The current issue and full text archive of this journal is available at www.emeraldinsight.com/1463-578X.

htm

A new paradigm for real estate valuation?

David Wyman
Spiro Institute for Entrepreneurship and Leadership, Clemson, South Carolina, USA

A new paradigm for real estate valuation? 341

Received December 2010 Accepted March 2011

Maury Seldin
The Homer Hoyt Institute, North Palm Beach, Florida, USA, and

Elaine Worzala
Richard H. Pennell Center for Real Estate Development, Clemson University, Clemson, South Carolina, USA
Abstract
Purpose The purpose of this exploratory paper is to examine the efcient market theories and to argue that a new paradigm or an expanded paradigm is needed for the valuation of real estate. This may actually not be a new paradigm but it may be necessary to go back in time to make the valuation models that are used more realistic and to try to include the realities that there are many diverse actors in the real estate marketplace and their actions are important and should not be assumed away. Behavior matters and the models for pricing real estate need to take this into account. Design/methodology/approach The paper examines some of the emerging models in other disciplines and works to relate them to the real estate marketplace in general but, more importantly, to help to explain the most recent bust of the global real estate markets. Findings The paper nds that there is a need to consider an alternative paradigm for the valuation of real estate and complexity theory as well as the adaptive system models that specically take into account that the various actors in a real estate marketplace could be used to help better explain the emergent nature of real estate values. Originality/value This is the rst paper to ones knowledge that argues for a shift in thinking to include complexity economics and agent-based modeling as potential solutions to gain a better understanding of how real estate markets react. Keywords Efcient markets, Complexity theory, Valuation theory, Real estate cycles, Property market bubbles, Adaptive system theory, Real estate Paper type Conceptual paper

The dominant economic paradigm of the last 40 years has focused on an efcient markets theory where all available information is capitalized into real estate prices. Gau (1987) takes the position:
[. . .] that the concept of efcient real estate markets should be the working paradigm for real estate research and analysis. I will argue that, even with their potential imperfections, real estate markets can best be modeled at this time in terms of efcient markets. Such a theory is not capable of describing perfectly all behavior observed in these markets, however that is not required for a theory to be a useful paradigm (Gau, 1987, p. 2).

This perspective is supplemented by Friedmans (1953) thesis that the use of unrealistic assumptions is irrelevant; instead a theory should be tested based on the

Journal of Property Investment & Finance Vol. 29 No. 4/5, 2011 pp. 341-358 q Emerald Group Publishing Limited 1463-578X DOI 10.1108/14635781111150286

JPIF 29,4/5

342

accuracy of its predictions. Friedmans argument effectively protects the theoretical constructs underlying the theory of efcient markets including assumptions of the rational man, perfect information, and prot maximization. Research has focused on the three types of efcient markets ranging from the weak form efciency where past market prices are considered, to semi-strong efciency where public information is also included, to strong efciency where all public and private information is included in the setting of market prices (Gau, 1987). In the strong form of a perfectly efcient real estate market, the market price of an asset reects all the new-value affecting information (Lusht, 1986). In essence, price equals value. Lusht (1986) explains that in a perfectly efcient market, technical and fundamental analysis is worthless; the appraiser should be paid to only gather and report information. One advantage of a paradigm based on market efciency is that it allows economists to borrow tools from the eld of physics to produce a deductive-based, mathematical model to explain our economic system. Orthodox efcient market theoreticians believe that markets cannot be beaten and that nancial prices follow no discernible pattern, i.e. that prices follow a random walk where past price movements do not provide clues about future price movements (Beinhocker, 2006). Black (1986, p. 533) suggests that noise can cause prices to deviate from the fundamental level in the short term, but that the farther the price of a stock moves away from value, the faster it will tend to move back. However, he takes a wide latitude in his denition of an efcient market as one in which price is within a factor of 2 of value, i.e. the price is more than half of value and less than twice value (Black, 1986, p. 532). Kinnard (1968, p. 173) observes that real estate decisions are different from other business decisions due to the innate characteristics of real estate. It is a highly differentiated product with each specic site unique and xed in location. He points out that real estate is a durable, long-term asset, which means that development decisions require complex forecasts of net income in dynamic and changing markets. The buyers, especially in residential markets, are typically only sporadic players in the market and frequently unsophisticated in their decision behavior (Kinnard, 1968, p. 174). The nancial elements of real estate markets also make them differ fundamentally from stock markets. Typically, a real estate transaction requires access to relatively large amounts of capital (Kinnard, 1968) and the nancial marketplace displays inefcient qualities including high transaction costs, the lag in supply of properties in response to increasing demand and the lack of an organized market for short selling (Xiao and Tan, 2007). In addition, real estate investments incur holding costs in the form of taxes as well as borrowing costs. For example, an acre of raw land bought for $200,000 with an 80 percent loan to value ratio and a 6 percent annual interest rate with a property tax rate of 1 percent would have to sell for $231,600 one year later just to breakeven, all else being equal (10 percent commission fee $20,000) ($160,000 loan 6 percent interest $9,600) (1 percent property tax $200,000 $2,000). Such a calculation does not include any opportunity cost of losing interest on the $40,000 down payment, nor the fact that the commission will actually be slightly higher as it is paid on the new sale price. Nevertheless, despite the dramatic capital gain that is required to break even in a short term real estate investment, property markets have recorded rare, but spectacular bubbles. Vanderblue (1927) observes that property bubbles raged along the lower East

Coast of Florida (Palm Beach and Miami) in 1924-1925 abetted by predatory marketing tricks of the land boomer (developer):
Around Miami, subdivisions, except the very large ones, are often sold out the rst day of sale. Advertisements appear describing the location, extent, special features, and approximate size of the lots. Reservations are accepted. This requires a check of 10 percent of the price of the lot the buyer expects to select. They are numbered consecutively as they come in. On the rst day of sale . . . the reservations are called out in their order . . . the buyer selects a lot . . . a space usually 50 by 100 feet of Florida soil or swamp (Vanderblue, 1927, p. 118).

