IDEAS home Printed from https://ideas.repec.org/a/kap/jrefec/v60y2020i1d10.1007_s11146-019-09717-9.html
   My bibliography  Save this article

Beyond the Cap Rate: Valuation of Multifamily Properties

Author

Listed:
  • Jun Li

    (Freddie Mac Multifamily)

  • Xiaoli Liang

    (Freddie Mac Enterprise Risk Management)

Abstract

Estimating the value of multifamily properties and other commercial real estate properties is an important but difficult task for real estate investors and researchers. The commonly used capitalization rate model, which involves the estimation of capitalization rates, has limitations in practice, especially during periods of financial stress. This paper proposes a new property valuation methodology that directly estimates the value of multifamily properties by accounting for both market trends and property operating performance. Our results show that this new model significantly improves the valuation of multifamily properties, particularly distressed properties. This methodology can also be applied to the valuation of other commercial real estate properties.

Suggested Citation

  • Jun Li & Xiaoli Liang, 2020. "Beyond the Cap Rate: Valuation of Multifamily Properties," The Journal of Real Estate Finance and Economics, Springer, vol. 60(1), pages 99-110, February.
    • Handle: RePEc:kap:jrefec:v:60:y:2020:i:1:d:10.1007_s11146-019-09717-9
    DOI: 10.1007/s11146-019-09717-9
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11146-019-09717-9
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s11146-019-09717-9?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Jim Clayton & David Ling & Andy Naranjo, 2009. "Commercial Real Estate Valuation: Fundamentals Versus Investor Sentiment," The Journal of Real Estate Finance and Economics, Springer, vol. 38(1), pages 5-37, January.
    2. Marcel Arsenault & Jim Clayton & Liang Peng, 2013. "Mortgage Fund Flows, Capital Appreciation, and Real Estate Cycles," The Journal of Real Estate Finance and Economics, Springer, vol. 47(2), pages 243-265, August.
    3. Karl E. Case & Robert J. Shiller, 1987. "Prices of single-family homes since 1970: new indexes for four cities," New England Economic Review, Federal Reserve Bank of Boston, issue Sep, pages 45-56.
    4. Richard D. Evans, 1990. "A Transfer Function Analysis of Real Estate Capitalization Rates," Journal of Real Estate Research, American Real Estate Society, vol. 5(3), pages 371-380.
    5. Doina Chichernea & Norm Miller & Jeff Fisher & Bob White & Michael Sklarz, 2008. "ACross-Sectional Analysis of CapRates by MSA," Journal of Real Estate Research, American Real Estate Society, vol. 30(3), pages 249-292.
    6. Brent W. Ambrose & Hugh O. Nourse, 1993. "Factors Influencing Capitalization Rates," Journal of Real Estate Research, American Real Estate Society, vol. 8(2), pages 221-238.
    7. James Frew & G. Donald Jud, 2003. "Estimating the Value of Apartment Buildings," Journal of Real Estate Research, American Real Estate Society, vol. 25(1), pages 77-86.
    8. Sivitanidou, Rena & Sivitanides, Petros, 1999. "Office Capitalization Rates: Real Estate and Capital Market Influences," The Journal of Real Estate Finance and Economics, Springer, vol. 18(3), pages 297-322, May.
    9. John Y. Campbell & Stefano Giglio & Parag Pathak, 2011. "Forced Sales and House Prices," American Economic Review, American Economic Association, vol. 101(5), pages 2108-2131, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Matt Larriva, 2022. "Cap Rates as a Function of Real Economic Growth," JRFM, MDPI, vol. 15(8), pages 1-18, July.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Daisy J. Huang & Charles Ka Yui Leung & Chung-Yi Tse, 2018. "What Accounts for the Differences in Rent-Price Ratio and Turnover Rate? A Search-and-Matching Approach," The Journal of Real Estate Finance and Economics, Springer, vol. 57(3), pages 431-475, October.
    2. Devaney, Steven & Livingstone, Nicola & McAllister, Pat & Nanda, Anupam, 2019. "Capitalization rates and transaction activity in international office markets: A global perspective," Global Finance Journal, Elsevier, vol. 42(C).
