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Investor Rationality: An Analysis of NCREIF Commercial Property Data

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  • Patric H. Hendershott

    (Centre for Property Research, University of Aberdeen Business School, Edward Wright Building, ABERDEEN AB24 3QY)

  • Bryan D. MacGregor

    (Centre for Property Research, University of Aberdeen Business School, Edward Wright Building, ABERDEEN AB24 3QY)

Abstract

The concept of a peak in value or a "100% location" is so well established in real estate that there is no reference to the term in recent real estate principles and appraisal texts. However, the land value section in appraisals of a regional shopping center did not apply the concept when adjusting comparables for location, which resulted in a substantial underestimation of site value. A regression model that included a distance variable to control for location produced a value estimate that was more than double the values in the appraisals. The empirical results illustrate that the subject site represented a distinct peak in land value as well as reemphasizing the importance of making careful location adjustments in situations where there is a distinct peak in land value.

Suggested Citation

  • Patric H. Hendershott & Bryan D. MacGregor, 2005. "Investor Rationality: An Analysis of NCREIF Commercial Property Data," Journal of Real Estate Research, American Real Estate Society, vol. 27(4), pages 445-475.
    • Handle: RePEc:jre:issued:v:27:n:4:2005:p:445-475
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    References listed on IDEAS

    as
    1. John M. Quigley, 1999. "Real Estate Prices and Economic Cycles," International Real Estate Review, Global Social Science Institute, vol. 2(1), pages 1-20.
    2. Robert E. Hall, 2001. "Struggling to Understand the Stock Market," American Economic Review, American Economic Association, vol. 91(2), pages 1-11, May.
    3. Hendershott, Patric H., 1996. "Rental Adjustment and Valuation in Overbuilt Markets: Evidence from the Sydney Office Market," Journal of Urban Economics, Elsevier, vol. 39(1), pages 51-67, January.
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    Cited by:

    1. Martin Hoesli & Colin Lizieri & Bryan MacGregor, 2008. "The Inflation Hedging Characteristics of US and UK Investments: A Multi-Factor Error Correction Approach," The Journal of Real Estate Finance and Economics, Springer, vol. 36(2), pages 183-206, February.
    2. 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.
    3. 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).
    4. Patric Hendershott & Maarten Jennen & Bryan MacGregor, 2013. "Modeling Space Market Dynamics: An Illustration Using Panel Data for US Retail," The Journal of Real Estate Finance and Economics, Springer, vol. 47(4), pages 659-687, November.
    5. Jinliang Li & Robert M. Mooradian & Shiawee X. Yang, 2009. "The Information Content of the NCREIF Index," Journal of Real Estate Research, American Real Estate Society, vol. 31(1), pages 93-116.
    6. 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.
    7. 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.

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    JEL classification:

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

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