Module 10

Øclustered development

Development around universities include bookstores, bars, fast food and student housing. Development around hospitals includes doctor's offices, suppliers, specialized facilities and, in South Florida, retirement condominiums. Ø retail clustering, zoning laws follow this and if they didn't you would get a lot of friction. Ex. Downtown, hospital district, govt district

Public markets

Equity (ownership, evidenced as securities) 1. REITS - special corporations to hold mortgages or properties as long-term investments 2. Real Estate Operating Companies - regular corporations such as hotel operators, brokers, developers, etc. Real Estate Business 3. Real Estate Mutual Funds Debt (mortgage securities)1. Commercial and Residential mortgage-backed securities (MBS), mortgage REITs and Real Estate Mutual Funds Ø they are securities, which is good in R/E. Easy to get into and easy to get out of it and diversified.

Private

Equity (ownership, mostly not securities) 1. Individuals - small investors, homeowners 2. Partnerships- fell out of favor in 1986 and were replaced by REITS as the preferred medium for the typical passive investor. 3. LLCs- when smaller investors get bigger (or smarter) and want to limit liability 4. Private Equity Funds (investment companies)- investors contribute capital, the principals of the firm invest the capital into real estate. 5. Hedge funds- an investment company that takes on more risk, usually in the form of leverage, and a wider range of activities. 6. Non-traded REITS - considered risky because they do not publicly trade, but fall in and out of favor with investors. Debt 1. Commercial banks, Thrifts, Life Insurance Companies, Finance Companies

Constraints

Government (regulatory/legal) and financial The government (regulatory/legal) is an institutional constraint. The government determines what you can or cannot do and they tax you. Financial constraints exist because people generally do not pay cash for their real estate. The cost and availability of financing affects real estate markets.

Developers look at this before they add

Growth along transportation and clustered developement

Employment Trend

Growth is good for real estate and business, in general. The trend is our friend! (if positive)

Population Trend

Growth is good for real estate and business, in general. The trend is our friend! (if positive) growth is good for real estate

Understanding Market Conditions

High Absorption and high vacancy rate The frenzy market: much available and high demand, risky. Atlanta, for many years prior to "Great recession." lots of money being made, demand shuts down first. Vacancy is already high but we keep adding to it, making the frenzy market is riskiest.Suddenly the 20% vacancy rate can double or more, making it the worst of real estate markets fairly quickly High absorption and Low VR The best market: not much available, with high demand. San Francisco apartments, very pricy! Low Absorption and high VR The worst market: much is available, but demand is low. Austin TX late 1980's - ~60% office vacancy Low Absorption and low VR The slow-but-steady market: not much available, not much demand. Many rural markets. A market is not one thing, and that one thing is usually vacancy rate We have 2 numbers that define market. Worst market= low absorption, high vacancy best market: high absorption, low vacancy: keeps prices high Need both supply and demand for market types

Household Income:

Household income measures family income. Lenders use this number in loan analysis. It tells the analyst what the average household can afford.

Debt

(mortgage securities)

Equity in public markets

(ownership, usually evidenced as securities)

Price levels

- differ across geographies (Examples: California, Boston, New York, DC, all very expensive; South and Midwest, overall more affordable) Prices differ across geographies. You toyed with this on Homework 2. For example, California, Boston, New York, and D.C. RE all very expensive. The South and Midwest, overall, are more affordable. This affects real estate markets. Workers commute further to find affordable housing. Employers have to use incredible incentive packages to lure top-level employees.

Available supply

- the more relevant supply measure, vacant units or vacant square footage. It is the actual number of vacant units or the vacant square footage.

Demand, market measurement

- total market demand is the occupied inventory, a measure of total market size -How much of the space available is actually occupied. Useless number.