A new paradigm for real estate valuation? 343

Moreover, Vanderblue (1927) describes similar bubbles in Chicago in the 1830s and Los Angeles in the 1880s. Academic literature records a number of other speculative property bubbles across the world economy (Theobold, 1929: Whitten, 1936; Hansen and Dickinson, 1975; Abraham and Hendershott, 1994; Ito and Iwaisako, 1995; Kindleberger and Aliber, 2005; Shiller, 2005; Xiao and Tan, 2007). The essential problem in identifying the existence of a speculative bubble focuses on the denition of the fundamental value of the asset. Xiao (2010) points out the estimation of fundamental value of an asset is dependent upon the expectation of the future revenue streams and that expectations are very sensitive to external events and can thus swing wildly as such events come along (Xiao, 2010, p. 4). Moreover, Xiao (2010) observes that investor heterogeneity can lead to widely differing assumptions and performance expectations and makes prognosticating the amplitude of a bubble as well as the timing of a real estate crash very difcult. The behavioral school of economics recognizes the problem of market inefciency and uses investor psychology to help explain price movements. Essentially, these researchers postulate that investors will extrapolate price trends; their price-to-price feedback model suggests that positive price changes will increase an investors optimism feeding back into positive price expectations and a self-fullling process of increasing prices in the short term. In other words, rational expectations are replaced by backward-looking expectations and future prices are predicted based on some form of extrapolation of past trends (Xiao and Tan, 2007). The tendency of optimistic behavior to reinforce itself builds condence for the players in the market place and creates feedback processes that generate higher and higher expectations about the future. Traders take a dynamic outlook as they form expectations of other peoples expectations. The assumption that investors have rational expectations and will act accordingly ceases to operate. Keynes (1936) observed that investment decisions were akin to choosing the winner of a beauty contest. At the time, newspapers were running beauty contests where 100 photos were shown and readers would select their six favorite faces. Everyone who chose the most popular photo was a winner and entered into a rafe. Thus, as Keynes observed:
It is not a case of choosing those [faces] which, to the best of ones judgment, are really the prettiest, nor even those which average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practice the fourth, fth and higher degrees (Keynes, 1936, p. 156).

Rational expectations are replaced by cliches such as: the trend is your friend and that if prices have been increasing; they will continue to increase (Kindleberger and Aliber, 2005, p. 38).

JPIF 29,4/5

Behavioral economists suggest that the American property market encountered such a speculative bubble in the early 2000s when housing prices more than doubled in just six-and-half years, before collapsing by 30 percent in the next three years (S&P/Case-Shiller, 2010). The spillover problem of real estate crashes is exacerbated by the sheer size of the real estate economy as it constitutes over 50 percent of total world wealth (Malpezzi, 2001). Valuation and uncertainty Property investment decisions are made with fundamental uncertainty about the future (Akerlof and Shiller, 2009, p. 144). Both Keynes (1921) and Knight (1921) differentiated between the concept of risk, where the chance of an event can be measured by mathematical probability, and uncertainty, which cannot be measured by mathematical probability. The advantage of risky investments is that one can calculate the probability or statistical inference as to the frequency of an event. Skidelsky (2009) explains that insurance companies use standard distribution tables to calculate probabilities of measurable risk. For example, insurers can price life insurance premiums by applying trends gleaned from historical data to calculate the life expectancy of any given individual. As long as one is able to calculate simple measures such as the mean and standard deviation (and to do this correctly one needs sufcient data and it needs to be normally distributed), then the bell curve can calculate measured probabilities and risk[1]. The problem in real estate is that there is rarely enough data and the data that is available is not normally distributed so basic statistical models and probability analysis are not necessarily appropriate, although they have been used extensively in real estate research for the last half of a century. Skidelsky (2009, p. 85) indicates that problems arise when one assumes that nancial markets are equivalent to insurance markets. For example, a primary cause of the nancial crisis of the late 2000s was the nave belief that exotic derivatives were priced to reect the underlying risk of the mortgage securities. Instead, packages of risky sub-prime mortgage loans had been bundled together; their AAA credit ratings did not reect the true investment risk of the loans and, in some cases, the faulty data (liar loans) that were used to price the products. In addition, in some of these models the data had been collected only during the upswing of the market; that is, the data did not include a downward trend so without any declines in the data, the models could not predict a decline in the market. It has been suggested that credit agencies falsely assumed that the risk of individual mortgages defaulting was diversied away by pooling the mortgages together which has been the common belief but if all the loans are bad, then combining the loans does not reduce their toxicity. As Louargand (2007, p. 43) details:
Ratings are about the estimation and underwriting of risk. One Wall Street veteran recently observed, When I was rst on the Street, people talked about risk-adjusted rate of return now its risk ignored rate of return, and that always has sad ends. That remark seems prescient when considering the miracle of transformation that turned a pool of junk-rated paper into a tiered pool of investment grade paper with only a minor toxic residual. It brings to mind the medieval alchemists and their search for the philosophers stone. Perhaps there were modern alchemists in lower Manhattan who turned dross into gold?

