Section 3 Market Analysis

Question 1

4 stages of a real estate cycle

Answer 1

expansion, contraction, recession & recovery

Question 2

Expansion

Answer 2

demand & occupancy grow, rents exceed replacement costs, entrepreneurial incentive is high so construction increases

Question 3

Contraction

Answer 3

demand grows slowly, new construction exceeds demand, occupancy is high but declining, profit declines

Question 4

Recession

Answer 4

demand is stagnant or decreasing, rents decline, concessions, profit potential is low, new construction declines or halts

Question 5

Recovery

Answer 5

demand and occupancy climb, rents stabilize, profit gains strength but no new construction

Question 6

Market equilibrium

Answer 6

balance between supply & demand, markets move to equilibrium but balance seldom occurs for long

Question 7

Feasibility rent

Answer 7

rent required to induce new construction

Question 8

Equilibrium rent

Answer 8

the rent a property is expected to bring when a market is at equilibrium

Question 9

Economic base analysis

Answer 9

a study that the determines an economy’s basic and non basic industries

Question 10

Basic industry

Answer 10

exports goods & services (brings money in)

Question 11

Non-basic industry

Answer 11

imports goods & services (sends money out)

Question 12

Location quotient

Answer 12

determines if an industry is basic or not. Location quotient over 1 is basic

Question 13

How do you calculate a location quotient?

Answer 13

job in area/same job in US divided by all jobs in area/all jobs in us ie: 107/1000 = 10.7% 30,000/1,000,000 =3%
10.7%/3% = 3.5 LQ (basic!)

Question 14

Market segmentation

Answer 14

the process of identifying smaller portions of a larger market for both supply and demand

Question 15

Linkage

Answer 15

the time distance relationship between a particular use and its supporting facilities.

Question 16

Key linkages - single family

Answer 16

schools, commute times, shopping

Question 17

Key linkages - multi family

Answer 17

employment nodes, transportation nodes, location conveniences

Question 18

Key linkages - office

Answer 18

commute times, lodging, retail amenities (food, fitness)

Question 19

Key linkages - industrial

Answer 19

truck routes, suppliers

Question 20

Key linkages - retail

Answer 20

conveniences to residential districts, household income, demographics

Question 21

Market study

Answer 21

macroeconomic analysis of a specific area or property type

Question 22

Marketability study

Answer 22

microeconomic analysis of the marketability of a specific property or class of properties

Question 23

Projection

Answer 23

inferred demand analysis - prediction that assumes the past will continue into the future

Question 24

Forecast

Answer 24

fundamental demand analysis - prediction that considers change in supply & demand

Question 25

Inferred Demand Analysis

Answer 25

a projection based on current market conditions and recent historical change (no pent up/artificial demand, one property type)

Question 26

Fundamental Demand Analysis

Answer 26

considers past and expects changes in PIE population, income & employment

Question 27

What are the main differences between inferred demand analysis and fundamental demand analysis?

Answer 27

inferred does not recognize significant change, fundamental does

Question 28

how do you choose an appropriate market analysis

Answer 28

CSS - complexity, size and market stability

Question 29

Level A market analysis

Answer 29

Inferred, simple, small property in a stable market, value now

Question 30

Level B market anaysis

Answer 30

Inferred, (any one of the following) - large, complex, unstable market, timing now.

Question 31

Level C market analysis

Answer 31

Fundamental - use w/ 2 or more - large, complex, unstable market, timing not now

Question 32

4 ingredients needed for an actual market and which one isn't needed for a potential market

Answer 32

Demand, Supply & Prices - Transactions too for an actual market.

Question 33

6 step Process of Market Analysis

Answer 33

1. Property productivity analysis, 2. Delineate the market area & CMA, 3. Predict demand, 4. Predict supply (current & Future) 5. Compute net/marginal demand 6. Predict subject's capture (3-4=5)

Question 34

Identify property productivity

Answer 34

step 1 - describe property - physical, legal & locational (PLL)

Question 35

Delineate the market

Answer 35

step 2 - boundries (natural/man made & politcal), what's needed, what's changing, market conditions

Question 36

Identify Market conditions

Answer 36

step 3 - interest rates, supply & demand changes, changes in PIE (population, income, employment)

Question 37

Measured Demand

Answer 37

the amount of space a market needs at 100% occupancy

Question 38

Frictional vacancy

Answer 38

allows orderly movement of tenants

Question 39

What is supportable demand and how do you calculate it?

Answer 39

Measured demand plus an allowance for frictional vacancy. Measured demand /(1-frictional vacancy) Demand 600 and vacancy 5% (600/0.95 = 632)

Question 40

What is supply analysis (step 4) and how do you calculate supply -

Answer 40

Supply includes existing supply, new construction, planned new supply and demo & conversions.

Question 41

Excess supply - what is it and how do you calculate it?

Answer 41

Step 4 - If there is excess supply: existing supply less frictional vacancy =s current demand/occupancy. subtract from existing supply to get the excess supply

Question 42

Supply to absorb - not enough supply

Answer 42

Step 4 - For a specific property! Existing supply less stabilized vacancy = current demand. Subtract from existing supply to get space to absorb.

Question 43

Predict subject capture

Answer 43

step 5 - the % of marginal demand that a specific proeprty is expected to attract or lose. Pro Rata share method - subject size/competitive size