Interests and Behaviours of Real Estate Market Actors in Commercial Property Valuation

139 Pages·2020·1.39 MB·English

by  Alina Nichiforeanu

Interests and Behaviours of
Real Estate Market Actors in
Commercial Property Valuation
T his book is a theory-led conceptual account of the Principal-Agent problem and
related concepts of Behavioral Real Estate economics, a decade after the real estate
crisis of 2008. Data from 52 qualitative interviews undertaken with appraisers,
real estate brokers, and property owners is used to argue that the reality is more
nuanced and influenced by the interests of different real estate market actors. The
book provides a sketch of the relationship dynamics between real estate investors
and service providers in the markets of Austria and Central and Eastern Europe.
W hile investors manage real estate portfolios and have to deal with particular
legal systems, regulations, and norms, they often appoint service providers who
have a comprehensive understanding of the local context. This work aims to
highlight that this relationship between the real estate market actors creates an
information asymmetry that may constitute the basis of conflicts of interest as
well as Principal-Agent problems. Furthermore, the work underlines that the
services provided by appraisers and real estate brokers to investors may strongly
influence the profit the investor can generate from a transaction. It could be
therefore inferred that the investor inclines towards a certain type of result from a
service provider over the others. The present research has revealed that investors
are guided by certain interests and undertake to steer the service providers in
a favored direction. This book is essential reading for anyone interested in the
nuances of Behavioral Economics and real estate.
D r Alina Nichiforeanu is Senior Manager in the Transaction Real Estate
division of Ernst & Young Austria. She holds a Doctorate in commercial real
estate valuation from the Vienna University of Economics and Business. She
also attended further programs in real estate management at Harvard Business
School. She is a member of the Royal Institute of Chartered Surveyors. Dr Alina
Nichiforeanu has over 16 years of experience in the Austrian and Central and
Eastern European (CEE) real estate markets, assessing local business environments,
acting as a bridge between companies’ headquarters and subsidiaries, and leading
intercultural teams. She has a proven track record of successfully concluded
transactions, optimizing and repositioning distressed commercial real estate assets,
as well as construction and leasing projects, with a robust global network. Her
areas of expertise are asset and portfolio management, transactions and M&A’s,
property management, as well as corporate real estate, gathered at multinational
companies in Austria and the CEE region.

