The "Cap Rate," 1966-1984: A Test of the Impact of Income Tax Changes on Income Property

Nourse, Hugh O.

doi:10.2307/3146576

Cited by 28 publications

(13 citation statements)

References 6 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…8. Nourse (1987) has used the cap rate in testing the impact of income tax changes on income property. Nourse uses the Ellwood representation of the cap rate in which the cap rate represents a weighted average cost of capital with an adjustment for equity buildup and an adjustment for anticipated increases or decreases in value.…”

Section: Discussionmentioning

confidence: 99%

The predictability of returns on equity REITs and their co-movement with other assets

Liu

Mei

1992

J Real Estate Finan Econ

177

154

View full text Add to dashboard Cite

Recent evidence suggests that the variation in the expected excess returns is predictable and arises from changes in business conditions. Using a multifactor latent variable model with time-varying risk premiums, we decompose excess returns into expected and unexpected excess returns to examine what determines movements in expected excess returns for equity REITs are more predictable than all other assets examined, due in part to cap rates which contain useful information about the general risk condition in the economy. We also find that the conditional risk premiums (expected excess returns) on EREITs move very closely with those of small cap stocks and much less with those of bonds.Recent evidence suggests that the variation in the expected excess returns over time is predictable and is the result of changes in business conditions. 1 We offer further evidence on this issue by extending the previous literature to include real estate, particularly equity real estate investment trusts (EREITs). 2 What is unique about EREITs is that it is traded as a stock on a stock exchange but represents an underlying ownership in a portfolio of real estate. This feature raises the possibility that different variables may be required to capture the time variation in its risk premiums relative to those for bond and non-REIT stocks. Another issue related to the hybrid nature of EREITs is whether EREITs are a hybrid of stocks and bonds and whether the stock component is representative of large cap stocks or small cap stocks. More specifically, the questions addressed in this article include: (1) Do the same variables forecast stocks, bonds, and real estate returns so that the expected returns (conditional risk premiums) on these assets move together? In particular, do cap rates carry information about the conditional risk premium for equity REITs but no other asset class? (2) Is the variation in the expected returns on equity REITs related to business conditions? (3) To what extent do REITs resemble stocks with large capitalizations, stocks with small capitalizations, and bonds?While Mengden and Hartzell (1986), Giliberto (1990), and Corgel and Rogers (1991), among others, have studied the hybrid nature of REITs in the past, none of these studies

show abstract

Section: Discussionmentioning

confidence: 99%

The predictability of returns on equity REITs and their co-movement with other assets

Liu

Mei

1992

J Real Estate Finan Econ

177

154

View full text Add to dashboard Cite

show abstract

“…Several studies have documented the linkages between real estate cap rates and the stock market (Nourse, 1987;Evans, 1990;Ambrose & Nourse, 1993;Jud & Winkler, 1995;Sivitanidou & Sivitanides, 1999;Chen et al, 2004;Hendershott & MacGregor, 2005b;McDonald & Dermisi, 2009). In line with these studies, we incorporate the P/E from the stock market as a potential cap rate determinant.…”

Section: Proxy For the Evolution Of The Macro-level Risk Premiummentioning

confidence: 99%

“…The first line of research focuses on the variation at the macro level by analyzing aggregate cap rate data that vary by Metropolitan Statistical Area (MSA) and/or over time. Early work includes Nourse (1987) who studies time series of national appraisal-based cap rates for multifamily and non-residential properties from the American Council of Life Insurance (ACLI). He finds that debt service payments have a positive effect on the cap rate, while the percentage of the loan that has been amortized has a negative effect.…”

Section: Literature Reviewmentioning

confidence: 99%

Transaction-Based and Appraisal-Based Capitalization Rate Determinants

Chaney¹,

Hoesli

2012

SSRN Journal

View full text Add to dashboard Cite

This paper contributes to the debate about capitalization rate determinants by comparing the driving factors of appraisal-based cap rates with those of transaction-based cap rates. By using a rich database of real estate transactions in Switzerland for the period of 1985-2010, we identify several property-specific variables that have not been used in prior research and that increase the explained portion of the cap rate variance by as much as 10 percentage points. The results show that compared to investors, appraisers overweight factors that they can easily observe when they appraise a property, at the cost of variables related to growth expectations and the opportunity cost of capital. This has two implications. First, as the easily observable factors hardly change over time, while the latter variables change frequently and significantly, it provides new evidence that may add to the appraisal-smoothing discussion.Second, investors put less emphasis on factors that are diversifiable, which suggests that they favor a portfolio perspective, whereas the focus of the appraisers is more on the individual property level.

show abstract

“…Oates (1969) was one of the first studies of property tax capitalization into property values followed by a number of articles on this topic. A non-exhaustive example of the literature on how property values are affected by federal income tax policies includes Fisher, Lentz, and Stern (1984), Nourse (1987), Mayer (2009), Hilber andTurner (2013).…”

Section: Appraisal Literaturementioning

confidence: 99%

Measuring Sunk Costs in Agricultural and Food Industry Assets: Why Some Assets Sell Below Appraisal

Boland¹,

Crespi

Turner

2014

Journal of Agricultural &Amp; Food Industrial Organization

View full text Add to dashboard Cite

Asset obsolescence or external obsolescence is a decline in the economic value of capital because of a decrease in demand for the capital's services. Measurements of sunk costs typically use appraised values of capital. In food and agricultural industries facing asset obsolescence due to government policy, appraised values may be greatly overstated and this has implications for research on industrial structure. A theoretical model to account for the appraisal error is developed and the method is applied to the U.S. sugar beet industry. The sugar beet industry displays symptoms of asset obsolescence. Our estimates indicate that plant appraisals using currently accepted practices greatly overstated the true value of these assets in 2006.

show abstract

The "Cap Rate," 1966-1984: A Test of the Impact of Income Tax Changes on Income Property

Cited by 28 publications

References 6 publications

The predictability of returns on equity REITs and their co-movement with other assets

The predictability of returns on equity REITs and their co-movement with other assets

Transaction-Based and Appraisal-Based Capitalization Rate Determinants

Measuring Sunk Costs in Agricultural and Food Industry Assets: Why Some Assets Sell Below Appraisal

Contact Info

Product

Resources

About