344

In addition, there was a signicant amount of agency problems associated with the credit rating agencies and their clients. The agencies are reliant on their clients for

repeat business and there is unlikely to be repeat business if the agency downgrades the securities. There was signicant amount of pressure placed on the agents in these deals both for the initial value of the properties that were the collateral for the initial loans, and also for the quality of the securities that were sold when the loans were bundled and sliced and diced to meet alternative needs of investors that thought they were purchasing a relatively safe AAA investment. Keynes offered a dichotomy between risk and irreducible uncertainty:
The sense in which I am using the term is that in which the prospect of a European war is uncertain, or the price of copper, and the rate of interest 20 years hence, or the obsolescence of invention, or the position of private wealth owners in the social system in 1970. About these matters there is no scientic basis on which to form any calculable probability. We simply do not know (Cassidy, 2009, p. 170).

A new paradigm for real estate valuation? 345

Keynes argues that when faced with uncertainty that one resorts to stories, conventions, rules of thumbs, habits, and traditions heuristics to give us a sense of security in facing the future (Skidelsky, 2009). Tversky and Kahneman (1974) point out that while these heuristics can be useful in reducing complex problems of uncertainty, they may lead to severe and systematic errors in judgment at certain periods of time. In effect, heuristics can often provide us with the wrong road-map for analyzing the future outcomes. These simple heuristics have a complex sociological basis. As psychological factors gain strength, the economic world moves away from rational models into the uncertain territory dened by irrational exuberance and speculative manias. Price movements become increasingly divorced from economic fundamentals and uncertainty reigns supreme. Taleb (2007, p. 119) points out that the greatest uncertainty is:
[. . .] from rare events whose probability of occurrence cannot be estimated, because, by denition, such events are infrequent, while also appearing at highly varying intervals.

Taleb argues that a small number of extreme events, outliers, that are outside the realm of normal expectations have been responsible for almost all of the major impact events in our lives. Taleb (2004, 2007) calls rare events that are completely unexpected but have an extreme impact on the overall nancial marketplace black swans a reference to the sixteenth century belief that a black swan did not exist as historically all swans were white. The nancial collapse of the housing market in the late 2000s is a black swan a nancial debacle unforeseen by most economists. The decision risk problem in real estate is amplied as it is not limited to the risk of a loss (or a lower income than projected), but as detailed over 50 years ago by Kinnard (1968) the specic characteristics of real estate add four additional types of risk to a real estate investment: time risk, location risk, information risk and goals risk. This is why real estate has historically seen a much higher return than bonds and sometimes higher returns than the stock market. The incredibly low capitalization rates that were used to underwrite real estate during the last run-up in prices was shocking to the real estate veterans in the marketplace that had lived through the last major downturn of the 1980s. In addition, many of them got out of the market early enough so they are the ones currently sitting on the sidelines patiently waiting for the pricing of real estate investments to be more in-line with the risk associated with the asset class. The failure of the neo-classical paradigm to explain discontinuities or black swans does not falsify the employment of econometrics, hedonics, and other neoclassical

JPIF 29,4/5

346

analytics, but it does reveal that historical base and reductionism has limits. In some cases, real estate professionals might need to revert to old tools that were developed but have been somewhat forgotten in our quest to use data, physics and mathematical models to try to simplify what is a very complex asset class that is not easily put into a box or one eld, but needs to be viewed holistically with an understanding of multiple disciplines. Instead, the challenge is to create a new, more inclusive paradigm that utilizes a broader toolkit to provide greater understanding of our complex, continually changing and adapting eco system of real estate. A new paradigm? An alternative framework for analyzing the real estate market is in terms of Complexity Economics where an open, complex and dynamic market displaces the closed, equilibrium system of (traditional) neo-classical economics. Beinhocker (2006) identies core concepts of Complexity Economics. These concepts are presented in Table I. In the same vein, Whitt and Schultze (2009, p. 231) suggest that the following formula encapsulates this economic activity: Agents Networks Evolution Emergence The term agents refers to the full spectrum of economic actors from individuals with their own specic behavioral patterns, to business operators, to institutional organizations (Whitt and Schultze, 2009). They observe that:
[. . .] individual agents, acting through interconnected networks, engage in the evolutionary market processes of differentiating, selecting, and amplifying certain business plans and technologies, which in turn generates a host of emergent economic phenomena. This formula is fueled by the latest ndings from physics, biology, psychology, cognitive neuroscience, and plain common sense (Whitt and Schultze, 2009, p. 219).

It is suggested that an alternative paradigm embraces real estate markets as an open, dynamic system composed of an emergent network of agents, who are subject to errors and biases (i.e. non-rational), and they adapt and learn over time. According to this paradigm, real estate is still analyzed through the lens of the market, but it recognizes that agents, networks and relationships are complex and subject to changing endogenous and exogenous inputs that may drive markets far from equilibrium (Beinhocker, 2006). If real
Concepts Dynamic Agents Networks Emergence Evolution Complexity Economics Open, dynamic, non-linear, far from equilibrium Agents subject to errors and biases; adapt and learn over time; modeled individually Networks of relationships change over time; model interaction of agent No distinction between micro- and macroeconomics; macro patterns are emergent result of micro-level behaviors and interactions Evolutionary process of differentiation, selection, and amplication provides system with novelty

Table I. Five core concepts of Complexity Economics

Source: Adapted from Beinhocker (2006, p. 97)

estate markets are inefcient, then price only by coincidence would equal value (Lusht, 1986). In other words, the valuation of real estate does not conform to a theoretical model of efciency where all agents hold perfect information. The opaque nature of information in the real estate markets is illustrated by the freeze on foreclosure proceedings by four of the largest American banks in the last six months of 2010 as courts were unable to identify who clearly owned the mortgages (Zibel and Choi, 2010). In particular, the discontinuity of the real estate market in late 2008 suggests that markets can be inefcient and prone, in extreme cases, to systemic risks. The magnitude of the (apparent) divergence of property prices from fundamental values during the recent nancial crisis of the late 2000s signies that valuation procedures and analytics have moved beyond the scope of individual appraisers utilizing standard efcient market tools. Instead, valuation should be considered:
[. . .] rst and foremost a systematic application of behavioral research in which the appraiser strives to t the attributes of the subject property into a market context driven by decisions of market participants (Robbins and Ahearn, 1994, p. 149).