Market Fundamentals / The Five Fundamental Market Metrics (VS)

1. occupancy/vacancy rate 2. net absorption 3. rental growth rate 4. cap rate 5. months of available supply (inventory turnover) The previous four market metrics are the fundamental measures of commercial real estate markets. Moths of available supply is used for residential real estate (housing markets).

Ø Ø Components/Players in the Asset/Capital Markets

1. public markets 2. private markets

2 primary functions

1. resource allocation 2. price determination Ex. medical masks, toilet paper, hand sanitizer Ø these two functions work simultaneously to ration scarce resources using the pricing mechanism.

Market measurements

1. supply 2. net change in supply 3. available supply 4. demand 5. (net) absorption

Recovery Stage

1st sector Ø below long-term average occupancy, with declining vacancy, rent growth: negative or below inflation; no new construction. but they are gettign better Ø Increasing demand absorbs excess supply; demand growth faster than supply growth The market is now improving as evidenced by declining vacancy rates. But, rent growth is at its worst, either negative or below the rate of inflation. Positive absorption (increasing demand) absorbs excess supply without the counter effect of new construction. Demand growth exceeds supply growth.

absorbtion rates

= demand

Conversion

A conversion is the change of the use of an existing structure. For example, and most commonly, converting an apartment (a rental) into a condominium (owned). Again, a condo owner can choose to rent out the unit, making things very confusing. Still, analysts are very interested in the actual and the forecast change in supply because it conveys important information about new competition.

Economic base

Besides, number employed, employment composition and employment trend, analysts consider the economic base of a metropolitan area. What are the economic drivers of the community? An undiversified economic base makes for a riskier local economy.

vacancy rates

Vacancy rates alone, despite popular opinion, do not define a commercial real estate market. Vacancy = supply

Expansion Stage

above long-term average occupancy, with declining vacancy; new construction motivated by high rent growth and higher rents This is the sweet spot of the real estate cycle. Investors would love to stay here. Rent growth increases and reaches a point where developers like the numbers and start new projects. Positive absorption (increasing demand) absorbs excess supply but as we progress we gain the countereffect of new construction. Demand growth exceeds supply growth. The new construction is motivated by lower vacancy rates, higher rent growth and higher rents. Ø Cost feasible rent. Where we start building Ø Rents rise rapidly toward new construction levels High rent growth in tight market **** Ø Suburban offices and warehouses

Population Composition:

age, ethnicity, household size The composition of the population matters, factors such as age, ethnicity and household size, and the preferences for any group. For example, Florida has many older people and as a result, an abundance of one-story, two bedroom, single bath, small houses.

Investment market

buyers purchase the property for the cashflow Ø people buying RE for investment purposes

mortgage REITS

debt : public provide financing for income-producing real estate by purchasing or originating mortgages and mortgage-backed securities (MBS) and earning income from the interest on these investments. mREITs help provide essential liquidity for the real estate market.

finance companies

debt: private a company concerned primarily with providing money, as for short-term loans.

life insurance companies

debt: private a contract between an insurance policy holder and an insurance company, where the insurer promises to pay a sum of money in exchange for a premium, upon the death of an insured person or after a set period.

Comercial Banks

debt: private A commercial bank is a financial institution which accepts deposits from the public and gives loans for the purposes of consumption and investment to make profit.

Thrift

debt: private S&L's the quality of using money and other resources carefully and not wastefully. A savings and loan association, or thrift institution, is a financial institution that specializes in accepting savings deposits and making mortgage and other loans.

commercial MBS

debt: public fixed-income investment products that are backed by mortgages on commercial properties rather than residential real estate. CMBS are secured by mortgages on commercial properties rather than residential real estate. Commercial mortgage-backed securities are in the form of bonds, and the underlying loans typically are contained within trusts. The loans in a CMBS act as collateral—with principal and interest passed on to investors—in the event of default.