    3. Alain Chaney & Martin Hoesli, 2015. "Transaction-Based and Appraisal-Based Capitalization Rate Determinants," International Real Estate Review, Global Social Science Institute, vol. 18(1), pages 1-43.
    4. David Ling & Gianluca Marcato & Pat McAllister, 2009. "Dynamics of Asset Prices and Transaction Activity in Illiquid Markets: the Case of Private Commercial Real Estate," The Journal of Real Estate Finance and Economics, Springer, vol. 39(3), pages 359-383, October.
    5. Doina Chichernea & Norm Miller & Jeff Fisher & Bob White & Michael Sklarz, 2008. "ACross-Sectional Analysis of CapRates by MSA," Journal of Real Estate Research, American Real Estate Society, vol. 30(3), pages 249-292.
    6. John McDonald & Sofia Dermisi, 2009. "Office Building Capitalization Rates: The Case of Downtown Chicago," The Journal of Real Estate Finance and Economics, Springer, vol. 39(4), pages 472-485, November.
    7. Patric H. Hendershott & Bryan D. MacGregor, 2003. "Investor Rationality: Evidence from UK Property Capitalization Rates," NBER Working Papers 9894, National Bureau of Economic Research, Inc.
    8. Steffen Heinig & Anupam Nanda & Sotiris Tsolacos, 2016. "Which Sentiment Indicators Matter? An Analysis of the European Commercial Real Estate Market," ICMA Centre Discussion Papers in Finance icma-dp2016-04, Henley Business School, University of Reading.
    9. Jędrzej Białkowski & Sheridan Titman & Garry Twite, 2023. "The Determinants of Office Cap Rates: The International Evidence," Working Papers in Economics 23/01, University of Canterbury, Department of Economics and Finance.
    10. 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.
    11. Jędrzej Białkowski & Sheridan Titman & Garry Twite, 2023. "The determinants of office cap rates: The international evidence," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 51(3), pages 539-572, May.
    12. William M. Doerner & Andrew V. Leventis, 2015. "Distressed Sales and the FHFA House Price Index," Journal of Housing Research, Taylor & Francis Journals, vol. 24(2), pages 127-146, January.
    13. Serguei Chervachidze & William Wheaton, 2013. "What Determined the Great Cap Rate Compression of 2000–2007, and the Dramatic Reversal During the 2008–2009 Financial Crisis?," The Journal of Real Estate Finance and Economics, Springer, vol. 46(2), pages 208-231, February.
    14. Zhou, Zhengyi, 2018. "Housing market sentiment and intervention effectiveness: Evidence from China," Emerging Markets Review, Elsevier, vol. 35(C), pages 91-110.
    15. Mariya Letdin, 2017. "Under the Lender’s Looking Glass," The Journal of Real Estate Finance and Economics, Springer, vol. 55(4), pages 435-456, November.
    16. Fernando Ferreira & Joseph Gyourko, 2011. "Anatomy of the Beginning of the Housing Boom: U.S. Neighborhoods and Metropolitan Areas, 1993-2009," NBER Working Papers 17374, National Bureau of Economic Research, Inc.
    17. Francke, Marc & Korevaar, Matthijs, 2021. "Housing markets in a pandemic: Evidence from historical outbreaks," Journal of Urban Economics, Elsevier, vol. 123(C).
    18. G. Donald Jud & Daniel T. Winkler, 1995. "The Capitalization Rate of Commercial Properties and Market Returns," Journal of Real Estate Research, American Real Estate Society, vol. 10(5), pages 509-518.
    19. Elliot Anenberg & Steven Laufer, 2014. "Using Data on Seller Behavior to Forecast Short-run House Price Changes," Finance and Economics Discussion Series 2014-16, Board of Governors of the Federal Reserve System (U.S.).
    20. Das, Prashant & Füss, Roland & Hanle, Benjamin & Russ, Isabel Nina, 2020. "The cross-over effect of irrational sentiments in housing, commercial property, and stock markets," Journal of Banking & Finance, Elsevier, vol. 114(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:jrefec:v:60:y:2020:i:1:d:10.1007_s11146-019-09717-9. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.