Thursday, November 6, 2008
Release Finished
Just finished the latest release of Summa Cash Flow Modeler Alpha. I reworked the interface around a main drop down menu so that it has a more familiar feel for users. I also added number formatting in a lot of places it was missing before. One the whole, I think it is much easier on the eyes. But why not take a look yourself and let me know what you think.
Labels: cash flow, commercial real estate financial analysis, commercial real estate software, financial model, proforma
Thursday, October 30, 2008
CSS
Sorry I haven't posted in a couple of days. I've been spending some time in web development hell. I was trying to do a drop-down menu interface with just DHTML and javascript. I came really close, but it kept exhibiting inexplicable little glitches. I found out after many hours that it can be done very easily with CSS. I am kind of biased against CSS (If you ever get a look at my code, you will see that I am biased against markup in general. I do almost everything programmatically with Javascript. I find it cleaner and closer to my way of thinking). But using CSS's hover pseudoclass is simply the best way to do this kind of stuff, as this site demonstrates: http://www.cssplay.co.uk/menus/final_drop.html. I could have saved myself a LOT of time simply by googling "css dropdown" before I started.
Labels: css, javascript, web development
Friday, October 24, 2008
Why Are Multifamily Values Holding Up?
Many commercial real estate news sources have been reporting that multifamily property values have been holding up pretty well relative to other property types. The following chart using the MIT Center for Real Estate's Transaction-based Price Index (link) makes the difference pretty clear.
Explanations for the difference range from undersupply due to excess conversion to for-sale product to new demand from potential homebuyers who cannot get financing.
There are some data, however, that indicate that strength in the multifamily sector has been a long time coming. Data on property level income returns, in particular, suggest that the multifamily sector may have, at least in one sense, bottomed at a time when the other sectors have peaked.
I have derived a measure of property level income returns from the MIT Center for Real Estate Transaction-based Price Index and Total Returns Index (link). Anyone looking for details on the derivation can view my calculations in Excel form here. Others can simply take my word that it is possible to back into income return data given price and total returns data. Below is a chart of the income return index I have derived. There is a series for the index of each property type and one for the index that combines all property types.
The first thing that the indices show is that 2006/2007 was not, historically speaking, a peak income-wise for any commercial property class. The real peak clearly occurred in 2001/2002. The other thing that the indices show is that while most property types have recovered, to a certain extent, from the post-2002 slump in income returns, multifamily has not. In fact, multifamily net incomes appear to have been sliding downwards in absolute terms since 3Q01.
Of course it is possible that this trend will continue indefinitely. But that would basically mean the end of the multifamily asset class as a viable investment. It seems much more likely that the unprecedented availability of financing for homeownership caused a serious mispricing in the multifamily space market. The laws of the marketplace require that returns to landlords move upwards to some kind of equilibrium. This analysis only provides quantitative verification for what participants in the capital markets grasp intuitively: there is room for upside in the current levels of property-level income in the multifamily sector. In my opinion, this is why multifamily values are comparatively solid.
Explanations for the difference range from undersupply due to excess conversion to for-sale product to new demand from potential homebuyers who cannot get financing.
There are some data, however, that indicate that strength in the multifamily sector has been a long time coming. Data on property level income returns, in particular, suggest that the multifamily sector may have, at least in one sense, bottomed at a time when the other sectors have peaked.
I have derived a measure of property level income returns from the MIT Center for Real Estate Transaction-based Price Index and Total Returns Index (link). Anyone looking for details on the derivation can view my calculations in Excel form here. Others can simply take my word that it is possible to back into income return data given price and total returns data. Below is a chart of the income return index I have derived. There is a series for the index of each property type and one for the index that combines all property types.
The first thing that the indices show is that 2006/2007 was not, historically speaking, a peak income-wise for any commercial property class. The real peak clearly occurred in 2001/2002. The other thing that the indices show is that while most property types have recovered, to a certain extent, from the post-2002 slump in income returns, multifamily has not. In fact, multifamily net incomes appear to have been sliding downwards in absolute terms since 3Q01.
Of course it is possible that this trend will continue indefinitely. But that would basically mean the end of the multifamily asset class as a viable investment. It seems much more likely that the unprecedented availability of financing for homeownership caused a serious mispricing in the multifamily space market. The laws of the marketplace require that returns to landlords move upwards to some kind of equilibrium. This analysis only provides quantitative verification for what participants in the capital markets grasp intuitively: there is room for upside in the current levels of property-level income in the multifamily sector. In my opinion, this is why multifamily values are comparatively solid.
Labels: commercial real estate investment, commercial real estate market, commercial real estate market analysis
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