Residential MBS

debt:public Home mortgages are collateral a specific type of bond that are secured against a large pool of residential mortgages (home loans). Instead of just two or three loans, RMBS notes typically group together hundreds if not thousands of home loans

RE mutual funds

debts: public a mutual fund that invests in the securities of real estate companies. A large part of these funds goes into investment in commercial and corporate properties, residential complexes, and agricultural land.

Income source

employment, retirement accounts, etc: The source of income matters. Income from employment is a positive. Income from retirement accounts suggest less need for office space and a stronger need for retail and housing.

90's recession

energy recession- hammered middle of country especially Texas (energy states). Different recessions hit people differently. Housing gets expensive people move to apartments and vice versa. Housing affordability is important. Housing is 2 times avg household income = price/household income: Housing Affordability equation DC is recession proof. Didn't get affected by any recessions. State budgets must be balanced in recession. Feds do not and DC in responses had perpetual growth.

Hedge funds

equity: private an investment company that takes on more risk, usually in the form of leverage, and a wider range of activities. An example is Blackstone who did the largest real estate deal ever, the privatization of a publicly-traded REIT, EOP. Equity Office Properties (EOP) was the largest holder of office real estate in this country. Blackstone bought the shares and sold the real estate off in portfolios, for the most part by city.

Nontraded REITS

equity: private considered risky because they don't publicly trade, but fall in and out of favor with investors.

Partnerships

equity: private fell out of favor in 1986 and were replaced by REITs as the preferred medium for the typical passive investor. Still used for individual deals.

Individuals

equity: private small investors, homeowners

LLC

equity: private when small investors get bigger (or smarter) and want to limit liability.

Private equity funds

equity: private investment companies investors contribute capital, the principals of the firm invest the capital into real estate. They seek high net worth individuals.

REOC

equity: public regular corporations such as hotel operators, brokers, developers and the like. Real estate businesses. Ø double taxes RE corporations and tend to be business and homebuilders,

RE mutual funds

equity: public Ø invest in RE investment trusts, you can yourself. Diversify by buying different REIT which are already diversified

REIT

equity: public special corporations to hold mortgages or properties as long-term investments. single tax entity designed for people who want to invest in RE and need whatever stock price is ,

Cap rate reversion

falling prices Ø Cap rates larger than people paying less money for that dollar of income. AKA falling prices

Govt

govt is a constraint: very hard to build stuff and then you have supply issue

Income trend

growth is good for real estate: The trend is our friend! (if positive)

Owner occupied houses and second homes

in a recession, second-hoes are often the first thing to go, making this a more volatile market than primary houses, although recessions and job losses hit the market for primary houses as well. Ø people from ATL have a lot of houses on lake Keowee, if we go into recession then people will dump second houses and locals will take up those houses because they are cheaper. 2nd homes become moer attractive in recession. 2nd homes are responsive to GDP growth.

Markets in General

markets are local 2 primary functions market underpinnings

The Economic Base of a City/Region

means jobs. Ø Cities and regions try to recruit basic industries Closely related to the comparative advantage is the economic base or the underpinnings of the local economy. Local, regional and state governments try to bring in employers and improve the economic base and the stability of the regional economy.

Peripheral Model

model created by Chauncey Harris, which describes how an urban area consists of an inner city surrounded by large suburban residential and business areas tied together by a beltway or ring road

Concentric Zone Model

model that offered a concentric ring model of urban form in which the center circle Is the central business district. Adjacent to it is a zone of transition which contained warehousing and other industrial land uses.

Demand Factors for Real Estate (PIE)

population income employment and price levels Forecasters believe in cycles and trends. The file "Market Cycle Analysis" is a medium-quality picture of a diagram I normally draw on the board. The top part is a depiction of a cycle. The horizontal line is "normal." Actual conditions cycle around "normal." We will discuss cycle analysis a bit later. The bottom chart is a trend line. This is typically a regression line that is perhaps altered if recent data gets a little crazy. Some things, such as things that adjust to inflation, are always expected to trend. We can get above or below the trend line, but the expectation is that we revert to the trend. Thus, forecasters tend to believe in reversion to the mean ("normal") or the trend, as the case may be.

