Nikodem Szumilo

The Operating Expense Puzzle of US Green Office Buildings

Cost savings from efficiency gains are at the core of the green building business case. Significantly lower energy bills are said to be a major factor in the green rent premium that has been observed in earlier studies. Our study tests this relationship by, inferring energy costs from operating expenses for a large dataset of US office buildings and relating them to the rental rates in a hedonic framework. We find that eco-certification is associated with a higher than anticipated total energy expenditure. While our dataset does not contain a direct measure of actual energy consumption, this result puts the cost-saving argument into question. By contrast, this study confirms earlier findings of a green rent premium but it appears that this premium might be an effect of factors unrelated to a tenant’s operating expenses.

Who captures the "green value" in the US office market?

This research examines the effects of energy efficiency certification levels on office rental rates and lease structures to determine whether any cost benefits of green buildings are captured by landlords or remain, at least partially, with the tenant. To this aim, our analysis applies the largest and most detailed data set to date, a panel of 14,283 US office properties. Using fixed-effects and dynamic Arellano-Bond frameworks allows us to estimate the differential rental price impact of Energy Star certification both across and within buildings. The general results indicate that buildings with higher levels of energy efficiency achieve higher gross rents allowing landlords to benefit from the premium. However, improved energy efficiency over time is also linked to a slower growth of rental prices as some of the benefit is passed onto tenants. Interestingly, the cost-saving benefit of energy efficiency appears to have the strongest impact on rental rates.

Predicting uncertainty: the impact of risk measurement on value of real estate portfolios

Abstract This paper presents a theoretical framework for an assessment and valuation of real estate assets and funds, based on modern stochastic discounted cash flow (DCF) models, which accurately captures the nature of related risks. We show that an accurate risk-adjusted valuation is particularly difficult for real estate investments, due to practical limits to diversification and difficulties in approximating total risk with systematic risk. We develop a risk assessment framework that includes idiosyncratic risk but focuses on insolvency risk related to a specific cash flow profile. We also present a methodology of rating this risk, using forecasts and simulations. We conclude that simulation techniques are a valuable tool in property risk assessment. Further, we show that cost of capital and value of assets depend on diversification of specific risks, investors can achieve in their portfolios.

Optimal database design for the storage of financial information relating to real estate investments

Purpose - – The purpose of this paper is to examine state of the art data storage methods of real estate investment data. Design/methodology/approach - – It analyses the process of real estate investment in order to classify and characterize the data it generates. Appropriate literature review is provided. Findings - – The results show that a relational database is the most appropriate database management system type for real estate related data. Practical implications - – Appropriately structured and modelled data flow can improve the design of the real estate investment process. It is also concluded that adopting an optimal design of IT-solutions could improve informational and operational efficiency of the industry. Originality/value - – The subject of this paper lacks sufficient coverage. Popular database management systems are presented and analysed in the context of their suitability for the real estate industry.

Local Bank Competition, Credit Markets and House Prices.

This paper examines how a new lender affects local mortgage and housing markets around its branches. Specifically, I demonstrate the impact on mortgage supply, house prices and repossessions. I use the decision of the European Commission to force the UK’s largest retail bank to divest a part of its business as a shock that generates a new entrant but does not add any resources to the economy. The results show that incumbent banks increase mortgage lending in areas where the new bank has its branches which has a strong impact on real estate markets. House prices, average transaction numbers and mortgage repossession rates all increase in places that receive a branch of the new bank. The effect on prices occurs through the discount rate as rents are not affected.

Rich Become Richer and Poor Become Poorer: A Wealth Inequality Approach from Great Britain

This paper discusses the distribution of wealth along with the phenomenal changes in wealth inequality worldwide; focusing, however, on Great Britain over the previous decade. By making use of the Wealth and Assets Survey (WAS), put together in Great Britain in waves from July 2006 to June 2014, we identify the main outcomes of the wealth distribution across time and space, i.e. the government office regions of the country. In our empirical analysis, we use house prices across the regions of Great Britain to identify their effect on the evolution of wealth inequality. Our results confirm that property wealth, and hence house prices, significantly affect inequality across the different groups of the wealth distribution. Moreover, among other findings, wealth is increasingly owned by those who can afford to buy real properties, while those who cannot, they observe their wealth decreasing sharply. Models have been tested for robustness across several specifications.

The real alternative? A comparison of German real estate returns with bonds and stocks

Purpose The purpose of this paper is to evaluate how real estate returns behaved over the last two decades in relation to the other two asset types. This allows a direct evaluation of how investors make allocation choices and perceive risks and rewards offered by properties in the context of changing market conditions. Design/methodology/approach A de-smoothed MSCI index is used to reflect direct property returns and control for both income and capital returns within it. Indirect property returns are approximated by the RX Real Estate index. By supplementing this data with an analysis of trends in both space and capital markets it is possible to relate investor behavior to events affecting other assets. Findings It is possible to identify three distinctive periods characterized by different correlation of returns and behavior of investors: before the crisis of 2008, the crisis period between 2008 and 2012 and recovery afterwards. These appear to have corresponded to different stages of the economic cycle. Interestingly, performance of asset classes has also differed over that period suggesting that at different points in the cycle asset allocation decisions may have been made differently. Practical implications It appears that as investments over the last 15 years real assets in Germany behaved similarly to bonds. It is possible that this phenomenon was driven by an aversion to the stock market and its associated risk which became a concern after the financial crisis of 2008. Over the downturn that followed the market shock investors appear to have turned to assets with simpler risk profiles like direct real estate and government debt. On the other hand, the correlation between direct property investment index and stock returns has been found to be small but negative. This shows not only that the two asset classes were often driven by different factors but also suggests that diversification was, at least theoretically, possible. Originality/value Direct real estate investment returns have repeatedly been found to exhibit characteristics similar to those found in bond as well as equity markets (Eichholtz and Hartzell, 1996; Clayton and MacKinnon, 2003) but little research examines the correlation between returns offered by those asset classes in a mature financial and property market. In addition, the recent financial crisis provided a dynamically changing investment which is ideal for investigating structural relationships between assets.