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  Stephen E. Ross, Real Estate Consultant

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A variety of approaches and methodologies can be incorporated into effective real estate analysis.  Often, there is no one right way to analyze a particular property or market.  However, several critical approaches lend themselves to a higher level of accuracy in terms of both current evaluations and forecasting.
  Economic Trend Analysis, Macro to Micro Analysis, and Peer Group Analysis are each important methodologies that I incorporate into every consulting assignment.


Economic Conditions & the Real Estate Market

Rent trends, New construction, Absorption, Occupancy levels, Comparable transactions . . . 
Each of these real estate measures are important when evaluating properties and markets.  However, these indicators alone only illustrate a portion of the entire picture.  Real estate markets do not operate in a vacuum.  National, regional and local economic conditions are equally important to the performance of submarkets and properties. 

Healthy real estate markets are driven by strong economic trends.  Job growth, household formation, income trends, net migration patterns and population segmentation all influence property performance and future returns.  Also important is an evaluation of the demographics of area residents, the local submarket and the larger regional market.

The analysis of any real estate market, submarket or property should equally evaluate both the real estate and economic factors at work.  This will give you a clear picture of the current market situation and allow you to make fully informed investment decisions. 


Macro to Micro Analytical Approach

A Macro to Micro approach to real estate analysis is integral to fully analyzing real estate and economic trends.  This approach is a multi-layered methodology which starts with market-level general trends and focuses down to more specific submarket trends and finally to a very specific property-level analysis. 

It is always important to understand the "big picture" factors that influence a large market or region.  These market trends can have a significant impact on the real estate performance of the overall MSA as well as a local property.  In addition, some macro factors can be unique to an area or market, and a full understanding of these regionally distinct trends is critical to an accurate recommendation or forecast.

Once an MSA is fully evaluated on a macro market level, it is necessary to focus on submarkets. Every market can be divided into singular, identifiable submarkets.  Each submarket has its own characteristics and drivers.  Some submarkets move with the overall market, while others have counter-trend tendencies. Understanding a property's submarket and how it performs in relation to the overall market is critical to every analysis assignment.

When the market and submarket trends have been thoroughly analyzed, specific property and peer group data is examined.  This level of the analysis is very detailed and specific.  It is imperative to the final recommendations of an assignment.  The Macro to Micro analytical approach provides property-level conclusions within an appropriate and critical context.  By incorporating this multi-layered methodology into the careful evaluation and analysis of every property, ultimate real estate decisions are better grounded in market realities.


Peer Group Analysis

Peer group analysis is the final piece in a comprehensive property evaluation.  Peer groups are developed from properties that are competitive with the subject property in terms of age, condition, location, size, amenities, unit mix, etc. It is against the backdrop of the peer group which an individual property can be most accurately measured.  Target properties are compared and contrast with the peer group to develop detailed property evaluations and specific recommendations.  A carefully selected and well-matched peer group helps to ground property-level conclusions with a confidence level that cannot be achieved through submarket or market analysis alone.  This, in turn, leads to sound investment decisions and, ultimately, stronger future returns.

 

Stephen E. Ross, Real Estate Consultant

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Last modified: 03/23/12