Estimating Commercial Property Fundamentals from REIT Data

42 Pages Posted: 7 Jul 2021 Last revised: 7 Sep 2023

See all articles by David Geltner

David Geltner

Massachusetts Institute of Technology (MIT); MIT Center for Real Estate

Anil Kumar

Aarhus University - School of Business and Social Sciences; Danish Finance Institute

Alex Van de Minne

University of Connecticut - School of Business

Date Written: October 31, 2021

Abstract

In this paper we propose a new methodology for the estimation of fundamental property asset-level investment time series performance and operating data based on real estate investment trusts (REITs). The methodology is particularly useful to develop publicly accessible operating statistics for investment real estate, such as income or expenses per square foot. Commercial property operating statistics are relatively under-studied from an investment perspective. We show how the methodology can be used to estimate the time series of property values, net operating income, cap rates, operating expenses, and capital expenditures, per square foot of building area, by property type (sector) at the quarterly frequency for multiple specific geographic markets from 2004 through 2018. We show illustrative empirical results for Los Angeles offices and Atlanta apartments. The methodology allows estimation of actual quantity levels, not just dimensionless index numbers (longitudinal relative). It allows for an \additive" model structure that is more parsimonious, thereby addressing the need for granular market segmentation. We also introduce a Bayesian framework that allows the estimation of reliable time series even in small markets.

Keywords: Real Estate Price Indices, Commercial Real Estate, REITs, Structural Time Series Modelling, Bayesian Inference, Real Estate Operating Statistics, Capital Expenditures, Operating Income and Expense

JEL Classification: R30, C01, C11

Suggested Citation

Geltner, David and Kumar, Anil and Van de Minne, Alex, Estimating Commercial Property Fundamentals from REIT Data (October 31, 2021). MIT Center for Real Estate Research Paper No. 21/11, Available at SSRN: https://ssrn.com/abstract=3881407 or http://dx.doi.org/10.2139/ssrn.3881407

David Geltner (Contact Author)

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
Cambridge, MA 02139
United States

MIT Center for Real Estate ( email )

77 Massachusetts Avenue
Cambridge, MA 02139
United States

Anil Kumar

Aarhus University - School of Business and Social Sciences ( email )

Fuglesangs Alle 4
Aarhus V, 8210
Denmark

Danish Finance Institute ( email )

Alex Van de Minne

University of Connecticut - School of Business ( email )

368 Fairfield Road
Storrs, CT 06269-2041
United States

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