Cap rate compression

rapidly rising prices Cap rate compression means that cap rates are decreasing. Since real estate income is determined by lease contracts, cap rate compression indicates rapidly rising prices. Investors are excited when cap rates compress because the values of their real estate are rapidly rising. Potential investors aren't so happy because real estate is getting more expensive to purchase. Ø when cap rates get smaller it is the denominator (R=NOI/V) because people are paying mor money for that income: rapidly rising prices

(Net) Absorption

the primary demand measure; current demand; the change in occupied inventory (measured as newly occupied units minus newly vacated units) It is the period to period change in occupied inventory (measured as newly occupied units minus newly vacated units). For example, the number of people signing new leases minus the number of tenants vacating their apartments. Ø Positive absorption= growth, more people moving in and not a lot moving out Ø Negative absorption= not lots moving in. * Negative absorption is bad news! It means more units were vacated than there were new leases signed. Ø RE= a growth industry

If you lose employment:

the real estate market suffers, people suffer, governments suffer, etc. I worked with a national real estate investment brokerage firm doing market forecasting. Most of it was ho- hum. We gave the users what they needed. One day, to start the conference call, I mentioned that almost all of the employment forecasts were suggesting job losses (different metro areas, different forecasting methods). Within a few weeks, upper management instituted mass layoffs to get their payroll size down to survive a recession. I was downsized! The company survived the Great Recession!

Total Population

the size Indicates market size. A larger city has a larger real estate market and many more opportunities. Of course, there are also more people chasing the opportunities. My friend, the retired at 40 real estate multi-millionaire, was my student in South Florida. Despite his love of the Coast, he did not want to work there. He looked at Atlanta. Already a large city, its population was projected to grow from 25% to 35% by 2030. He decided that with that many people he could make a living there and he moved there, before retiring to the Coast.

The institutional Market

typified by larger commercial properties primarily in the larger cities. In this market, institutional owners tend to sell to institutional buyers. Ø the big players, buy and sell from each other. It is a closed market. Can afford high prices because have discount prices.

"Without the IBM building"

vacancy rates were about 4%, very low. I spoke with a public official. He said that if IBM left 15-20 years earlier, it would have been an economic disaster. However, the city had successfully worked to diversify its economy (Siemans, Motorola, and many others), making the impact of the IBM loss much less severe.

Supply

what is out there and what is available In real estate, the total supply is not very relevant, number of apartments, square footage of office space or number of houses. The relevant supply is the available supply: commercial space for lease, apartments for rent or houses for sale. Supply is a stock measure. It is like a balance sheet item. It is measured and most accurate at a specified point in time.

Demand

who wants it and how much will they pay Demand is a flow measure, like an income statement item. It is measured as the amount of activity (signed leases, houses sold) over a specified time period (month, quarter, year).

Less diversified cities

worry about the downsizing of their specific industry. Norfolk, VA., Groton, CT. and Jacksonville, NC. are all examples of military-based economies. These places get nervous when the Federal government downsizes the military and got very excited when President Trump pushed to strengthen the military. Single (or restricted in numbers) industry towns populated the Rust Belt. When that industry left (outsourcing first to Mexico, then to China), the cities declined.

Analysts and RE cycle

Ø Analyst look at trend line (houses prices). An upward trend=increase faster than inflation. In long run we will follow trend line and we will move back to trend line Ø Regression line is important in forecasting Ø Above trend= bubble Ø Instead of a trend we have a norm and everything will always return to normal Ø Normal= Average LT occupancy. The vacancy rate? Ø Decline Interest rate= bull market

ØBasic or export industry:

Ø Exports product and imports money into economy Øimports dollars into the local economy; they export goods to other economies. Ømanufacturing, agriculture, wholesale trade, tourism, retirement industry Ø Distribution = wholesale trade Ø People come in and drop money = tourism Ø Earning money from other places= retirement

