Publications & Papers

Revisiting the Derivation of an Equilibrium Vacancy Rate

Journal of Real Estate Portfolio Management (2014)

Richard L. Parli and Norm Miller

Three approaches are used to derive an equilibrium vacancy rate, defined as that rate in which there is no pressure on real rents. It is clear that equilibrium vacancy rates differ by market and to some extent by cycle. This should be true for various property types as well, be there we focus on office property. Office property tends to have higher equilibrium vacancy rates compared to other property types like retail, perhaps due to lump space markets with significant friction. Friction drives the vacant space required for normal turnover and occupant moves. Once the equilibrium vacancy rate is estimated, it provides a useful trigger for rental forecasts. Here we examine nine metro markets that span the United States from East to West.

 

Downsizing and Workplace Trends in the Office Market

Real Estate Issues (2013)

Norm Miller

A corporate real estate manager today might say the space target for his/her firm is 150 square feet per worker or even much less.  The Government Services Administration (GSA) seems to be aiming for much lower figures and even encouraging telecommuting.  Who is downsizing and how fast are they downsizing in the office market?  Will less space be needed?  These questions are answered below.

 

Slicing, Dicing, and Scoping the Size of the U.S. Commercial Real Estate Market

Journal of Real Estate Portfolio Management (2010)

Andrew C. Florance, Norm Miller, Jay Spivey, and Ruijue Peng

We use a Census approach to calculate the size of the built commercial real estate market in the United States. We provide estimates of values at the summary level as of mid and late 2009 and relate these to the concentrations observed by state.  This likely corresponds to the bottom of the current cycle providing a reference point for future comparisons.  At least $4 trillion has been lost on commercial real estate from 2006 to early 2010.  As of the end of 2009, the total value of commercial real estate, excluding parking lots, is about $11 trillion including owner-occupied property.  If we eliminate the specialty property or simply use the midpoint in 2009, it is closer to $9 trillion.  What is truly amazing is that for some property types, these values are about half of replacement cost.

 

A Cross Sectional Analysis of Cap Rates by MSA

Journal of Real Estate Research – 2008

Doina Chichernea, Norm Miller, Jeff Fisher, Michael Sklarz, and Bob White

There are a number of global factors driving capital markets and required rates of return that help to explain observed capitalization rates or “cap rates” over time, but little is known about the factors driving the geographical cross-sectional variation of these cap rates.  This paper uses data from Real Capital Analytics for multifamily properties to explore several models that combine the expected influences from housing deman growth, supply constraints, liquidity risk and the interaction of these.  The findings reveal a very strong and robust relation between supply constraints and cap rates, as well as evidence of capital flowing from larger markets to smaller markets in recent years.  There is also weak but generally supportive evidence of influences from expected growth rates, liquidity, and other risk factors.

 

Retail Leasing in a Web Enabled World

Journal of Real Estate Portfolio Management (1999)

Norm Miller

As retail marketing through the Internet expands, traditional retail showrooms will take on new roles in the collection of data for use in direct marketing efforts.  How will successful property managers take advantage of total connectivity to assist tenants with the new modes of marketing? In addition, how will leasing agents and owners value physical space when many sales are redirected through other modes of marketing and distribution?  These questions are addressed in this article with some speculation on how real estate owners will measure and capture the true value of physical retail space.


Integrating Real Estate Market Conditions into Home Price Forecasting Systems

Journal of Housing Research (2012)

Norm Miller and Michael Sklarz

Market condition indicators are reviewed here as candidates for improved short-term home price forecasting.  Medium- to longer-term housing price primary drivers are quite well known, such as employment, income, supply constraints, and interest rates.  Shorter-term forecasts with improved accuracy on turning points present a greater challenge and require the use of market condition indicators.  Here we demonstrate the power of a variety of market-based variables that might be considered in any future research on short-term home price forecasting.  Such research may help us better understand potential housing bubbles and turning points in market prices.  As data continues to improve, we can perform such analysis across much of the United State on a near-real time basis in smaller and smaller sub-markets.

