Tangible-physical things. physical assets can be owned. They can be real or personal property,

Intangible- are nonphysical and include contractual rights. Assets include stocks, bonds, mortgages, and leases.

1. Real Estate as a tangible asset

2. Real Estate as a bundle of rights.

3. Real Estate as an industry and profession.

• Half of the world's wealth.
• Generates over 28% of US gross domestic product (GDP)
• Generates nearly 70% of local government revenue.
• Creates jobs for nearly 9 million Americans.

1. User Markets-Competition among users for physical locations and space. (potential Occupants)
2. Captial Markets- allocate financial resources among households and firms requiring funds. Participants in Capital Markets invest in stocks, bonds, mutual funds, mortgage contracts, real estate, with the expectation of receiving financial return on their investment.
3. Government Sector- Local Governments has the largest effect on real estate. It effects supply and costs through zoning costs.

• Market for physical real estate
• Buyers receive right to use space
• Where rental rates are determined

User Market-

On demand side

On supply side

Demand Side- individuals, households, and firms who require space either for consumption or production purposes.

Supply Side- real estate owners/operators who rent space to tenants.

Both demand and supply side of user markets are very specific to location and building type.

Because user markets are highly segmented, rental prices for physically similar spaces can vary widely, across locations and across property types.

• Competes for funds in capital market with other asset classes, such as stocks and bonds
• Investors select a mix of investments based on expected returns and risk.
• Bidding by investors determines- risk free rates of various maturities
• required risk premiums for risky investments

• Small homogeneous units of ownership
• Many buyers and sellers
• Price quotes available for all to see
• Characterized by a high degree of liquidity
• Informationally efficient.

• Absence of centralized market
• Assets trade infrequently in private transactions
• Common for whole assets to be traded in a single transaction
• Less liquidity than public markets
• higher transaction costs

• Market for ownership claims to RE assets
• Buyers/Owners receive righs to cash flows generated by leasing space to tenants
• Demand side of property market is made up of investors wanting to buy property
• Property market is integrated, not segmented like space market.

• Heterogeneous products
• Immobile products
• Localized markets
• Segmented markets
• Privately negotiated deals with high transaction costs

Equity/Owners

Debt/Lenders

Private Markets

Public Markets

1. To identify the tangible assets of land and buildings
2. To denote the "bundle" of rights associated with the ownership and use of the physical assets.
3. To refer to the industry or business activites related to the acquisition, operation, and disposition or the physical assets.

Chapter 7

Market Value

Most probable selling price, assuming normal sale conditions

Value for the typical market participant

• Buyers
• Sellers
• Corporate acquisitions, mergers, or dissolutions
• Courts- divorces, eminent domain cases, settlement of estates, bankruptcy
• Mortgage lenders

• In markets with perfect competition and investment value revelation, all transactions take place at true market value.
• In such markets, no need for buyers and sellers to search for true market value of an asset- it is continuously revealed by transaction prices of perfect substitutes.

• Every property is unique
• These heterogeneous assets trade in illiquid, highly segmented and informationally inefficient local markets
• Search costs associated with matching buyers and sellers are significant.

Even the few transactions of comparable properties that we do observe may not be indicative of the value of the subject property.