How accurate are commercial-real-estate appraisals? evidence from 25 years of NCREIF sales data

In this study, we provide new evidence on the performance measurement and reporting of commercial real estate returns. We do so by examining the accuracy of commercial-real-estate appraisals that occurred prior to the sale of properties from the NCREIF National Property Index (“NPI”) during 1984 – 2010, a period which spans two up-and-down cycles of the market. We find that, on average, appraisals are more than 12% above, or below, subsequent sales prices that take place two quarters following the appraisal. Even in a portfolio context, allowing for offsetting positive and negative differences, appraisals are off by an average of 4% – 5 % of value, even after adjusting for capital appreciation during those two quarters. We also provide new evidence regarding how, and by how much, appraised values lag behind sales prices. We find that appraisals appear to lag the true sales prices, falling significantly below in hot markets and remaining significantly above in cold markets. This new evidence provides guidance to investors, regulators and others about how to interpret real-estate indices like the NPI that are based upon appraised values, in both a rising and falling market. Finally, we find that this “appraisal error” is largely systematic; we can explain more than half of the variation in the signed percentage difference in sales price and appraised value. Hence, appraisal errors are not due solely to property-specific heterogeneity.appraisal; commercial real estate; commingled real estate fund; NCREIF; real estate

The role of commercial real estate investments in the banking crisis of 1985-92

This article examines the role of commercial real estate investments in the banking crisis of 1985-92, an unprecedented period during which more than 1,300 banks failed. Bank failures are fundamentally important because of the unique role played by financial institutions in the provision of business credit. We discover three striking features of banks failing during this period. First, commercial real estate was only a factor in the bank failures of 1988-92. Second, construction loans played a much larger role in bank failures than permanent loans, and the relationship is strongest with construction loans booked during 1983-1985. Third, other ex ante risk measures are systematically related to banking failure throughout the sample period. These results suggest that risk-seeking banks brought about their own demise and commercial real estate, especially construction lending, was one of the vehicles.bank; bank failure; commercial bank; commercial real estate; construction lending; real estate

A CAMEL rating's shelf life

How quickly do the CAMEL ratings regulators assign to banks during on-site examinations become "stale"? One measure of the information content of CAMEL ratings is their ability to discriminate between banks that will fail and those that will survive. To assess the accuracy of CAMEL ratings in predicting failure, Rebel Cole and Jeffery Gunther use as a benchmark an offsite monitoring system based on publicly available accounting data. Their findings suggest that, if a bank has not been examined for more than two quarters, off-site monitoring systems usually provide a more accurate indication of survivability than its CAMEL rating. The lower predictive accuracy for CAMEL ratings “older” than two quarters causes the overall accuracy of CAMEL ratings to fall substantially below that of off-site monitoring systems. The higher predictive accuracy of off-site systems derives from both their timeliness—an updated off-site rating is available for every bank in every quarter—and the accuracy of the financial data on which they are based. Cole and Gunther conclude that off-site monitoring systems should continue to play a prominent role in the supervisory process, as a complement to on-site examinations.bank; bank failure; CAMEL; CAMEL rating; commercial bank; offsite supervision

Who needs credit and who gets credit? Evidence from the Surveys of Small Business Finances

In this study, we use data from the Federal Reserve’s 1993, 1998 and 2003 Surveys of Small Business Finances to classify small businesses into four groups based upon their credit needs and to model the credit allocation process into a sequence of three steps. First, do firms need credit? We classify those that do not as “non-borrowers;” these firms have received scant attention in the literature even though they account for more than half of all small firms. Second, do firms need credit but fail to apply because they feared being turned down? We classify such firms as “discouraged borrowers.” Like non-borrowers, discouraged borrowers have received little attention in the literature and often are pooled with firms who applied for, but were denied, credit. Discouraged borrowers outnumber firms that applied for, but were denied, credit by more than two to one. Third, do firms apply for credit, but get turned down? We classify such firms as “denied borrowers.” Finally, we classify firms that applied for, and were extended, credit as “approved borrowers.” Our results reveal strong and significant differences among each of these four groups of firms. Non-borrowers look very much like approved borrowers, consistent with the Pecking-Order Theory of capital structure. Discouraged borrowers resemble denied borrowers in many respects, but are significantly different along a number of dimensions. This finding calls into question the results from previous studies that have pooled together these two groups of firms in analyzing credit allocation. Finally, we find strong evidence that denied borrowers differ from approved borrowers across numerous characteristics, as previously documented in the literature. Of particular note, minority owned-firms, and especially Black-owned firms, were denied credit at a far higher rate than firms with owners who were white.availability of credit; capital structure; discrimination; entrepreneurship; small business; SSBF

An ERTS-1 investigation for Lake Ontario and its basin

The author has identified the following significant results. Methods of manual, semi-automatic, and automatic (computer) data processing were evaluated, as were the requirements for spatial physiographic and limnological information. The coupling of specially processed ERTS data with simulation models of the watershed precipitation/runoff process provides potential for water resources management. Optimal and full use of the data requires a mix of data processing and analysis techniques, including single band editing, two band ratios, and multiband combinations. A combination of maximum likelihood ratio and near-IR/red band ratio processing was found to be particularly useful

Effect of organically and conventionally produced diets on jejunal gene expression in chickens

Using a nutrigenomics approach we studied the response of second-generation chickens at a transcriptional level to organically grown feed ingredients compared with conventionally grown feed ingredients. Both diets consisted of the same amounts of ingredients, the only difference was the production method. Gene expression was analysed in jejuni using whole genome chicken cDNA arrays. After analysis, forty-nine genes were found to be differentially regulated between chickens fed on the different diets, independent of their genetic background. Of these forty-nine genes, seven genes were involved in cholesterol biosynthesis. Genes involved in cholesterol biosynthesis were higher expressed in jejuni from organically fed birds. Other genes found to be regulated were involved in immunological processes, such as B-G protein (part of chicken major histocompatibility complex), chemokine ah221, and the immunoglobulin heavy chain. Using quantitative PCR the effect of genetic background on the differential expression of genes was studied. Differences in gene expression existed between animals fed different diets as well as between different chicken lines. This indicated that diet and genetic background influence the transcriptional response of the jejunum. This is the first time that significant differences in gene expression were shown between animals on diets with organically or conventionally produced ingredient