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Selling Prices/sq.ft. of Office Buildings in Downtown Chicago – How Much Is It Worth to Be an Old But Class A Building?

Author

Listed:
  • Sofia Dermisi

    () (Roosevelt University)

  • John F. McDonald

    () (University of Illinois at Chicago)

Abstract

This paper examines office building sales in downtown Chicago for the period 1996 to 2007. Our analysis provides a conventional OLS approach and an exploration of spatial dependence. We find some evidence of spatial lag and spatial autocorrelation in our dataset but the results are similar to the OLS approach. The results indicate that high occupancy is a statistically significant factor only for Class B properties, suggesting that a low occupancy rate is a negative sign for these buildings of lower quality. Class A property receives a 44% price/ sq. ft. boost due to the premium classification. This increase becomes more pronounced (90%) for floor plate efficient, neoclassical/ revival fac¸ade and/or famous Class A properties built before 1972 when the comparison is with Class B properties of the same age.

Suggested Citation

  • Sofia Dermisi & John F. McDonald, 2010. "Selling Prices/sq.ft. of Office Buildings in Downtown Chicago – How Much Is It Worth to Be an Old But Class A Building?," Journal of Real Estate Research, American Real Estate Society, vol. 32(1), pages 1-22.
  • Handle: RePEc:jre:issued:v:32:n:1:2010:p:1-22
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    References listed on IDEAS

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    1. Edwin S. Mills, 1992. "Office Rent Determinants in the Chicago Area," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 20(2), pages 273-287.
    2. Thomas P. Brennan & Roger E. Cannaday & Peter F. Colwell, 1984. "Office Rent in the Chicago CBD," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 12(3), pages 243-260.
    3. McDonald, John F., 1993. "Incidence of the Property Tax on Commercial Real Estate: The Case of Downtown Chicago," National Tax Journal, National Tax Association, vol. 46(2), pages 109-120, June.
    4. Shilton, Leon & Zaccaria, Anthony, 1994. "The Avenue Effect, Landmark Externalities, and Cubic Transformation: Manhattan Office Valuation," The Journal of Real Estate Finance and Economics, Springer, vol. 8(2), pages 151-165, March.
    5. Terry V. Grissom & Ko Wang & James R. Webb, 1992. "The Spatial Equilibrium of Intra-Regional Rates of Return and the Implications for Real Estate Portfolio Diversification," Journal of Real Estate Research, American Real Estate Society, vol. 7(1), pages 59-72.
    6. Barrett A. Slade, 2000. "Office Rent Determinants during Market Decline and Recovery," Journal of Real Estate Research, American Real Estate Society, vol. 20(3), pages 357-380.
    7. Tsong-Yue Lai & Kerry Vandell & Ko Wang & Gerd Welke, 2008. "Estimating Property Values by Replication: An Alternative to the Traditional Grid and Regression Methods," Journal of Real Estate Research, American Real Estate Society, vol. 30(4), pages 441-460.
    8. Anselin, Luc & Hudak, Sheri, 1992. "Spatial econometrics in practice : A review of software options," Regional Science and Urban Economics, Elsevier, vol. 22(3), pages 509-536, September.
    9. Stanley D. Smith & Larry R. Woodward & Craig T. Schulman, 2000. "The Effect of the Tax Reform Act of 1986 and Overbuilt Markets on Commercial Office Property Values," Journal of Real Estate Research, American Real Estate Society, vol. 19(3), pages 301-320.
    10. McDonald, John F., 1993. "Incidence of the Property Tax on Commercial Real Estate: The Case of Downtown Chicago," National Tax Journal, National Tax Association, vol. 46(2), pages 109-20, June.
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    Cited by:

    1. Jack Corgel & Crocker Liu & Robert White, 2015. "Determinants of Hotel Property Prices," The Journal of Real Estate Finance and Economics, Springer, vol. 51(3), pages 415-439, October.
    2. Chang, Chuang-Chang & Chao, Ching-Hsiang & Yeh, Jin-Huei, 2016. "The role of buy-side anchoring bias: Evidence from the real estate market," Pacific-Basin Finance Journal, Elsevier, vol. 38(C), pages 34-58.
    3. repec:kap:jrefec:v:56:y:2018:i:2:d:10.1007_s11146-017-9598-z is not listed on IDEAS

    More about this item

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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