ØNet absorption

Ø harder to get, how many leases were signed vs. how many people left Ømeasures demand over a period of time Øa flow measure (quantity across time) ØExamples: # new apartment leases minus # apartments vacated during a quarter; # houses sold in a month ØNegative absorption: generally bad news! More units vacated than new leases signed The vacancy rate increases More units vacated than new l The second chart on page 7 (.pdf file) shows the number (thousands) of single-family houses sold in Atlanta, over time. Ø Positive: vacant is getting smaller, Ø Home sales increases= more brokers Ø Money paid to RE brokers= when you multiply by something Ø Must prepare for competitive time when youre broker. If you stay in business you will be okay

Net change in supply

Ø- Change from period to period; Øequals additions (completed construction) minus removals (destruction, conversions) Ø Old stuff goes away and new stuff comes online

Supply, market measurement

Ø- total inventory, total market size Measured in number of units (apartments, storage), square footage (office, retail), number of beds (medical), number of rooms (hospitality). The charts on page 5 (.pdf file) show Orlando Apartment Inventory and New York Office Inventory over time. The terrorist attack of 9/11/2001 caused the sharp decline in New York's office space.

Income

ØAmount/total income: ØSources: ØIncome Trend: -total income -household income -discrectionary income

ØBy the property type or the land use

ØApartments (rental), condos (rental or ownership), houses, farms, acreage, commercial land, developed lots, retail, office, industrial, etc

Employment

ØEconomic base ØTrend: -employment trend Employment is the most important demand indicator. People tend to live where they work. This is becoming less true over time. See the article "Workers fleeing big cities." This trend is interesting for real estate and scary for the people running the cities.

Ø. Rental growth rate

ØRental growth forecast: indicates income growth potential This metric is harder to obtain. It is the short-term forecast of rent growth and indicates (to an investor) the income growth potential for the market. Ø What is rent going to do in future Ø Want rents to go up and want to keep up with inflation Ø Want good rent growth Ø Can't trust rent growth forecast after 2 years Ø Forecast could be promises- what they will tell you Ø Look at most recent past and see if market will flatten out or continue Ø Rent growth mimics inflation

ØWhy we want to understand urban growth patterns?

ØThe "Path of Development"

ØBy the use or the type of ownership

ØThe rental (lease) market and the equity (ownership) market ØThe investment market ØOwner-occupied houses and second homes ØThe institutional market

Population

ØTotal: the size ØComposition: ØTrend:

Months of available supply (inventory turnover

ØUsed for residential real estate (housing markets) ØNumber of houses for sale divided by the number sold over a specified period ØAvailable inventory divided by net absorption It is measured as the number of houses for sale divided by the number sold over a specified period. Or, available inventory (for sale) divided by net absorption (sold). Ø Good RE marker when number can get down to 1 or 2 months, inventory turns over quickly Ø Higher prices and everyone wants to sell house: numerator. Numerator sky rockets and the denominator goes down and smart people are buyers because they say its to expensive and they will wait. This is a bad market

By geography

ØWaterfront, in-town, suburban, golfcourse, southside, etc

comparative advantage

ØWhy cities are where they are? ØWhy some cities prosper and others do not? One area has a characteristic that gives it an advantage over another area. This is why cities are where they are. This is why some cities prosper and others do not. The most important comparative advantage is transportation. The 13 colonies depended on commerce mostly from Europe, arriving by boat. Another comparative advantage is natural resources. Another comparative advantage is government. Locational advantages can be lost. Minerals can run out (Silver City). Transportation can shift and transportation modes can change. State capitols can move Cities fight to keep their advantage so they can continue to prosper and grow. Growth is good for both real estate and business. They try to keep the traffic flowing. They seek to keep airports, educations, public facilities, entertainment and other things as state-of-the-art. They try to create jobs.

