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Office Market Values During the Past Decade: How Distorted Have Appraisals Been?


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  • Patric Hendershott
  • Edward J. Kane


This paper develops evidence that, in a declining market, appraisal values may lag notably behind analytical measures of the discounted present value of commercial property cash flows. For the period 1982-92, alternative measures of the economic value of constant-quality office buildings are constructed using two benchmark projections designed to bracket expected future vacancy rates and real rents. Until 1992, the time path for both benchmark series lie consistently below that developed from the appraisal-based Russell/NCREIF office market index. This divergence implies that the rate of price appreciation reported by the Russell/NCREIF index is distorted: being slow to register price declines when markets first weaken and then having to overstate the rate of decline once the market begins to bottom out. The distortion may reflect incentives for investment managers and appraisers to smooth potentially temporary price volatility, as well as systematic differences in the character and condition of the properties that tend to trade at different stages of the real estate cycle.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4128.

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Date of creation: Jul 1992
Date of revision:
Publication status: published as Journal of Real Estate Economics, vol. 23, (Summer 1995), pp. 101-116.
Handle: RePEc:nbr:nberwo:4128

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  1. Ross, Stephen A & Zisler, Randall C, 1991. "Risk and Return in Real Estate," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 4(2), pages 175-90, June.
  2. William C. Wheaton & Raymond G. Torto, 1988. "Vacancy Rates and the Future of Office Rents," Real Estate Economics, American Real Estate and Urban Economics Association, American Real Estate and Urban Economics Association, vol. 16(4), pages 430-436.
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Cited by:
  1. David M. Geltner, 1993. "Estimating Market Values from Appraised Values without Assuming an Efficient Market," Journal of Real Estate Research, American Real Estate Society, American Real Estate Society, vol. 8(3), pages 325-346.
  2. Ramon P. DeGennaro & James B. Thomson, 1992. "Capital forbearance and thrifts: an ex post examination of regulatory gambling," Working Paper 9209, Federal Reserve Bank of Cleveland.
  3. Edward J. Kane & Min-Teh Yu, 1994. "How Much Did Capital Forbearance Add to the Cost of the S&L Insurance Mess," NBER Working Papers 4701, National Bureau of Economic Research, Inc.


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