Down Under. After all, black swans can pop up anywhere, and appraisers should beware the longer-term aftereffects.

"Life in the Internet Economy and the Changing Face of Property," by Lucy Cradduck, is another exceptionally interesting article in ANZPJ. This article appeared in the June 2012 issue, but it is still quite timely and applies to US appraisers as well as those in Australia and New Zealand.

The article has a whole truckload of noteworthy concepts, spot-on observations, and solid, thought-provoking content, particularly for appraisers dealing with retail properties. Some key points in this article include the following:

* Business expansion, or that of a particular company or industry, doesn't necessarily mean more demand for real estate. (This applies to office and warehousing, as well as retail.)

* The continuing growth in Internet economic activity [IEA] comes at a significant cost to some real-world, brick-and-mortar businesses.

* Rural or smaller commercial communities often feel the greatest negative impact on retailing from the Internet.

* The Internet has reduced not only the need for many commercial, retail, and office properties, but some public-use properties as well; for example, schools and libraries.

You'll want to read much more of the discussion, but here is the thrust of Dr. Cradduck's conclusion:

   The internet has changed education delivery; how
   we shop; where we find work; and how we engage
   with others. This impacts upon where we live, learn
   and work and on our property use. However, IEA
   has not completely replaced the need or desire for
   physical proximity with others nor does it enable all
   of our activities to be effected online.... Living in the
   internet economy means finding a way to continue to
   appropriately use property now and adopting policies
   that promote appropriate property use into the future.
   For property investors and practitioners it also means
   being prepared for what is to come.

Recommendation: If you are appraising retail or office property, or working with market and highest and best use studies for commercial vacant land, proposed or existing construction, take a look at this article. You can find it at in-the-internet-economyand-the-changing- face-of-property.


Commercial Investment Real Estate magazine (CIRE), a periodical of the CCIM Institute, has two good articles on shifts in demand and future space needs.

"How Much Space Do We Need? Will Shrinking Footprints Slow the Office Recovery?" in the May-June 2013 issue of CIRE is a timely article of interest to appraisers (even though brokerage is CIRE's primary readership) involved in market studies, highest and best use analysis, or appraisals of proposed or new offices. Office space per worker is the theme of the article, but it has some other interesting points as well.

The authors, Norman G. Miller and Roger J. Brown, point out that companies never seem to have the right amount of space; companies expand and shrink yet enter into contracts for office space for five, ten, or even twenty years. This means there is a disconnect between the ideal and reality. (Appraisers need to be aware of both!)

This article offers the following observations:

* Users tend to want to use less space (But it doesn't always work out that way over the life of a lease.)

* Newer buildings typically use space more efficiently on a per-office-worker basis.

* Office space per worker is much less in Europe and Asia than in the United States. This may indicate coming change in the United States and continuation of the trend toward less space per office worker.

* Increasing mobility and technology may further reduce the space per office worker.

* There is a tendency in the United States toward increasing the proportion of collaboration and team space, along with more space devoted to amenities and flexible space, and shrinkage of dedicated work space.

* There is a trend toward greener office space; not only in terms of energy-saving measures, but also more natural light and better natural ventilation to add to worker productivity. In the same green vein, transit-friendiy space is increasingly in demand. All this may mean obsolescence for some older, existing space.

* Decreases in total office consumption are underway, based on more-flexible work location patterns and higher utilization rates, but these changes take time. The total demand for space will grow at a slower pace for the next few decades.

* Landlords are not selling space; they are selling productivity, so more-productive environments will command highest demand and premiums.

The article also reports the Property Portfolio Research's September 2012 finding that the average size of space leased has fallen by 21% during the past ten years; this trend is significant and apparently continuing.

The question is, how far will square footage per office worker (sf/ow) drop? According to this article, the current US average is about 270-500 sf/ow, but square footage per office worker varies widely by industry. Other factors impacting square footage include hoteling (standardized space for workers), employee turnover and time to fill a position, employee age (younger workers seem willing to have less dedicated space in exchange for a better working environment), and parking (higher office utilization rates increase the demand for parking).

Recommendation: If you are involved in market analysis and/or valuation of proposed or existing office properties, take a look at this article. You can read the discussion at need#sthash.ln0Am6vY.dpuf.

Another thought-stimulating article, "Shopping Center Shift: Retail Owners Rethink Tenanting Strategies," by Rich Rosfelder, appears in the May-June, 2013 issue of CIRE. If you appraise or do market analysis involving neighborhood and community shopping centers, this is a good article.

This article points out that rents are generally in a rut and will stay there until occupancy increases, which it should, since development, i.e., new construction, is quite low relative to decades past. But many retail, product-selling, tenants are having a particularly tough time, largely thanks to the recession and Internet-shopping alternatives. As a result, shopping center owners are increasingly accepting tenants that sell services rather than products.

Anchors are still needed, but a host of relatively new names like Whole Foods and Fresh Market are coming on. The remainder of the successful center is selling not just products, but retail services--from dog grooming to personal trainers, from medical and healthcare services to educational services. These services are often joined by restaurants. In fact, the authors tell us restaurants will account for 42% of new retail units in 2013, according to Chinlinks, with strong fast-casual tenants such as Five Guys and Chipotle leading the way. Think Dunkin' Donuts, Starbucks, Huddle House, and a swarm of others.

The showroom concept is growing too, serving as a display place for the Internet sales or items for order and next-day delivery. The article notes, "The Apple Store model works with clothing, electronics, office supplies, Furniture."

These national names and franchise tenants make centers more appealing to investors, more valuable, and more attractive to prospective tenants. (Yet another important consideration for appraisers.) Recommendation: If you're involved in analyzing and/or appraising the retail market segment, retail properties, and alternative uses, check this article. It is available at shift#sthash.loFUflRT.dpuf

If you have a favorite website or other resource you have found helpful in your work or professional life, and would like to share it in this column, email me at

by Dan Swango, PhD, MAI, SRA

Dan Swango, PhD, MAI, SRA, is president of Swango Real Estate Counseling and Valuation International in Tucson, Arizona. He is experienced in valuation and consulting of all types of real estate. His practice includes valuation and consulting for risk reduction, profit optimization, estate planning/settlement, buy/sell opportunity evaluation, public taking, dissolutions, investment structuring and purchase and strategic planning. Swango is an experienced instructor, speaker, and presenter, He is a past editorial board chair and editor-in-chief of The Appraisal Journal and a current member of The Appraisal Journal Review Panel. Contact:
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Title Annotation:RESOURCE CENTER
Author:Swango, Dan L.
Publication:Appraisal Journal
Article Type:Column
Geographic Code:1USA
Date:Jun 22, 2013
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