 

Commercial Office Markets Viewed by Price Segments over the Past 5 Years

2011

Norm Miller and Vivek Sah

By using the variance of price range segments we are able to see price dispersion leading turning points in the market. We also observe the top and bottom price ranges as the most affected by capital market trends and distress sales.

 

A Cross Sectional Analysis of Cap Rates by MSA

The Journal of Real Estate Research (2008)

Doina Chichernea, Norm Miller, Jeff Fisher, Michael Sklarz, and Bob White

There are a number of global factors driving capital markets and required rates of return that help to explain observed capitalization rates or ‘‘cap rates’’ over time, but little is known about the factors driving the geographical cross-sectional variation of these cap rates. This paper uses data from Real Capital Analytics for multifamily properties to explore several models that combine the expected influences from housing demand growth, supply constraints, liquidity risk and the interaction of these. The findings reveal a very strong and robust relation between supply constraints and cap rates, as well as evidence of capital flowing from larger markets to smaller markets in recent years. There is also weak but generally supportive evidence of influences from expected growth rates, liquidity, and other risk factors.

 

The Academic Roots and Evolution of Real Estate Appraisal

The Appraisal Journal (2003)

Norm Miller and Sergey Markosyan

Real estate appraisal as a profession and real estate as a separate field of study in the United States are approximately one hundred years old. By reviewing the way the appraisal field has changed, we see that theory, methods, and practices continue to evolve. To survive over the long run requires constant learning and adaptation to changing sources of demand, new technology, and a shifting landscape of competition. In this article, we acknowledge some of the thought leaders in valuation, essentially those from the U.S. who built the current practice of appraisal, and those who will follow in their footsteps.

 

Pricing Strategies and Residential Property Selling Prices

The Journal of Real Estate Research (1987)

Norm Miller and Michael Sklarz

Research on many consumer goods has indicated that pricing strategies may influence perceptions of quality. Whether such perceptions exist for large assets like real estate, which may therefore allow strategies to influence selling prices is the subject of this study. Large high-rise centrally-located condominium data is used to test whether asking prices are an indicator of value to buyers.


Are Green REITs Valued More?

Vivek Sah, Norm Miller, and Biplap Ghosh

The growing popularity of corporate social responsibility amongst firms has led to an increase in sustainable initiatives across all sectors. While there has been evidence of benefits to owners of green buildings, the impact at the firm level for such investments is not commonly known. The objective of this study is to provide evidence on the question of financial benefits from strategic initiatives aimed at increasing ownership of greener buildings. We use real estate investment trusts (REITs) as investors/owners of properties to test if management initiatives result in higher firm value. Using a proxy for green initiatives by REITs, we find evidence of positive impact on firm value as measured by Tobin’s q. Further, our results show that green REITs have a higher return on assets than their lessgreen peers. As an additional analysis, we find evidence of superior stock performance by green REITs over their non-green peers using Jensen’s alpha as a measure

 

Explaining LEED Concentration: Effects of Public Policy and Political Party

Journal of Sustainable Real Estate (2011)

Eugene Choi and Norm Miller

This study investigates the factors that influence the spatial concentration of Leadership in Energy and Environmental Design (LEED) certified buildings in the United States. We examine the effects of green building standards at the state level and compare these to the effects of financial incentives supported by the Energy Policy Act of 2005 on the concentration of LEED certified buildings. We find that political party has a significant effect on LEED concentration as well as economic growth rates. Federal level economic incentives seem to dominate state level requirements for more sustainable buildings that encourage new LEED certification efforts.

 

The Economics of Green Retrofits

Journal of Sustainable Real Estate (2012)

Nils Kok, Norm Miller, and Peter Morris

This is the first study focused on the economics of green renovations. Our findings are focused on Leadership in Energy and Environmental Design (LEED) buildings certified under the Existing Building: Operations and Maintenance (EBOM) certification scheme during the 2005–2010 period. We compare rents and occupancy rates, and investigate the types of improvements undertaken, as well as the amount of investments required. We survey building owners on the typical improvements and their attitudes towards the benefits and costs of upgrades. The findings indicate that investments in ‘‘green’’ retrofits are incorporated by the market, which is consistent with past studies that mostly focused on new construction. The findings indicate that, on average, investments in the sustainability of commercial buildings are economically viable.

