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William Wheaton. Rowe, Patrick D. (Patrick Daniel) Massachusetts Institute of Technology. Dept. of Urban Studies and Planning. Massachusetts Institute of Technology. Department of Urban Studies and Planning 2008-09-02T17:49:35Z 2008-09-02T17:49:35Z 2007 2007 http://hdl.handle.net/1721.1/42017 226320839 Thesis (S.M. in Real Estate Development)--Massachusetts Institute of Technology, Dept. of Urban Studies and Planning, 2007. This electronic version was submitted by the student author. The certified thesis is available in the Institute Archives and Special Collections. Includes bibliographical references (p. 54-55). This paper is an investigation into the relationship between real estate capitalization rates and income growth. The paper includes a cross-sectional analysis of approximately 25 markets in the United States. The paper analyzes apartment and office markets separately, for two different periods of time. Multi-variable regression techniques are used to explore the relationships between cap rates in different markets and rent growth, appreciation, and employment growth, as well as Liquidity and Supply Constraint factors. For this analysis, periods of time were chosen ranging from 1996 to 2002 so that subsequent rental growth, appreciation, and employment growth data was available. With this information, future growth of these variables is back tested. The results of the regressions are then compared to the theoretical relationships that should exist between cap rates and future income growth and appreciation. The results show that market pricing does not accurately price future income growth in a consistent manner. This provides significant evidence that the real estate capital market is inefficient in its pricing of assets in different markets based on the future rental behavior in individual markets. The last aspect of the thesis is the development of an investment strategy that capitalizes on the inefficiencies discovered in the analysis. The strategy enables the investor to make investments that should demonstrate superior risk-adjusted returns based on the space market fundamentals in individual markets. by Patrick D. Rowe. S.M. in Real Estate Development 55 p. eng Massachusetts Institute of Technology M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission. http://dspace.mit.edu/handle/1721.1/7582 Urban Studies and Planning. Mispricing income growth : exploring inefficiencies in commercial real estate pricing Exploring inefficiencies in commercial real estate pricing Thesis application/pdf false Publication unknown unknown <Publication xmlns="https://www.openaire.eu/cerif-profile/1.1/" id="7d76aaaf-d173-40d6-805f-f2e1d28df2a5"> <Type xmlns="https://www.openaire.eu/cerif-profile/vocab/COAR_Publication_Types">http://purl.org/coar/resource_type/c_1843</Type> <Language>eng</Language> <Title>Mispricing income growth : exploring inefficiencies in commercial real estate pricing</Title> <Subtitle>Exploring inefficiencies in commercial real estate pricing</Subtitle> <PublishedIn> <Publication> </Publication> </PublishedIn> <PublicationDate>2007</PublicationDate> <Authors> <Author> <DisplayName>Rowe, Patrick D. (Patrick Daniel)</DisplayName> <Affiliation> <OrgUnit> </OrgUnit> </Affiliation> </Author> </Authors> <Editors> </Editors> <Publishers> <Publisher> <DisplayName>Massachusetts Institute of Technology</DisplayName> <OrgUnit /> </Publisher> </Publishers> <License>http://dspace.mit.edu/handle/1721.1/7582</License> <Keyword>Urban Studies and Planning.</Keyword> <Abstract>This paper is an investigation into the relationship between real estate capitalization rates and income growth. The paper includes a cross-sectional analysis of approximately 25 markets in the United States. The paper analyzes apartment and office markets separately, for two different periods of time. Multi-variable regression techniques are used to explore the relationships between cap rates in different markets and rent growth, appreciation, and employment growth, as well as Liquidity and Supply Constraint factors. For this analysis, periods of time were chosen ranging from 1996 to 2002 so that subsequent rental growth, appreciation, and employment growth data was available. With this information, future growth of these variables is back tested. The results of the regressions are then compared to the theoretical relationships that should exist between cap rates and future income growth and appreciation. The results show that market pricing does not accurately price future income growth in a consistent manner. This provides significant evidence that the real estate capital market is inefficient in its pricing of assets in different markets based on the future rental behavior in individual markets. The last aspect of the thesis is the development of an investment strategy that capitalizes on the inefficiencies discovered in the analysis. The strategy enables the investor to make investments that should demonstrate superior risk-adjusted returns based on the space market fundamentals in individual markets.</Abstract> <Access xmlns="http://purl.org/coar/access_right" > </Access> </Publication>