ØThree types of urban growth

Øa. Outward expansion: oldest real estate at city center Øb. Vertical growth: tallest real estate where land is more scarce Øc. In-filling: Developers build first on undeveloped land because they don't have to tear something down to put something up (redevelopment). In-filling is filling in the holes. Ø young cities have vacant land and all that land gets filled in eventually. Cheapest way to get land is to buy vacant land Ø Redevelopment: older, mature city. Must knock something down before you build here. Very expensive

ØThe Hypersupply Stage:

Øabove long-term average occupancy, with increasing vacancy; continued new construction b/c everyone making money; decelerating rent growth but remains positive as vacancy starts to increase; supply grows more than demand (negative absorption).Now, negative absorption (decreasing demand) adds to excess supply and new construction makes things worse. ØNew real estate product is created despite a future that doesn't look very good [Why? Greed, momentum and contracts]: (1) Greed: everyone is making money, including developers, lenders, brokers, appraisers, etc. (2) Momentum: we don't know how to stop? And some denial, and (3) Contracts: the money has been paid, the contractor does not really care about deteriorating market conditions. We leave the sweet spot and go over the top. Ø vaancy rate going up for negative absorption. Ø Nobody stops because everyone wants to make money, keep building when shouldn't be building = crash Ø Apartment, industrial, office; downtown, retail;neighborehood/community, factory outlet Ø Increasing vacancy and new construction

Capitalization rate (aka. cap rate)

Øan asset market metric: includes the price investors pay Øincome-to-price ratio: income (from the space market), price (from the asset market). makes its a return measure: we get income easy especially with buildings with leases Ø when something sells it's the asset market ØIts reciprocal is the $ amount of value per $ of income. basically a PE (price-earnings) ratio for real estate. Ø Smart people sold early causing market to crash. Ø Income to cash: Cap rate Ø Money left stock market and rotated in to RE: cap rotation The cap rate is an asset market metric. It is the ratio of the property's net operating income (space market) to the price an investor pays (capital market)

The RE cycle

Øbased on long-term average occupancy rates 4 stages: 1. Recovery Stage 2. Expansion Stage 3. Hyper-supply Stage 4. Recession Stage Correlation is not necessarily causality sunspots drive real estate cycles buying when prices are low and selling when prices are high. Ø Problems with cycles: we cannot predict them Ø People looking for what drives market cycles

ØThe Recession Stage:

Øbelow long-term average occupancy with increasing vacancy: Now it hurts. Foreclosures are starting to pile up and bankruptcies are common. Rent growth continues its decline and is positive, but below inflation, or negative. Now, negative absorption (decreasing demand) continues to add to excess supply and, while no projects are being started, new construction (completions) add to the mess. Supply growth exceeds demand growth. And then we go back to Recovery! (negative absorption); more completions, but few construction starts. Rent growth: below inflation or negative Ø Building what we don't need. Going back to normal and then we overshoot normal. We go into full blown recession and that where you SHOULD buy. Ø Lenders make decisions. And in recession lender is saying we will not loan money because we loaned way to much money at top and it turned into foreclosures. Ø Withhold their capital= traditional lenders Ø Regional malls and power center(where everyone shops) Ø Increasing vacancy and more completions

ØService (population-serving) industry:

Øcirculates dollars through the local economy; Øfinancial services, retail trade, real estate Ø Cities trying to grow and get a more diversify job base so more recession proof. Local and regional development authorities seek to bring industry into local and regional economies. They target basic industry. If you bring in a basic employer, you create many more additional jobs. If you bring in a basic employer, service industry jobs evolve naturally.

