
Joshua Harris, Ph. D., CAIA
Director, Dr. P. Phillips Institute for Research
and Education in Real Estate

Value of Real Property
◦ Highest and Best Use
◦ Income and/or Economic Utility delivered
◦ Option Component

Real Property Options
◦
◦
◦
◦

Option
Option
Option
Option
to
to
to
to
Expand
Reduce
Change Use
Delay
Total Value = Real Value + Option Value
3

Classical Financial Options (i.e. Puts & Calls)
◦
◦
◦
◦

Volatility
Discounting Rates
Time Until Expiration
Dividends
Applied to Real Property
◦ Volatility of Demand (Macroeconomics)
◦ Volatility of Supply (Capital Markets/Const. Prices)
◦ Volatility of Regulation

Bottom Line – Economy Determines Volatility
4
Source: Bureau of Economic Analysis
Source: Bureau of Labor Statistics
Source: Census Bureau
Source: Bureau of Economic Analysis
Source: Bureau of Economic Analysis
Source: Census Bureau
Source: Bureau of Economic Analysis
Source: Census Bureau
Source: Census Bureau
From October 2012 – 1.69%
A Year Ago 2.67% - a 58% Jump
One Year Later 2.26% - a 15% DECLINE
Source: U.S. Census Bureau

Growth of MSA >1 million, 2014 YTD
#
1
2
3
4
5
6 (tie)
6 (tie)
8 (tie)
8 (tie)
10
City
Job Growth
Orlando, Florida
3.7%
Houston, Texas
3.5%
Dallas, Texas
3.4%
Miami, Florida
3.0%
Portland, Oregon
2.9%
Denver, Colorado
2.8%
Riverside, California
2.8%
San Francisco, California
2.6%
Seattle, Washington
2.6%
San Diego, California
2.4%
Source: U.S. Bureau of Labor Statistics, Forbes.com

Growth of MSA >1 million since 2000 (YE 12)
#
1
2
3
4
5
6
7
8
9
10
City
Population Growth since 2000
Raleigh NC
1.2
47.80%
Austin TX
1.8
44.90%
Las Vegas NV
2.0
43.60%
Orlando FL
2.2
34.20%
Charlotte NC
2.3
32.80%
Riverside-San Bernardino
4.4CA
32.70%
Phoenix AZ
4.3
32.10%
Houston TX
6.2
31.00%
San Antonio TX
2.2
29.90%
Dallas-Fort Worth TX 6.7
27.90%
Source: U.S. Census Bureau, Forbes.com
23

Growth of MSA >1 million from 2011-2012
#
1
2
3
4
5
6
7
9
11
23
City
Population Growth 2011-2012
Austin TX
1.8
3.00%
Orlando FL
2.2
2.20%
Raleigh NC
1.2
2.20%
Houston TX
6.2
2.10%
Dallas-Fort Worth TX 6.7
2.00%
San Antonio TX
2.2
1.90%
Phoenix AZ
4.3
1.80%
Charlotte NC
2.3
1.70%
Las Vegas NV
2
1.70%
Riverside-San Bernardino
4.4CA
1.10%
Source: U.S. Census Bureau, Forbes.com
24

New construction occurring across the board

Banks are desperate to lend

Apartment Rental Rates & Home Prices rising


Commercial Real Estate Prices at or above
prior peak
Risk of oversupply, still fairly low
25
 Highest
rapidly
 Urban
and Best Use may change
Markets are more desirable
 Infrastructure
or even close
 Values
DID NOT keep pace,
are tricky, my sympathies to
the Appraisers (….Option Values)