A new paradigm for real estate valuation? 347

Generally accepted models (such as hedonic models, direct capitalization or ten year discounted cash ow models for property held over a longer period of time) that assume rational behavior to estimate value lose validity in periods of discontinuities. The paradigm of the craft era is obsolete as appraisers and others in the real estate profession search for a new methodological paradigm that provides value estimates in a time of uncertainty and risk so that they can feel comfortable about making real estate investments. This paradigm shift represents a rediscovery of lessons from past masters of real estate (e.g. Ratcliff, Graaskamp and Kinnard) emphasizing that academia should explore an open-ended methodology that blends a variety of disciplines where highly diversied agents are affected by shifting social values, new institutions, changing technology, and evolving complexity of systems (Clapp et al., 1994). Graaskamp (1981) summarizes the real estate process as an interaction of three major groups the space consumer, the space producer and the public infrastructure. All three groups need to remain solvent for the market to work. If the operating costs (including taxes or debt) increase too high, then the demand for real estate would fall signicantly. If the public infrastructure entities could not charge enough (in terms of taxes and fees to provide the services) they would have to quit providing services and the demand for that product would fall pushing the markets out of balance. Finally, if the cost of construction or purchase becomes too high to make a decent return on the investment (as we saw at the height of this last cycle) the buyers would be out of the market causing an imbalance in the marketplace. In addition, there are shocks to the system (externalities) that are beyond the control of the real estate investor that come from the political, social and enterprise (business) systems. Overall, the system evolves through a process of complex, adaptation of all of these agents; their constant interaction, ad hoc relationships and social networks innovate and change over spatial-temporal horizons. This system represents a paradigm shift from the closed, neo-classical world of equilibrium economics. Complexity Economics offers an alternative perspective that the economy is more like a living organism a complex system characterized by constant change, evolution, and disequilibrium that percolates from the bottom up (Whitt and Schultze,

JPIF 29,4/5

2009, pp. 6-7). The emphasis is on the full spectrum of the human society and its agents behaviors[2]. Complexity Economics challenges key assumptions of the neo-classical model:
Supply rarely equals demand. Empirically, we often see a wide divergence in the prices of individual goods and services. Demand and cost curves are extremely difcult to know with any clarity (Whitt and Schultze, 2009, p. 226).

348

The behavior of agents and networks in decentralized systems is critical to understanding the evolution of organized complex systems. Miller and Scott (2007) summarize organized complexity as where:
[. . .] individual localized behavior aggregates into global behavior that is, in some sense, disconnected from its origins (Miller and Scott, 2007, p. 44)

In other words, the interaction of agents results in emergent properties (qualities) so that the parts of the system become organized at a level above the underlying system (macro as compared to micro) and have properties that are not present at the lower level. The emergent attributes of real estate are illustrated within the residential real estate markets by the ad hoc clustering of households of common ethnicity. Emergence is the process by which the individual decisions, independently made, result in attributes at a higher level. Thus, families choose to move to locations close to other families with the same ethnicity. With time the dominant characteristic of the neighborhood as compared to other neighborhoods becomes ethnic based, although it was not planned to be that way. The emergent attributes of real estate are also present in commercial real estate. Retailers tend to cluster not because they are directed to by the zoning authority, which prohibits some uses but does not prescribe uses, but because they seek access to their consumers. Synergy is often created from the clustering that was done originally by individual choice but results in a larger district. Emergence is not only a location attribute of real estate, it is an investment attribute. Herd behavior is a form of emergence; the individual decisions lead to an excess of investment and development resulting in a bubble that bursts. Analytical systems can improve the forecasts of outcomes from such investments, and better strategies for dealing with risk and uncertainty can improve investment results, but debacles occur because some developers persist when further development is unwarranted and nanciers, especially lenders, make it possible. As an agent adapts to changes in the system, their adaption in turn affects the strategies of other agents. Axelrod and Cohen (2000) dene a complex adaptive system as one that contains agents that seek to adjust their behavior (or adapt) based on changes that occur in the system over time. Axelrod and Cohen (2000, p. 8) observe that: This can lead to perpetual novelty on both sides. The system may never settle down. In effect, complex adaptive systems can generate disequilibria endogenously and lead to outlier outcomes that reside in the long tail of distributions. Consequently, contemporary science is exploring better methodologies for forecasting and intervening in order to avoid discontinuities or disastrous outcomes. An example of a complex adaptive system is a neighborhood beset with foreclosures where a contagion impacts the values of other houses in the neighborhood (Miller et al., 2010; Gangel et al., 2010). Exploration and exploitation refers to alternative adaptive behaviors in a complex system that can alter the result that emerges. Thus, in the case of an increase in foreclosures in a neighborhood, the

