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Executive Summary: You Say You Want A Revolution The U.S. real estate capital markets and the industry itself have been profoundly affected by the proliferation of public companies. But, by the end of 1999, Real Estate Investment Trust (REIT) FFO multiples had been shrinking for more than two years in a row, and the REIT revolution had stalled. Before 1992, the real estate industry was entrepreneurial and financed predominantly by non-recourse debt, the major result of which has been the focus on cash flow rather than on income. The most significant consequence of the real estate industry's dependence on debt has been a boom-and-bust pattern. The industry has also been more dependent on project financing as opposed to corporate financing. The debate over the right financing strategy for REITS remains unsettled, as corporate finance ideas that are commonplace in other industries collide with traditional thinking among real estate practitioners. Getting the right number for depreciation has been an issue and the real estate industry, unlike any other, continues to use a measure of earnings not easily subject to audit. Two alternative scenarios for the future are suggested, representing the extremes of what might happen if public capital continues to increase in importance, or if its importance diminishes.
Executive Summary: International Transparency in Real Estate Markets Investment real estate has operated outside the mainstream of the global capital markets for many years. Changes now under way around the world will integrate property into the broader world of corporate finance. The demands of investors for higher levels of disclosure will transform the way that real estate is financed in both the public and private markets. These changes also impact how investors approach the role of real estate in an investment portfolio and how occupiers finance their real estate needs. Winners and losers will arise as market efficiency increases, but overall, investors and occupiers will benefit from these changes.
Executive Summary: Real Estate Ethics Students in business schools should be expected to acquire the sense of moral awareness to make ethics an instinctive input in business decisions. They must learn the difference between a rules-based approach to ethics and an approach emphasizing consequences. The global economy has triggered a need for professionals to practice a global ethic that should incorporate Western practices as well as acknowledge the core beliefs of other world cultures and religions. Students should be exposed to ethical dilemmas that will prepare them to deal with the problems they will encounter in their careers. It is important to learn that an ethical leader have the ability to discern issues where others may not; further, they must possess the self-confidence to seek out different points of view. Eventually, for such leaders, an ethical component of decision-making should become intuitive.
Executive Summary: Economies of Scale Efficiency grows, in production and in operations, as size increases. This incentive has led to recent record levels of mergers, acquisitions, and global consolidation in such diverse industries as railroads, oil and gas refining, cement, steel, and brewing. The consolidation of the banking industry after deregulation in the 1980s has had significant ramifications for the real estate industry. Real estate investment surged initially through debt provided by banks and savings and loans. But, since 100 percent loans have disappeared, and large amounts of equity are needed to own real estate, it is likely that the real estate industry will follow the example of other capital-intensive industries and enter a period of consolidation. Evidence based on capital costs for equity REITS from 1997 and 1998 indicates that the REIT industry continues to enjoy significant economies of scale, and it appears that capital costs are the primary factor determining REIT growth.
Executive Summary: Disney Town
Godfathers of Sprawl
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