The Real Estate Investment Market

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By: John T. Schmick

Investment real estate encompasses a broad range of real property types. Transactions often involve large properties bought and sold by institutional investors at the national level or in a national investment market. Participants include pension funds, investment advisers, insurance companies, and investment banks. In general, these are buyers and sellers that take direct ownership of an investment property and manage it for their own benefit. Defining or measuring the health of the investment market based on transaction activities of this type is somewhat unreliable. One is limited to data such as descriptions of capitalization rates, prices per square foot, and vacancy rates. Little information is publicly available on the periodic returns earned from these types of transactions until an individual property is resold. How, then, does one gain an understanding of the investment market on a broader scale?

The answer is found in a specialized form of real estate ownership known as a Real Estate Investment Trust, or REIT. A basic REIT is an entity that “pools investor money to purchase and manage real estate” for the benefit of its owners. REITs offer liquidity in investment real estate through ownership of shares in an entity that directly owns and manages investment real estate. Consequently, a review of the REIT industry is an effective surrogate to profiling the national investment real estate market. The ability of REIT data to reflect the overall market is related to the overall composition of REITs. In general, equity REITs include all property types, all age brackets, all geographic locations and all level of demographics

Summary of: State of Minnesota vs. Union Pacific Railroad, et al.

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By: Christopher J. Stockness

Court File No. 27-CV-07-20490, Fourth Judicial District Court

In the above matter, State of Minnesota vs. Union Pacific Railroad, et al., Shenehon Company aided Malkerson Gilliland Martin LLP in successfully obtaining a reasonable damage award for the property owner. The Commissioners’ findings, dated December 23, 2008 and filed on January 5, 2009, supported the respondent’s claim for damages in the amount of $1,200,000. Reasonable appraisal fees were also stipulated and, in the event that ongoing investigation shows damages to a retaining wall were due to the taking, additional compensation may be forthcoming.

This case involved a fee simple taking of land adjacent to the I-35W bridge and a temporary easement following the August 2, 2008 collapse. The taking, along with a 40 month temporary easement encumbering the entire property, resulted in significant changes to the owner’s plans and delayed the project (a retail development) for the duration of the temporary easement. Shenehon Company completed a development cost approach, which appropriately analyzed the damages of the taking by factoring in the impact of the loss of fee simple land and its impact on the development as well as the delay of the project as a result of the temporary easement that encumbered the entire property.

The Commissioners’ award, in the amount of $1,200,000, exceeded the amount offered the State ($800,000).

Look for full details of this case and the valuation techniques used in the Fall, 2009 issue of Valuation Viewpoint.