exploratory behavior of the house owners is to take a wait and see attitude. That is, to wait and see what will happen to the rest of the properties in the neighborhood while the exploitation behavior seeks to capitalize on what has already happened. If the exploration case dominates the neighborhood, the price level (emergent property or quality) of the micro level is a minimal adjustment to prevailing prices in the neighborhood. In the case of substantial foreclosure activity, if the dominant reaction of house owners is exploitation (attempting to sell based on what is changing in the local environment and hoping not to be the last one standing in a game of musical chairs) there is substantial contagion from foreclosure (Axelrod and Cohen, 2000). Complexity economics applied to real estate economics appears at the local level where space markets are nanced through capital markets yet the demand by the user is based on the local market and the local economic base. The space markets have price behavior generally viewed in traditional terms of supply and demand as loci of points: for supply, it is the locus of points at which different quantities would be supplied at different prices, and for demand it is the locus of points at which different quantities would be taken at different prices. The two curves, in standard economics, are viewed as independent. In complexity economics there is an adaptation to a changing market environment and reexivity[3]. As a result, rather than a reversion towards a balance or equilibrium that would be found/assumed in the free market system, complexity economics embraces dramatic shifts in the market or discontinuities, such as what occurred when the capital market froze and triggered the Great Recession in late 2008. A discontinuity refers to a tipping point; a common example is the transformation of a cluster of water molecules into ice at 32 degrees Fahrenheit. A similar discontinuity can occur in housing markets where contagion effects can lead to a freeze there are no buyers or no sellers the market has effectively broken down. The impact of a discontinuity can spread beyond its origins owing to the role of the networks that are found in complexity economics. Not only are agents subject to biases and bounded rationality, but they are also social beings inuenced by other agents that operate within their networks. The biases inherent in agents may be exacerbated by their wanting to keep the networks. For example, the typical agent operates from an optimistically biased mindset. Experimental research from behavioral economists and psychologists indicates that people over-estimate their chances of experiencing a positive outcome getting a great job or living past 80 years and under-estimate their odds of negative outcomes divorce, suicide, or drinking problems (Weinstein, 1980). This tendency towards over-optimism is typically perceived as a positive trait when applied to entrepreneurial ventures (Ariely, 2009), but can become a liability if the optimistic bias is amplied by the individuals social network. An individual that follows the behavior of a preceding individual without regard to their own information is part of an informational cascade or herd (Bikhchandeni et al., 1992). The herd mentality works in property markets as it does on Wall Street with highly educated and successful individuals following the pack as was recently experienced by investors in the Madoff funds. A trigger or precipitating event can start the herd moving. A precipitating factor in the mid 2000s is related to lax standards on mortgage approvals and the false bundling of low quality mortgages into presumably high quality AAA securities. The increase in house prices fuel a price to price feedback generating an endogenous feedback cycle of rising prices. The continual rise in prices can help form the perception that the

A new paradigm for real estate valuation? 349

JPIF 29,4/5

350

fundamental value of the property has increased as opposed from recognizing that prices have in reality become untethered from the fundamental values. Eventually, prices in such a scenario may reach an unsustainable level and tipping point where even former optimists doubt that prices can continue to rise. The ensuing fall in prices and real estate recession frequently generate negative nancial outcomes that historically have lasted an average of seven and half to eight years (Kaiser, 1997) although his review of past work shows that an 18 year cycle was the predominate view of real estate researchers in earlier years. The saga of the Japanese property market illustrates an extreme example where real estate prices dropped by almost 70 percent over a 15 year period (Shiller, 2005) an inefciency beyond even Blacks factor of 2 parameters outlined above (Black, 1986). Asymmetry of information The necessity to make decisions in uncertain markets with often only a fragment of high quality information means that the herding mentality provides a psychological comfort to the buyer; the chances of a mistake appear to be reduced if everyone else is doing it. Nevertheless, prot seeking entities can seek out and prey on the shaky and uncertain foundations that govern an agents decisions (Whitt and Schultze, 2009). The historical use of predatory marketing tactics by real estate developers is well documented from time share developments to golf course communities (Vanderblue, 1927). The power of professional marketing to help persuade individuals to change their minds about the direction and longevity of price trends is discussed by Shiller (2007). He argues:
People may change their mind about whether a change in price is only temporary or is the beginning of a new trend. They are especially likely to change their mind because we have professional marketers whose job is to get some kind of social response moving, and, when they do nd some advertising pitch that resonates with investors, they will run it for all it is worth (Shiller, 2007, pp. 8-9).

The asymmetry of information that separates the developer from the buyer is an essential component of launch marketing practices that were employed by real estate developers in major resort communities across the southeast and southwest of the USA in the early 2000s (Wyman and Worzala, 2010). In launch marketing, the developer utilizes a reservation system to gauge the degree of buyer interest in their real estate project. Ultimately, the developer restricts the number of properties released to the public for sale to approximately one-third of the reservations; thereby ensuring that the product is sold out with a captive audience of motivators waiting for the next phase of releases that can be offered at a signicantly increased price point (Shanaberger et al., 2005). The buyer does not have access to the information that the supply has been articially constrained; instead these actors see prices increasing at a regular interval and assume that they will only get higher if they do not act as soon as possible. Optimistic buyers rush into the market in order to capture the apparent capital gain believing they cannot lose as they can always sell at the higher prices in the future. Network effects can lead to a herd of overly-optimistic buyers who are encouraged by other agents (the selling brokers) to act on price expectations and hype. Their frantic behavior to get in before prices go higher may be in direct contrast to the market fundamentals that indicate prices are much higher than replacement cost or that they becoming unaffordable to the typical buyers in the market making a resale at a higher

price or the last price paid impossible if external conditions (in this case, cheap or exotic nancing) change. As prices cannot increase inexorably, the last ones into the game face the greatest losses when the market shifts. Implications for valuation models Given the powerful ramications of a discontinuity in the market, it is incumbent on real estate researchers, both in the academy and the eld, to examine how to best introduce dynamic variability into real estate models and valuations. It may be that the mistake is searching for an all-encompassing theoretical model in real estate as essentially all real estate behavior stems from human behavior and from local market conditions, although the globalization of the capital markets indicates in some products the agents in the process go beyond the local area or region. Thus, a more exible and interdisciplinary paradigm is required to fully understand the players in the marketplace, that ultimately set the prices and the values of real estate. An alternative paradigm may actually take us back in time to some of the earlier real estate researchers as Graaskamp suggested:
Economics is a behavioral science, descriptive of the economic behavior of people under various conditions. It is the appraisers task to predict how people, both buyers and sellers, will behave with respect to the subject property when it is exposed for sale. People make values and determine prices (Graaskamp, 1977, p. 8).

