REAL ESTATE QUESTION 4

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GUIDANCE FOR WEEK THREE

REAL ESTATE 431: COMMERCIAL REAL ESTATE INVESTMENT

INSTRUCTOR: TRACY GREEN, M.P.A., B.A.

Readings

1. Read Roos, Chapters 10 thru 12.

Additional Resources

AIR Commercial Real Estate Association http://www.airea.com/HOME/Home.aspx

CCIM Institute http://www.ccim.com/

National Association of Realtors http://www.realtor.org

California Association of Realtors http://www.car.org

The National Bureau of Economic Research http://www.nyber.org

Weekly Overview

During week 3 you are required to read Chapters 10 thru 12. These chapters will give

you an overview on finding, analyzing and negotiating real estate deals. Analyzing

commercial real estate deals includes site analysis and being knowledgeable about submarkets.

Site analysis involves the compilation of all economic, social, political, legal, and environmental

forces that influence the productivity of a given site, whether improved or not, and with

consideration to current and/or alternative uses. If this sounds a little like “highest and best use”

analysis to those of you familiar with appraisal terminology, it is similar, except that site analysis

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might be more focused. For example, site analysis might determine the appropriateness or

feasibility of a specific location for the intended use of a specific business. Site analysis might

involve a comparison of three or more sites for competitive advantages for a specific

development concept or use. Site analysis might involve an exploration of alternative uses for a

given site at the present time, or be based on likely trends in the future, that is “a site looking for

a use.”

A submarket is an arbitrary grouping of either the demand side of a market (buyers or

tenants) or the supply side of a market (the market within which the subject parcel or property

competes). While it is not necessary to define submarkets in purely geographical terms, and

certainly cyber-markets could be defined in submarket groupings without regard to location,

geography tends to be a primary determinant of submarket definitions for the real estate industry.

From the demand side, the submarket is the typical profile attributes of the potential users of

space for a specific property use. For example, the profile of potential users for an independent-

living, high-amenity, adult-only apartment complex could be defined by age, wealth, income

sources, and geographic location from which such a market of users could be drawn with some

degree of confidence. From the supply side, the submarket is the based upon the attributes of

those properties that may compete with the proposed or current use, including geography as one

of the important attributes. For example, a parcel with a proposed upscale housing development

may compete with properties of a similar price range, similar in size, similar in amenities, and

within a certain geographic area from which the dominant source of potential buyers come.

Some submarkets may involve a relevant geographic range of only a few miles in radius, such as

a convenience-oriented “strip” shopping center or single family housing, while others such as

industrial parts distribution warehouses might involve a submarket of 300 miles or more.

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In addition to demand and supply factors, as well as the legal constraints of

zoning or building codes, the suitability of a given site for the proposed use is important, which

is where physical analysis comes into play.

Site size, shape, topography, soil type, geology, vegetation, wildlife, surface and

subsurface water, utility access, access and traffic flows, noise, air pollution, and climate all must

be considered in a systematic site analysis.

One of the important tools for combining physical analyses with market analysis

is through the use of geographic information systems that integrate several layers of information.

REFERENCES

Larsen, J. E. (2007). Real Estate: Building Strong Foundations. New Jersey: Wiley.

Miller, N. G.. and Geltner, D. M. (2005). Real Estate Principles for the New Economy. Mason,

OH: Cengage.

Nemeth, C.P. (2011). Reality of Real Estate (3rd ed.). Boston: Pearson Prentice Hall.

De Ross, D. (2008). Commercial Real Estate Investing. New Jersey: Wiley.