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Abstract
The capital markets turmoil that exploded credit spreads in mid-2007 had no discernible impact on commercial real estate pricing until a year later when capitalization rates associated with NCREIF-NPI property sales began to widen from all time lows. The model developed in this article identifies “signal variables” that could have been used to inform commercial real estate investor expectations in the interim. The model’s results demonstrate that over short periods of time, cap rates can be predicted by macroeconomic and financial market conditions combined with commercial real estate market fundamentals. The effectiveness of these variables validates the integration of commercial real estate into the larger capital markets.
TOPICS: Real estate, factor-based models, credit risk management
- © 2009 Institutional Investor, Inc.
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In this issue
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- Article
- Abstract
- BACKGROUND
- PREVIOUS RESEARCH
- EXTENSION TO COMMERCIAL REAL ESTATE CAP RATES: MODEL SPECIFICATION
- MACROECONOMIC AND INTEREST RATE FACTORS
- CREDIT PRICING FACTORS
- DATA SPECIFICATIONS
- EMPIRICAL RESULTS: LONG-TERM MODELS
- EMPIRICAL RESULTS: SHORT-TERM MODELS
- A PRACTICAL APPLICATION OF THE MODEL
- CONCLUSION
- ENDNOTES
- REFERENCES
- Info & Metrics
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