A new paradigm for real estate valuation? 351

The human behavioral element suggests a number of conclusions. First, we would hereby propose that the valuation should not be a single measurement in time as valuation has alternative purposes and time periods. Graaskamp (1977) describes the traditional model:
In the short run, the market approach explains value; in the intermediate term, discounted cash ows explain value; and in the long run, the cost to construct an alternative to existing property places a ceiling on the maximum anyone should be willing to pay, assuming that there is no unusual pressure for immediate occupancy (Graaskamp, 1977, p. 5).

Graaskamp (1977, p. 5) observes if the appraisers objective is to predict a price at which the property will sell in the future, then buyers and sellers have overlapping expectations of high and low prices, and it is this overlapping area that denes the transaction zone within which a deal can be made. And, if the buyers and sellers are far off from each other, there will be no transactions and the market will freeze. There are potentially three new things that could be part of a new valuation paradigm that might better meet the needs of the user. First, valuations should be for more than one point in time. The appraisal of a property is typically done to quantify the value as collateral for a mortgage loan and typically the lender asks for an estimate of value at the time the loan was made. The risk was that the equity cushion could disappear if the market prices uctuated sufciently and default might occur. That risk was compensated for by a risk premium in the interest rate, possibly augmented by points charged at inception of the loan. Rather than an appraisal for market value at the point in time when the property is purchased, the valuation analyses really needs to shift from the closed system of efcient markets of the neoclassical paradigm predicated on equilibrium to complexity economics where markets are treated as dynamic non-linear systems in an evolutionary process.

JPIF 29,4/5

352

This means the lender and appraiser need to examine the value of the property to the marketplace over the life of the loan. That examination is incredibly complex, and not really feasible on a craft basis as there are multiple levels of networks that need to be considered in order to apply complexity theory, even for a single family residence. In recent years, technology has enabled the valuation community to separate out the physical examination of the property from the statistical analyses of comparables adjusted for variations in location, amenities, and so forth. Precedents for economies of scale in analyses of the economic base go back a long way, at least with the Cal-vet program and possibly FHA. Thus, when moving from comparable sales in a sub-market to an analysis of the future of that submarket, the valuation of the future of that area should go beyond extrapolation of its historical development to considering the evolving patterns of land use. Thus, just as expectations of rapid rail affected future values so might the trends of sustainability that include greening of buildings and the conscious acknowledgement of walkability and they should be considered. These types of trends are more effectively analyzed on an area wide basis rather than appraising the single piece of property that is more akin to completing an appraisal as a craft. The next level of networks in the longer term analysis of a propertys value included the economic base which could be generating new employment and shifts in structures of the work force and demand in various locations. This analysis is also better done on an area wide basis and is not foreign to real estate market analyses and certainly doable in a new paradigm format for valuation done for underwriting purposes. Although it was not done for securitization, the alternative of diversication was utilized to deal with the risks. However, it could only deal with diversiable risks, not systemic risks. Before the Great Depression, lenders simply used term loans with low loan to value ratios. Thus, if events were unfolding during the ve year term that signaled threats to the equity cushion, the lender could demand a substantial principal payment for renewal. If it was a systemic problem, the market might freeze up because salability was impaired and equity in the property might shrink more. The 30 year amortization structure was a substantial improvement for the markets, but when they were coupled with high loan to value ratios and extreme volatility in the marketplace, the problem did not go away. Sorting neighborhoods by an expectation of future values took on the stigma of redlining, but in the authors opinion this was because these areas were given no funds or the interest rates were adjusted to reect the increased risk rather than the lenders making an adjustment of the equity requirements and amortization schedules. An area-wide analysis could set recommended amortization schedules based upon expectations about the future of the given location. This could be one way to deal with the systemic problem. An alternative approach could be to establish a monitoring system that focused on the ow of funds and looked for signs that it might be excessive, pushing prices beyond sustainable levels. This information, supplemented with area-wide information on equity nancing that would discourage excessive funding of renancing for cash draws leaving the system excessively leveraged. That added to a leverage control in the securitization process and adequate reserves for the ersatz insurance contracts that bypassed reserve requirements would reduce the occurrence of outliers in the market system. Results of these macro analyses may be fed into the underwriting system, which might use a series of forecasted prices under various assumptions. Rather than a single valuation for the property at loan inception, a series of valuations, say at forecasts at ve year intervals