 

The Operations Management of Green Buildings in the United States

Journal of Sustainable Real Estate (2010)

Norm Miller, Dave Pogue, Jeryldine Saville, and Charles Tu

This study examines the performance of green buildings from the operation and management perspective.  Specifically, we look at the utility expenses, cleaning practices, use of energy-saving devices, and other building operation procedures of a national sample of office properties managed by CB Richard Ellis.  The findings indicate that green buildings in the same are more energy-efficient than their non-green counterparts.  Surprisingly, the average total opertain expenses of the green building group is higher than the non-green building group, albeit insignigicantly.  Additionally, a building’s operating performance is more highly correlated with its ENERGY STAR score, and not the ENERGRY STAR label.

 

Green Buildings and Productivity

Journal of Sustainable Real Estate (2009)

Norm Miller, Dave Pogue, Quiana Gough, and Susan Davis

Healthier space need not be new space.  In fact, some new buildings are extremely unhealthy as chemicals leach out into the air from glues, carpets, concrete, and paint.  There is not reason this must be the case.  The cost to provide healthier environments is modest compared to the benefits.  Healthier buildings reduce sick time and increase productivity, making it easier to recruit and retain employees.  The results provided here are based on a survey of over 500 tenants who have moved into either LEED or ENERGY STAR-labeled buildings managed by CB Richard Ellis (CBRE).  It is part of a much larger study that includes details on operating expenses, leasing, and management available from the authors or www.josre.org.

 

Does Green Pay Off?

Journal of Real Estate Portfolio Management (2008)

Norm Miller, Jay Spivey, and Andrew Florance

This study provides some comparison data on Energy Star and Leadership in Energy and Environmental Design (LEED)-certified buildings versus non-Energy Star or non-LEED-certified office property in the United States using the CoStar database.  These results are promising for the benefits of investment in sustainable real estate, energy savings, and for the green movement now sweeping our society.  The payoff from wise green investment is easy to justify even if it is based on purely profit motivations.


Is there Seasonality in Home Prices – Evidence from CBSAs

Journal of Housing Research (2013)

Norm Miller, Vivek Sah, Michael Sklarz, and Stefan Pampulov

This study detects seasonality in home prices at the Core Base Statistical Area (CBSA) level.  Using a unique database of home sales from 138 CBSAs from February 2000 to April 2011, we explore if monthly home prices vary systemically and significantly.  Using a hedonic pricing model to account for housing characteristics and the standard HP filter system to extract the trend and the cyclical/seasonality component for the prices, the findings indicate significant price variations during the year for most months and most markets.  At the aggregate level, the monthly price changes vary from an average of -2.78% on the downside to 1.93% on the upside.  Aside from weather-induced seasonality and geographic region, we find some difference in patterns based on whether or not the CBSA is a tourist destination.

 

A Look at Another Stage of the Distressed Inventory: The Number of Properties with Negative Equity

2012

James Follian, Norm Miller, and Michael Sklarz

 

Integrating Real Estate Market Conditions into Home Price Forecasting Systems

Journal of Housing Research (2012)

Norm Miller and Michael Sklarz

Market condition indicators are reviewed here as candidates for improved short-term home price forecasting.  Medium- to longer-term housing price primary drivers are quite well known, such as employment, income, supply constraints, and interest rates.  Shorter-term forecasts with improved accuracy on turning points present a greater challenge and require the use of market condition indicators.  Here we demonstrate the power of a variety of market-based variables that might be considered in any future research on short-term home price forecasting.  Such research may help us better understand potential housing bubbles and turning points in market prices.  As data continues to improve, we can perform such analysis across much of the United State on a near-real time basis in smaller and smaller sub-markets.

