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ADMS3810 - Midterm Study Notes

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Administrative Studies
ADMS 3810
John Glen

The Analytical Framework INTRODUCTION TO REAL ESTATE PART 1: REAL ESTATE INDUSTRY OVERVIEW A. The Real Estate Marketplace Consists of a large number of separate markets differentiated by geographic location and type of real estate – it can be said that an infinite number of markets exist Analysis of the real estate: estimates the net operating income, deducts claims by lenders, government and others that have priority over the equity claim, estimates the residual cash flow that belongs to the equity owner B. Key Definitions Property: refers to things and objects capable of ownership. That can be used, controlled, or disposed of by an owner Real Estate: real property consists of physical land plus structures and other improvements that are permanently attached. Refers to the legal rights, interests and benefits inherent in the ownership of real estate Permanent attachment: personal property is moveable whereas real estate is not Bundle of Rights: Right of Possession P Right of Control C Right of Enjoyment E Right of Disposition D Right of Exclusion E *Right of destroying or injuring property D C. Features of Real Estate STUDY THIS PHYSICAL FEATURES Immobility Unique Location (Heterogeneity) *externalities Indestructibility ECONOMIC FEATURES Scarcity Long Economic Life *buildings rarely fall down but usually torn down Modification Situs *interaction with surrounding land OTHER FEATURES High Unit Value Government Intervention *taxation, incentives, etc Perceptions *Investment > use because of tax policies and inflation. Changes expectations and psychic income (non-pec uniary) D. Real Estate Supply and Demand DEMAND Real Estate as a Consumer Good – sold directly to occupant-user Real Estate as a Capital Good – income properties SUPPLY Time – long construction periods Place – new supply can only be created by construction or substitution at the particular location Substitution – conversion, i.e. rental apartments to condominiums PUBLIC POLICY RESTRAINTS Government regulation can limit new supply i.e. environmental protection slows or prevents growth E. Marketplace Individuals and Institutions Participants STUDY THE USERS – Owner-occupants and tenants that include individuals, private/public institutions, gov’t units THE SUPPLIERS – Developers, surveyors, architects, and engineers. General contractors and subcontractors. INVESTORS – Individuals, corporations, institutional lenders. Capital. FEDERAL, PROVINCIAL, LOCAL GOVERNMENT – Courts and administrative tribunals, infrastructure, police powers, regulatory programs Associated Professionals i.e. attorneys, real estate appraisers, land planners, lenders, agents and brokers, etc. PART 2: REGIONAL AND URBAN ECONOMICS F. Regional and Urban Economics How do cities grow? Concentric Circle Theory by Ernest Burgess. Clear CBD (central business district) typically containing large office buildings, well-established retail stores, gov’t buildings, etc. Most valuable land in the city. 2 circular area called zone of transition with low-income dwelling units, nightclubs, manufacturing. 3 concentric circle called zone for worker homes for citizens working in the manufacturing in 2 circle as well as CBD. 4 concentric zone included middle-class and some high-income units with single- and multifamily homes and commercial/entertainment establishments. 5 circle commuter zone dwelling units for workers willing to commute for less urbanized living Continuous migration. Wealthy move to new homes, less well-off move into their former neighbourhood Axial Theory CBD. Same as Concentric Circle Theory, same zones. Difference is it’s not distance from CBD, but commuting time. Clusters around access to transportation. Sector Theory Explains residential clusters around CBD. Most expensive homes on the outside, less wealthy living inside the city as they moved into the older homes. Multiple Nuclei Theory Mini-CBD’s developing in income clusters. Patterns of Real Estate Values - Real estate values tend to be higher near the CBD - Access to transportation facilities tends to increase real estate values - Major road intersections tend to have higher real estate values Building cycles include/affected by: economic cycles, demographics, immigration, trade patterns, commuting preferences, war. Neighbourhood Life Cycle – growth, maturity, decline, uncertainty, renewal/gentrification G. Commercial Real Estate Structure SHOPPING CENTRES, RIBBONS, SPECIALIZED AREAS Agglomeration – the phenomenon of similar businesses close by. Car dealerships, etc. Office Building Class Stratification Class A Office: modern, high quality, prestigious, premium rents Class B Office: acceptable, mid-quality, average rents Class C Office: out-dated, below average rents Types of Industrial Property >Warehouse >Bulk Space >Flex Space >Service Space >Tech/R&D Types of Hotels >Luxury Convention >Mid-rate Convention >Standard >Economy Budget >Beverage H. Location Quotient Analysis Less than 1.00 – target area has LESS of an activity (or demographic profile) than the activity in the benchmark area Equal to 1.00 – target area has an EQUAL level of an activity than the activity in the benchmark area Greater than 1.00 – target area has MORE of an activity than the activity in the benchmark area The Legal Environment A. TWO LEGAL SYSTEMS English Common Law Based on mixture of statutory law and court precedents. UK, USA, Canada. Napoleonic Code Based mostly on statutory law – law is codified. Europe, South and Central America. B. TYPES OF PROPERTY Real vs personal property. When personal property like carpet is permanently attached to a building, it becomes a fixture and part of the real property. C. PHYSICAL INTERESTS study 3 kinds Designated portion of the earth’s surface (surface rights) includes trees/water Above-surface space or air rights air rights can be sold/leased/donated  so that a building can be built taller than it originally is allowed Avignation Easements – restrictions for buildings in flight paths/airports Subsurface space rights for water/minerals. In Canada, province owns it. Prior to 1913, Ontario land grants include mineral rights. Texas is example where land grants include mineral rights. Water rights… *Riparian rights – rights of an owner whose land borders a river, stream or lake *Prior appropriation – right to use natural water is controlled by government not landowner *Littoral rights – exception of lands that border large lakes and oceans. Ownership permits use of waters without restriction, title only extends to mean high-water mark, in Ontario, sometimes low water mark. D. LEGAL INTERESTS **Bundle of rights. PCEDED. Possession, control, enjoyment, disposition, exclusion, destroying/injuring. CONSTRAINTS? Possession – mineral rights, family law, expropriation, easements Exclusion – fire warden, building inspector, occupational health and safety inspector, police, easements Disposition – spousal consent, registry act, land titles act Control – can’t pollute, planning act, no loud noise/odours, pay property tax Enjoyment – property tax, debts to workers, creditors can take land as payment Destroying/Injuring – can’t pollute, occupational health and safety GOVERNMENT POWERS Police power, taxation, eminent domain, escheat E. ESTATES IN LAND STUDY 3 KINDS Freehold estates Fee simple – when you own a house/condo, can give to anyone you want Defeasible Fees Fee Simple Determinable – to x, his heirs, so long as they use property for Y purpose Lasts forever, can be taken back at any time if broken Fee on Condition Subsequent – to x, his heirs, unless land used for Y purpose, then z may take it Lasts 21 years Life Estates – life tenant grants to remainderman but must maintain property until death Ordinary Life Estate – granting owner. Legal Life Estates
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