Stellan Lundström

Valuation of public real estate: context and concept

Notes an increasing interest in valuation of publicly owned real estate, and also controversy about the relevance of different concepts of value, especially for special purpose properties. Argues that it is important to distinguish between different contexts before taking a stand on this issue. Discusses three such contexts: external information, asset management and introduction of buyer‐provider models for real estate services within the public sector. Concludes that there is no type of public property for which the question of asset value is unimportant, and also that the information provided by aggregate values and a traditional balance‐sheet is small.

Owning vs leasing of real properties in the Swedish public sector

Purpose – The purpose of this paper is to give an overview of a number of studies about owning vs leasing in the Swedish public sector and relate this to more general determinants of the choice between owning and leasing.Design/methodology/approach – The empirical results presented are primarily based on a number of case studies.Findings – The research shows that there have been a number of “rational” reasons for moving from owning to leasing: primarily better risk allocation and more efficient management of complex properties with both public and private tenants. In other cases, the excess supply of capital and the need to strengthen the balance sheet seems to have been more important.Research limitations/implications – The result is based on a rather small number of case studies and this limits the possibility to generalise the results.Practical implications – The results also indicate that moving from owning to leasing can reduce flexibility and that it is very important for careful analyses about the ...

Treatment of uncertainty in appraisals of commercial properties Some evidence from Sweden

The article is based on a study of 100 appraisal reports from the period 1980‐1996, covering a full property cycle. A number of aspects related to uncertainty were investigated. Among the results are: The appraiser often used both a sales comparison and an income method. Both methods usually led to very similar results, probably because the appraiser used an iterative procedure to make the results converge. During the boom years, the value was usually presented as a point estimate or a narrow range. After the crash, point estimates are unusual and wider ranges dominate. Sensitivity analysis were almost never used during the boom. Thereafter it can be found in about 50 per cent of the reports. During the boom it became more common to make explicit reservations stating that the appraisal only concerned the market value “now”, and that no statement is made about the future market value. The results are in line with observations from other countries pointing to the neglect of uncertainty during the boom years. Finally it is recommended that at least qualitative information should be given about the strength of the evidence and about the probability distribution of actual prices. How the values on the relevant market have developed during the last ten years should be presented so that the client can judge the variability of the market value.

Risk Assessment and Credit Management

Some years ago the derivatives group Refco advertised its financial risk management services under the slogan ‘Risk is everywhere’. There is, of course, an important truth here. The phenomenon of risk is pervasive in economic life as it is in life in general. Just as we learn to deal with the risks of crossing a road or driving a car (Graham 1988), we need to cope with risk in business life.