 

The Impact of Distressed Sales on Frequently Used Housing Price Indexes

2009

Norm Miller and Michael Sklarz

 

Irrational Despair in the Housing Market

2008

Norm Miller and Michael Sklarz

 

Time Varying Trading Volume and the Economic Impact of the Housing Market

2007

Norm Miller, Liang Peng, and Mike Sklarz

This paper empirically analyzes if trading volume in the housing market, particularly existing single family home sales, helps explain economic growth.  Using a large panel data set that covers all 379 MSAs in the U.S. from 1983:1 to 2005:4, we find strong evidence that changes in home sales are significantly and positively correlated with the growth of Gross Metropolitan Product, with house prices, some local variables, as well as fixed effects and unobserved common factors controlled.  Moreover, we find that the explanatory power of home sales seems to mainly come from decrease in home sales in “cold” housing markets.  In a panel VAR setting, we find no evidence for home sales to be a leading indicator of GMP growth: GMP growth Granger causes home sales but home sales do not Granger cause GMP growth.

 

Idiosyncratic Volatility and the Housing Market

Journal of Housing Research  (2006)

Norm Miller and Gurupdesh Pandher

Housing investment is largely undiversified and differs from financial assets (e.g. stocks) in that it serves the dual purpose of investment and consumption. Transaction costs and liquidity risk are also much higher for housing assets. These important differences among financial and housing assets suggest that idiosyncratic volatility may play an important role in explaining investment returns in the U.S. housing market. We evaluate this hypothesis using disaggregate housing data based on the median-priced house sale in 7,234 zip codes comprising the U.S. metropolitan housing market. The analysis also allows us to determine the extent to which systematic and non-systematic risks influence investment returns in the U.S. housing market. Idiosyncratic volatility is estimated as the standard deviation of residuals from a two-factor regression of housing returns. We find that idiosyncratic volatility plays a strong positive role in housing returns and the relation is robust to the price level and socioeconomic variation among housing submarkets. Our results suggest that idiosyncratic volatility acts as an important reduced-form factor for local supply-demand conditions that operate autonomously of systematic economy-wide drivers.

 

The Impact of Interest Rate and Employment on Nominal Housing Prices

International Real Estate Review (2005)

Norm Miller, Michael Sklarz, and Thomas Thibodeau

This research examines how well nominal income, nominal interest rates and employment explain temporal variation in nominal metropolitan area house prices. Rather than use a traditional model of real house prices, we explain nominal house prices with a measure of “intrinsic” house value that combines local economic factors with an affordable price based upon what the local median income household could afford to pay at prevailing interest rates. The affordable price variable captures local household income trends and current interest rates. We then relate temporal variation in observed house prices to “intrinsic” value and estimate the parameters of separate autoregressive house price models for 316 cities. Like Capozza, Hendershott and Mack (2004), and Abraham and Hendershott (1996) before them, we observe that the coastal markets exhibit much greater appreciation/ depreciation rates and much more volatility than cities in the central portions of the country. Here we focus primarily on the impact of interest rates on nominal prices in various MSAs, a factor that many housing analyst have pointed to when debating the existence of housing bubbles. Some markets are much more or less responsive to interest rates than others. Supply constraints may explain some of this increased responsiveness.

 

Exploring Metropolitan Housing Price Volatility

2004

Norm Miller and Liang Peng

This paper uses MSA level data and a panel VAR model to analyze the dynamic determination and impact of the volatility of single-family home value appreciation. We find that the volatility can be magnified by an exogenous increase in the home appreciation rate, responds to changes in the population growth rate, and is serially correlated. Moreover, an exogenous increase in the volatility increases the home appreciation rate, reduces personal income growth rate and affects population growth rate. Our analysis also provides strong evidence of heterogeneity of the MSA housing markets.

 

U.S. Residential Brokerage Trends

2001

Norm Miller, Natalya Delcoure

There are many sweeping changes in the way business is conducted in all industries as a result of the Internet. The real estate industry is no exception. According to the 200 National Association of Realtors Profile of Home buyers and Sellers, in 1999, 37 Percent of home-buyers used the internet as a key source of information in their home purchase process, a 19 percent increase from 1998. It appears that in 1999 the U.S. real estate industry has become more web-based despite the fact that four out of five customers used real estate agents in their home purchase process. If this trend continues, and more consumers use the internet as the primary source in their real estate information search and purchase, real estate professionals may face a decrease in commission fees and reduced demand for their services.