ØOccupancy/Vacancy Rate

Ømeasures available supply in a rental market Øa stock measure (snapshot of a market) ØVacancy Rate = Vacant Space / Total Inventory ØOccupancy Rate = 1 - Vacancy Rate ØFor ownership markets (such as houses), relevant supply is the units or the square footage available for purchase Higher or increasing vacancy rates are a negative indicator of market condition. For ownership markets (such as houses), the relevant supply is measured as the number of units or the square footage of real estate that is available for purchase (for sale!). Page 7 (.pdf file) shows the total inventory and occupancy of San Francisco apartments. The gap is vacant space, The gap divided by total inventory is the vacancy rate. The bigger the gap the poorer the condition of the market (for investors).

Øgrowth along transportation corridors;

Real estate investors and developers go to government meetings to learn about where the city is going: road widening, road extensions and new roads. All of these actions can trigger real estate speculation, first, and real estate development, later.

Resource allocation

The market allocates resources to market participants. The more scarce the resource, the higher the price.

Market Cycle Handout

The market cycle baseline is the long-term average occupancy rates. The underlying belief is that the long-term average occupancy rate is "normal" and observed occupancy rates will cycle around it because they will revert to the norm and "overcorrect." Why occupancy rates? If we used vacancy rates, up would be bad. Any good marketing person knows that if you are trying to sell something, up is good.

Discretionary Income:

This is the income that is left after the major bills are paid. High discretionary income suggests more demand for amenities: granite counters, crown molding, kitchen islands, gourmet foods, craft beers etc. Lower discretionary income suggests more basic demands: storage and living space over "luxury" space, more populist restaurants, generic beers, etc. Ø If you have discretionary income: give me all of the purpose. If you're just getting by then would want to go to like Clemson where its cheaper. Discretionary income: nigher places like Greenville.

Total Income

Total income in an area indicates wealth and spending. total, household and discretionary income. More is better

Spatial Economics

Urbanization and the Growth of Cities

Multiple Nuclei Model

A model of the internal structure of cities in which social groups are arranged around a collection of nodes of activities.

Defining Markets and Submarkets:

A successful market analysis relies upon successful definition of the market and having abundant data. Business specializations and personal expertise will often be based on the geographic market. Real estate submarkets can be delineated in many ways: 1. by property type or the land use 2. by geography 3. by price range 4. by the use or the type of ownership

By price range

Luxury, affordable, low-income, etc

Lee and Associates Commercial Real Estate Report

Many brokerage/services firms produce these studies as marketing and promotional materials. Real estate is an information dependent industry and folks are hungry for data, especially free data. 1.Absorption and vacancy rate very apparent. 2. Major deals 3. Statistical trends

Price determination

Many people want an ocean front house.. The price determines who will get one. Price discrimination is legal. Price gouging is not. Consider, medical masks, toilet paper and hand sanitizer. Price discrimination IS legal. Price gouging IS NOT. Ø prices allocate the resources

Sector Model

Model of urban form proposed by Homer Hoyt that is characterized by radial corridors or wedges, particularly for higher income residential land use.

The downsizing of IBM had major economic impacts.

My house was in an "IBM subdivision." The houses were fairly generic and easy to sell, to accommodate employees who often get transferred. Overnight, many houses went on the market. The overabundance of supply caused prices to fall, about 10% in my case. No worries, after a few years I sold at a modest profit. IBM vacated their headquarters. This building (I toured it.) looked like the Pentagon. Lots of concrete and built to withstand a Category 5 hurricane. For several years, two vacancy rates were reported for Boca Raton Office space. "With the IBM building" vacancy rates were around 20%.

Urban Growth Models

Study of Urban Growth - 4 models 1. Concentric Zone Model 2. Sector Model 3. Multiple Nuclei Model and 4. Peripheral Model If we understand how cities grow, we can plan for better cities (the government) and we can make better real estate decisions. Developers used to talk about, and maybe they still do, the "Path of Development" and wanting to stay in the path. Best investment= quadrants 2 and 3 worst investment= 4 Ø Airport and Spartanburg creates path of development Ø Developers want to be in it

Market Underpinnings

Supply, Demand, Constraints