AG HBU Part 3 The Six-Step Process and Use of Market Analysis

Question 1

Identify which step of the six-step process each of the following represents:

Project/forecast demand
Calculate residual demand
Analyze property productivity
Project/forecast subject capture
Measure and project/forecast competitive supply
Delineate the market area/competitive market area

Answer 1

Project/forecast demand: 3
Calculate residual demand: 5
Analyze property productivity: 1
Project/forecast subject capture: 6
Measure and project/forecast competitive supply: 4
Delineate the market area/competitive market area: 2

(Any Ducks Prefer More Crunchy Peas)

Course handbook guidance: Part 3, item I

Question 2

Which of the following are generally addressed in the property productivity analysis?
A. current and historical production of sales, services, or goods
B. physical, legal, and location characteristics of the property
C. property, its market, and the competitors
D. quality, quantity, and durability of the income the property produces

Answer 2

B. physical, legal, and location characteristics of the property

Course handbook guidance: Part 3, item II

Question 3

Which statement describes best each step:
Step 1. Analyze property productivity
Step 2. Delineate the market area
Step 3. Project/forecast demand
Step 4. Measure and project/forecast supply
Step 5. Calculate residual demand
Step 6. Project/forecast subject capture

A: Identifying current competitors, predicting the change in amount of competition, and analyzing the characteristics of the current and future competition
B: Identifying the geographic region from which demand for the subject is drawn and in which the subject’s competitors are located
C: Analyzing the physical, legal, and location characteristics of the subject property, to determine its competitive strength
D: Estimating the proportion of market demand the subject can capture, to predict the subject’s absorption, stabilized occupancy, and/or other factors
E: Determining the quantity of a real estate product that is desired and affordable to the space users in the market, based on the characteristics of the space users
F: Comparing market supply and market demand, now and in the future, to determine current market conditions and predict future market conditions

Answer 3

Step 1: C
Step 2: B
Step 3: E
Step 4: A
Step 5: F
Step 6: D

Question 4

You are appraising a multitenant office building in a community where employment has been stagnant for the past five years. The current occupancy rate for similar office space in the community is about 85%. The
subject property is currently 85% occupied and has been so over the past five years. No new construction of competitive office space has taken place over the past five years and none is planned. Future job growth is expected to be stagnant.
1. What is the stabilized occupancy for the subject property?
2. Would your answer be the same if the community’s occupancy rate for similar space were 95% (all other factors remaining the same)?
3. What factors could put the property at such a competitive disadvantage as to cause
long-term, below-market occupancy?
4. What if the subject property’s below-market occupancy is concluded to be a temporary condition and community employment growth is expected to resume immediately?
Could you conclude that the subject property’s stabilized occupancy under such conditions would be 95%

Answer 4

1. Under these conditions, it seems clear that stabilized occupancy for the subject property is 85%.
2. Possibly; the subject property may be at a competitive disadvantage that is causing the reduced occupancy. Or it may be underperforming temporarily and, thus, its stabilized occupancy may be greater than 85%.
3. Locational factors such as
    External obsolescence
    Change in transportation linkages
   Physical factors such as
    Functional obsolescence
    Inadequate elevator service
    Unusual design/appearance
4. Yes. The conclusion would also require the timing of stabilized occupancy for the subject property, and the valuation would have to account for the time difference between current below-market occupancy (85%) and stabilized occupancy (95%).

Question 5

The subject is a Class B office building that is an average competitor in all respects. A two-year lease was recently signed on its only vacant space, so its current occupancy is 100%. The market average occupancy is 85% because of some overbuilding. Equilibrium/normal vacancy is 90%. What is the subject’s stabilized occupancy?
A. 85%
B. 90%
C. 95%
D. 100%

Answer 5

A. 85%

(If the subject is an average competitor, then its stabilized occupancy is equal to its pro rata share.)

Course handbook guidance: Part 3, item VII.B