Interests and Behaviours of
Real Estate Market Actors in
Commercial Property Valuation
Alina Nichiforeanu
F irst published 2021
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
a nd by Routledge
5 2 Vanderbilt Avenue, New York, NY 10017
R outledge is an imprint of the Taylor & Francis Group, an informa business
© 2021 Alina Nichiforeanu
The right of Alina Nichiforeanu to be identified as author of this work
has been asserted by her in accordance with sections 77 and 78 of the
Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or reproduced
or utilised in any form or by any electronic, mechanical, or other means,
now known or hereafter invented, including photocopying and recording,
or in any information storage or retrieval system, without permission in
writing from the publishers.
Trademark notice : Product or corporate names may be trademarks or
registered trademarks, and are used only for identification and explanation
without intent to infringe.
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging-in-Publication Data
Names: Nichiforeanu, Alina, author.
Title: Interests and behaviours of real estate market actors in commercial
property valuation / Alina Nichiforeanu.
Description: Abingdon, Oxon ; New York, NY : Routledge, 2020. |
Includes bibliographical references and index.
Identifiers: LCCN 2020008589 (print) | LCCN 2020008590 (ebook) |
ISBN 9780367482473 (hardback) | ISBN 9781003038801 (ebook)
Subjects: LCSH: Real estate investment—Psychological aspects. |
Commercial real estate—Valuation.
Classification: LCC HD1382.5 .N527 2020 (print) | LCC HD1382.5
(ebook) | DDC 333.33/872—dc23
LC record available at https://lccn.loc.gov/2020008589
LC ebook record available at https://lccn.loc.gov/2020008590
ISBN: 978-0-367-48247-3 (hbk)
ISBN: 978-1-003-03880-1 (ebk)
Typeset in Goudy
by Apex CoVantage, LLC
Contents
Acknowledgments ix
Abstract x
Acronyms and terminology xii
List of figures xiv
List of annexes xv
1 Introduction 1
1.1. Relevance of the topic 1
1.2. Design of the interviews and theories behind 3
2 Information asymmetries, Behavioral Real Estate, ethics,
and valuation 7
2.1. Information asymmetries 7
2.1.1. Market actors in commercial real estate 7
2.1.2. Principal-Agent theory 8
2.2. Behavioral Real Estate 11
2.3. Current ethics standards and codes of conduct 14
2.4. Commercial property valuation 16
2.4.1. Short note on commercial real estate 16
2.4.2. Real estate valuation and appraisal methods 18
2.4.3. Normative literature and standards for
appraisers 20
3 Conducting the study: 52 interviews with appraisers,
brokers, and owners 27
3.1. Interview setup 27
3.2. Data collection method and the issue of ethics 29
3.3. Data analysis 31
vi Contents
4 Findings for Behavioral Real Estate 34
4.1. Overview 34
4 .2. The interests of market actors related to real estate
organizations 35
4.2.1. Introduction 35
4 .2.2. Advisors’ opinions related to real estate
organizations 35
4 .2.2.1. Positive opinions of advisors 35
4 .2.2.2. Advisors’ motives not to have a
membership 37
4 .2.3. Clients’ opinions related to real estate
organizations 38
4 .2.3.1. Positive opinions of clients 38
4 .2.3.2. Clients’ motives not to have a
membership 40
4 .2.4. Mandates received through real estate
organizations 42
4.2.4.1. Advisors’ experience 42
4.2.4.2. Clients’ experience 42
4 .3. Preliminary results related to real estate organizations 44
4 .3.1. Results of the qualitative analysis 44
4 .3.2. Results of the quantitative analysis 45
4 .4. Behavioral Real Estate 47
4.4.1. Introduction 47
4.4.2. Valuation rationale 48
4 .4.2.1. B rokers’ opinions and behavior related to
valuation 48
4 .4.2.2. A ppraisers’ opinions and behavior related to
valuation 52
4 .4.2.2.1. Appraisers see flexibility in the
valuation reports 52
4 .4.2.2.2. Parameters that influence the
valuation outcome 54
4 .4.2.2.3. Appraisers see no flexibility in
valuation reports 56
4 .4.2.2.4. Pressure put on appraisers 57
4.4.2.3. Clients’ opinions and behavior related to
valuation 58
4.4.2.3.1. Statements from the clients’
perspectives 58
Contents vii
4 .4.2.3.2. Clients see flexibility in
valuation reports 60
4.4.2.3.3. Parameters that influence the
valuation outcome 61
4.4.2.3.4. Clients see no flexibility in
valuation reports 62
4.4.2.3.5. Contact between valuation
reports 63
4 .4.2.4. Other market actors who play a role in the
valuation process 65
4 .4.2.5. Preliminary conclusions related to the
valuation rationale 67
4 .4.3. Anchors in valuation 68
4 .4.4. The relationship between clients and advisors 70
4.4.4.1. Distinctions advisors make between
clients 70
4.4.4.2. Long-term partnership between clients and
appraisers 76
4.4.4.3. Client’s feedback in commercial property
valuation 80
4.4.4.4. Relationships between market actors:
summary 83
4.4.5. The generic value drivers of the real estate market
actors 85
4.4.5.1. Investors’ value drivers 85
4.4.5.2. Brokers’ value drivers 88
4.4.5.3. Appraisers’ value drivers 91
4.4.5.4. Summary 93
5 Findings for Principal-Agent theory and moral hazard
in real estate 96
5.1. Introduction 96
5 .2. Before a binding or a non-binding agreement 96
5.2.1. Investors 96
5.2.2. Appraisers 101
5.2.3. Real estate brokers 102
5.3. After concluding a binding or a non-binding agreement 104
5.3.1. Investors 104
5.3.2. Appraisers 104
5.3.3. Real estate brokers 105
5.4. Conclusions 106
viii Contents
6 Conclusions 109
6 .1. Results of the interviews and implications 109
6.1.1. Behavioral Real Estate 109
6.1.2. Principal-Agent problem and moral hazard in real
estate 112
6.2. Conclusions 114
Annexes 116
Index 118
Acknowledgments
I wish to thank all my interview partners, who took their time and shared from
their experiences as experts, decision-makers, and advisors in the fields of trans-
actions and valuation of commercial real estate. Needless to mention that they
are absolved of any responsibility for the conclusions I have reached.
I am indebted to my entire real estate network for providing a confidential
and trustworthy basis and for helping me contribute to the academic literature
on commercial real estate, in the fields of Behavioral Real Estate economics and
Principal-Agent theory related to real estate valuation for transaction purposes.