might be made. Rather than a single expected value at those points of time, ranges or multiple valuations based upon different scenarios may be calculated. Such calculations are beyond the crafts in current appraisal practice. Computational models such as agent based models can deal with alternative decision rules and regulations. Control of those regulatory policies is beyond the internal decisions of the lenders, but the lenders are nodes in the network that generates an emergent system that impacts the resulting regulatory environment. Outcomes from such a system are neither the free market unfettered outcomes nor the socialistic hierarchical structures. Rather they are utilization of markets, recognizing market limitations, but built to meet societal goals developed through a democratic process. The second part of a new valuation paradigm would consider that mortgage nance is integral to the analysis and that it is an evolutionary system that over time will produce new products in mortgage nance and new systems for access to capital markets. A new paradigm for real estate valuation is integrated with the shifts in the capital markets. The diverse nature of agents involved in the real estate transaction and in capital markets means that the mathematical model of rational economic agents acting within a closed economy associated with traditional economics is awed and clearly ceases to apply in modern nancial economies that are increasingly global. One of the contributing factors to the Great Recession was the role of securitization where Wall Street bought property loans, bundled them up (securitized) and sold them to investors as bonds. First, lenders were allowed to pocket their underwriting fees and commissions but were able to sell off the underlying risk of holding the loans to Wall Street and did not have to protect themselves against default by selling the loans to Wall Street. Next, Wall Street packaged the loans as securities and then sold them to investors for a specied return. These nanciers also no longer cared about the underlying value of the assets that backed the loan. In both cases, the lender and Wall Street made handsome prots and beneted both the aggressive employees, and maybe their shareholders, but divested themselves from any skin in the game and any care about making sure that the underlying asset that was the collateral for the loan would maintain its value over the life of the loan. In many cases, the fallout from this Great Recession is that the price of the property has fallen signicantly, from 30-40 percent in many cases, if a buyer can be found. To understand and model such discontinuities, the real estate economist needs to undertake an interdisciplinary perspective that examines the behaviors of the chain of diverse agents involved in a real estate transaction. The complexity of modern real estate transactions is amplied by non-rational behavioral patterns and informational asymmetries. The emergence of discontinuities means that new tools including behavioral research, testing power laws and agent-based modeling need to be explored. For example, loss aversion (Kahneman and Tversky, 1979) may explain why prices move freely upwards but face a stubborn lag in the downward direction leading to the sticky price downwards syndrome experienced in many real estate markets. Mandlebrot illustrated in the late 1960s that power laws described the short run behaviors of prices of a range of goods and commodities. Finally, Gangel et al. (2010) utilized an agent-based modeling approach to explore the magnitude of the foreclosure contagion effect. The signicance of this second aspect is the interdependence of space and capital markets. Valuation that are completed for nancing the space market (real estate) whether it is coming from the traditional banking source or the investor (in the case of

A new paradigm for real estate valuation? 353

JPIF 29,4/5

354

derivatives) needs to deal directly with evolution that is occurring in those markets and the uncertainties that may be caused by long tailed distributions. The third element for a new valuation paradigm is that emergence is in the process of markets since markets are complex adaptive systems. The emergent results of the behavior of learning-capable agents (market participants) who adapt their behavior subject to the introduction of new information, the behavior of other agents and market noise can lead to possible macro level effects that are not apparent at the micro level. An example from the 1930s is the reappearance of a world liquidity trap where individual virtue becomes vice: attempts to save more actually make us poorer, in both the short and the long run (Krugman, 2010). The impact of emergence is that actions that stimulate individual behavior may have complex and unforeseen consequences on the macro scale, if not modeled adequately. This means that one classical mathematical model of equilibrium does not describe the diverse, adaptive and non-rational behaviors of the agents. The inability of the analyst to perfectly program human behavior means that uncertainty should be incorporated into any forecast of the transaction price (Graaskamp, 1977). Conclusion It is our opinion that the current neoclassical paradigm may help explain some specic day-to-day activities/prices in real estate markets[4], but the overall inefciencies of real estate markets means that these models provide inadequate tools to explain the night activities when the punch bowl comes out and everyone gets crazy on creative nancing and securitization. Inefcient markets, opaque prices, and non-rational behaviors mean that herds of agents start to believe that real estate prices always increase and that one cannot lose by investing in this asset class. To a psychologist, adopting the neoclassical paradigm would be similar to tracking the day-to-day activities of Jack the Ripper, but ignoring his nocturnal vicissitudes. Complexity economics provides a starting point to examine real estate economics in all lights both its beauty and when its ugliness surfaces and causes a discontinuity as occurred with the capital market freeze that triggered the Great Recession of 2008. The dominant economic paradigm, and its focus on efcient markets, may be shifting to a new paradigm incorporating complexity economics. This shift facilitates dealing with the inefciency of markets and it is critical in the case of real estate given the xity of location and long economic life of this asset class. The paradigm shift may already be underway, but complexity economics at this point is still a work in progress and in a nascent stage. It is hard to tell if a new valuation paradigm will simply be a branch of standard economics, much as with behavioral economics or if it will be something totally new and different. We can call it a paradigm shift or some modication of neoclassical markets superseding efcient market theory. Call it what you will, but one of the great benets of extended research of real estate is that principles learned for this asset class may be applied to other disciplines where their use may not be as obvious. At least that is what some of us recall Art Weimer saying in informal conversations. Thus, the hope of this opening presentation of the third valuation colloquium, with its long history, is to stimulate others to complete research that expands our understanding of valuation theory so that we are better able to deal with the realities of changing markets in a changing global economy. Real estate markets are in a transition as part of the evolutionary process. Obscurantism[5] impedes the process, but a few researchers with vision can make a big difference.

Notes 1. The Gaussian bell curve has a number of statistical properties and applications described in many elementary statistical text books. For example, it also describes the population distributions for a number of other events including height, weight, mortality rates, IQ and the income of a baker (Taleb, 2007). One can accurately estimate the odds of such events under the Gaussian distribution, 95 percent of the observations lie within two standard deviations of the mean. 2. In comparison, the concept of the rational man or organization overly-simplies how individuals make decisions in favor of mathematical tractability (Beinhocker, 2006). 3. Reexivity is the term used by George Soros in his The New Paradigm for Financial Markets: The Credit Crunch of 2008 and What it Means (Soros, 2008). Reexivity means that the adaptation to the changed environment may alter the environment. 4. For example, there is some evidence that real estate prices may revert back towards fundamental values over the long run. Shiller (2005) observes that American house prices increased by less than 1 percent per annum in real terms from 1890 to 2004, while minimal real price growth has been found in a recent study of Manhattan ofce values from 1900 (Wheaton et al., 2009). 5. Obscurantism is discussed in The Function of Reason by Alfred North Whitehead, rst published in 1929 (Whitehead, 1929). Whitehead uses the term obscurantism with the following denition; Obscurantism is the refusal to speculate freely on the limitations of traditional methods (p. 43 of paperback or 34 of electronic version).

