the invisible asset class

The 2014 Urbanism Summit!

The Invisible Asset Class Initiative Reviewing the Literature and Supporting Research •  Influences on Residential Land Prices •  Performance of Commercial Mortgages •  CMBS Performance with Delinquency and Foreclosure •  Walkability Premium in Commercial Real Estate •  Sustainability Features and Mortgage Default Risk Presentation by Mark Troen, Senior Consultant, Brookwood Group LLC Adjunct Professor, NYU Schack Institute of Real Estate


Influences on Residential Land Prices

Micro-Neighborhood Externalities and Hedonic Housing Prices, Mingche M. Li & H. James Brown, Land Economics, 1980"


Performance of Commercial Mortgages Four-Quarter Rolling Return 1974:4-1990:4 (%)

ndustrial Apartment Office Retail Mixed-U e Hotel

M an 10.81 10.79 10.72 11.29 11.54 9.91

Horiz n Annualized Performance Period Ending 1990:4 (0/0)

(yr) Industrial Apartment Office Retail Mixed-U e Hote)

1 6.16 7.75 4.77 .47 4.30 6.02 3 7.77 8.17 7.04 9.44 10.96 6.03 5 7.62 8.56 7.46 9.76 13.63 7.27

10 12.56 12.41 12.14 13.15 13.75 11 .07 17 10.54 10.60 10.38 11. 12 11.40' 9.59c

a Series tart 1974:4. h ene . tart 1975: 1. c: S rie ' i 16 yr .

The Performance of Commercial Mortgages, Brian A. Ciochetti & Kerry D. Vandell, Real Estate Economics, 1999"


CMBS Data – Delinquencies

Mixed-Use Delinquencies and Foreclosures, "Alan Todd, Bank of America, 2013"

0%

2%

4%

6%

8%

10%

12%

Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13

Mixed Use 60+ DQ Universe 60+ DQ


CMBS Data – Foreclosure / REO

Mixed-Use Delinquencies and Foreclosures, "Alan Todd, Bank of America, 2013"

0%

2%

4%

6%

8%

10%

12%

Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13

Mixed Use FC/REO Universe FC/REO


Pre-Crisis Conduit & Fusion Data

Pre-Crisis Conduit & Fusion Data, "Harris Trifon – Deutsche Bank, 2013"

Property Type!Total Loans ($Billions)!

Liquid. Bal. ($Billions)!

Liquidation% w. Loss!

Amt. of Loss ($Billions)! Severity!

Losses !to date!

Lodging" $25.10 " $6.80 " 27%" $3.09 " 46%" 12.42%"Retail" $103.34 " $17.57 " 17%" $8.86 " 50%" 8.50%"Office" $93.90 " $19.72 " 21%" $7.52 " 38%" 7.98%"

Industrial" $18.98 " $3.80 " 20%" $1.44 " 38%" 7.60%"Other" $11.20 " $1.68 " 15%" $0.75 " 45%" 6.75%"

Multifamily" $85.44 " $15.38 " 18%" $5.68 " 37%" 6.66%"

Multi-Use" $9.71 " $1.46 " 15%" $0.58 " 40%" 6.00%"

Grand Total" $349.35 " $66.41 " 19%" $27.92 " 42%" 7.98%"


Walkability Premium in Commercial RE

The Walkability Premium in Commercial Real Estate Investments, Gary Pivo & Jeffrey D. Fisher, Real Estate Economics, 2011"


Loan Risks & Sustainability Features “The Effect of Transportation, Location, and Affordability Related Sustainability Features on Mortgage Default Prediction and Risk in Multifamily Rental Housing”, Journal of Sustainable Real Estate, 2013 •  Predicting mortgage default based upon sustainability variables Dr. Gary Pivo, Professor of Urban Planning and Professor of Renewable Natural Resources at the University of Arizona


Loan Risks & Sustainability Features •  Sustainability Variables - location dependent:

–  Walkability / Walk Score® –  Commuting time –  Auto dependence –  Adjacency to mass transit –  Exposure to pollution (freeway access) –  Proximity to open space –  Proximity to retail establishments

•  Affordability – non-location dependent


Loan Risks & Sustainability Features •  Control Variables

–  Loan characteristics –  Property characteristics –  Neighborhood characteristics –  Borrower characteristics –  Regional and national economy –  Collinearity


Sustainability and Default Risk Summary of Sustainability Effects on Default Risk in Multifamily Mortgages

Variable Definition Effect on Relative

Risk of Default AFFORDABLE Property meets FNMA definition for affordable housing 61.9% less WALKSCORE > 80 Property has a Walk Score greater than 80 60.3% less SUBWAY30 At least 30% of workers commute by subway or elevated 58.4% less RETAIL16 There are > 16 retail establishments in the block group 34.4% less PROTECTED1MILE Property is located with 1 mile of protected open space 32.5% less PCTWALK Per 5 unit increase in the percent who walk to work 15.0% less COMMUTE TIME Per 10 minute increase in the commute time to work 45.0% more FREEWAY1000FT Property is located within 1,000 feet of a freeway corridor 59.0% more WALKSCORE < 8 Property has a Walk Score less than 8 121.0% more


Conclusions •  Walkability has material consequences and financial

benefits for property investors •  Multi-family lenders can mitigate risk by gearing their

portfolios toward more sustainable properties •  Lenders can offer favorable financial terms to more

sustainable properties without increasing risk

the invisible asset class

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