 

Optimal Price and Selling Effort from the Perspectives of the Broker and Seller

AREUEA Journal, Vol. 19, No. 1, 1991

David Geltner, Brian D. Kluger and Norman G. Miller

This paper uses numerical solutions of a dynamic optimization model to examine the principal-agent relationship between the seller and broker in residential real estate markets. Potential conflict of interest is quantified in two dimensions, the level of selling effort the broker puts forth, and the reservation price for the property. The dynamic optimization model reveals that the use of a finite duration listing contract will induce the broker to increase his or her effort level compared to an unlimited duration contract, and that the broker’s optimal effort will increase over time, becoming greater as the listing contract expiration time draws nearer (“rational procrastination”). The numerical analysis indicates that with plausible parameter values, conflict of interest problems regarding broker effort level are minor or nonexistent near the end of the listing contract, but potentially important near the beginning of the contract. In contrast, the conflict of interest regarding reservation price is more sever near the end of the listing contract and is exacerbated by the use of finite duration contracts, the more so the shorter the contract.

 

Measuring Residential Real Estate Liquidity

American Real Estate and Urban Economics Association Journal (1990)

Brian Kluger and Norm Miller

There are many factors, other than price alone, that may affect the liquidity of real estate.  This study develops a liquidity measure based on the Cox proportional hazard technique, a statistical model widely used in the epidemiological and social sciences.  The odds ratio, along with an estimate of market value for a home, are used to construct a liquidity measure.  This measure can extract from the data a rich statistical profile of the variables that affect liquidity.

 

Japanese Purchases, Exchange Rates and Speculation in Residential Real Estate Markets

The Journal of Real Estate Research (1988)

Several luxury single-family home markets in Hawaii have experienced significant price movements in 1987 and 1988, along with a tremendous influx of Japanese buyers.  Most noteworthy is the Waialae-Kahala neighborhood in Honolulu, where average price increases of over 60% in the past two years have occurred.  This surge in prices has stimulated a great deal of speculative interest.  The purpose of this article is to examine the effect of exchange rates (yen/dollar) and Japanese buyers on selected residential market prices and turnover.  Using the most exhaustive and complete data set available in Hawaii covering 1986 through early 1988, hedonic pricing models as well as descriptive statistics are used to examine the effects of strong foreign interest in local housing sub-markets.

 

A Note on Leading Indicators of Housing Market Price Trends

The Journal of Real Estate Research (1986)

Norm Miller and Michael Sklarz

Most indicators of changing housing demand and supply provide signals for longer term trends. Many market participants such as mortgage lenders, speculators, real estate brokers, developers, and appraisers, would benefit if short term price trends could be better monitored and predicted. This research builds upon several simple and straightforward statistical indicators of housing market price movements to analyze either local, regional or national trends. It utilizes existing housing resale data as well as new housing market data.

 

Do Antitrust laws apply to the real estate brokerage industry

American Business Law Journal (1979)

Norm Miller and Peter Shedd

Since the beginning of organized real estate brokerage practice, real estate brokers have enjoyed fairly uniform commission rates.  During the past decade, they have also relied heavily on their multiple listing services as a central clearinghouse and source of market information.  The multiple listing service and uniform commission rates have stimulated extensive antitrust litigation.  Nevertheless, legal pressures against antitrust violations have had a relatively minor impact on the real estate brokerage industry.  This article examines (1) the bases for the legal issues that have been raised and (2) the economic environment as an explanation why the brokerage commission schedule has been unchanged by legal action.  Two possible antitrust violations within the brokerage industry will be discussed.  First, can market information gained from the multiple listing service be reserved only for the members of the local realty board who have joined the multiple listing service?  Second, does the existence of uniform commission rates necessarily indicate illegal price fixing?

 

Time on the Market and Selling Price

1978

Norman G. Miller

This study is primarily an analysis of tradeoff between selling time and price, both on a nominal selling price with expected selling time. The time a property remains on the market is important, not only because of its reflection on price, but also because of its possible reflection on the issue of sub-market equilibrium – and assumption in most urban price studies. The empirical results of this study shed light on how similar studies can easily misinterpret the implications of time on the market on price and how further work may be improved.