A new paradigm for real estate valuation? 355

References Abraham, J.M. and Hendershott, P.H. (1994), Bubbles in metropolitan housing markets, working paper no. 4774, National Bureau of Economics Research, Cambridge, MA. Akerlof, G. and Shiller, R. (2009), Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism, Princeton University Press, Princeton, NJ. Ariely, D. (2009), The curious paradox of optimism bias, Business Week, August 24, available at: www.businessweek.com/magazine/content/09_34/b4144048821798.htm Axelrod, R. and Cohen, M.D. (2000), Harnessing Complexity: Organizational Implications of a Scientic Frontier, Free Press (A Division of Simon & Schuster), New York, NY. Beinhocker, E.D. (2006), The Origin of Wealth: Evolution, Complexity and the Radical Remaking of Economics, McKinney & Company, Boston, MA. Bikhchandeni, S., Hirshleifer, D. and Welch, I. (1992), A theory of fads, fashion, custom and cultural change as informational cascades, Journal of Political Economy, Vol. 100 No. 5, pp. 992-1026. Black, F. (1986), Noise, Journal of Finance, Vol. 41 No. 3, pp. 529-43. Cassidy, J. (2009), How Markets Fail: The Logic of Economic Calamities, Farrar, Strauss and Giroux, New York, NY. Clapp, J.M., Goldberg, M.A. and Myers, D. (1994), Crisis in methodology: paradigms vs practice in real estate research, in Delisle, J. and Sa-Aadu, J. (Eds), Appraisal, Market Analysis and Public Policy in Real Estate: Essays in Honor of James A. Graaskamp, American Real Estate Society, Kluwer Academic Press, Norwall, MA, pp. 107-32. Friedman, M. (1953), Essays in Positive Economics, University of Chicago Press, Chicago, IL.

JPIF 29,4/5

356

Gangel, M., Seiler, M. and Collins, A. (2010), Exploring the foreclosure contagion effect using agent-based modeling, paper presented at the MIT/Maastricht Colloquium, Boston, MA, November. Gau, G. (1987), Efcient real estate markets: paradox or paradigm?, Real Estate Economics, Vol. 15 No. 2, pp. 1-12. Graaskamp, J.A. (1977), Appraisal of 25 N. Pinckney: A Demonstration Case for Contemporary Appraisal Methods, Landmark Research, Madison, WI. Graaskamp, J.A. (1981), The Fundamentals of the Real Estate Development Process, The Urban Land Institute, Washington, DC. Hansen, D.E. and Dickinson, T.E. (1975), Undivided interests: implications of a new approach to recreational land development, Land Economics, Vol. 51 No. 2, pp. 124-32. Ito, T. and Iwaisako, T. (1995), Explaining asset bubbles in Japan, working paper no. 5358, National Bureau of Economics Research, Cambridge, MA. Kahneman, D. and Tversky, A. (1979), Prospect theory: an analysis of decisions under risk, Econometrica, Vol. 47 No. 2, pp. 263-91. Kaiser, R. (1997), The long cycle in real estate, Journal of Real Estate Research, Vol. 14 No. 3, pp. 233-57. Keynes, J.M. (1921), A Treatise on Probability, Macmillan, London. Keynes, J.M. (1936), The General Theory of Employment, Interest, and Money, Harcourt Brace, New York, NY. Kindleberger, C.P. and Aliber, R.Z. (2005), Manias, Panics, and Crashes: A History of Financial Crises, John Wiley & Sons, Hoboken, NJ. Kinnard, W.N.K. (1968), Reducing uncertainty in real estate decisions, The Real Estate Appraiser, Vol. 34 No. 7, pp. 10-16 (reprinted in Sirmans, C.F. and Worzala, E. (Eds), Essays in Honor of William N. Kinnard, Jr, American Real Estate Society 2003, Kluwer Press, Boston, MA). Knight, F.H. (1921), Risk, Uncertainty, and Prot, Schaffner & Marx; Houghton Mifin Co., Boston, MA. Krugman, P. (2010), How much of the world is in a liquidity trap?, New York Times, available at: http://krugman.blogs.nytimes.com/2010/03/17/how-much-of-the-world-is-in-a-liquiditytrap/?scp1&sqKrugman%20liquidity%20trap&stcse (accessed November 3, 2010). Louargand, M. (2007), The serpent in the garden, Journal of Portfolio Management, Vol. 13 No. 4, pp. 401-4. Lusht, K. (1986), Finance theory and real estate valuation, in Kinnard, W.N. (Ed.), A Redenition of Real Estate Appraisal Precepts and Processes, 1984 Real Estate Colloquium, Lincoln Institute of Land Policy, Oelgeschlager, Gunn & Hain, Publishers, Inc., Boston, MA. Malpezzi, S. (2001), Tales from the real side: the implications of urban research for real estate nance in developing and transition economies, in Wachter, S.M. and Penne, P.L. (Eds), Housing Policy in the New Millennium, Conference Proceedings, Washington, DC, HUD, pp. 149-73, available at: www.huduser.org/Publications/pdf/brd/06Malpezzi.pdf Miller, J.H. and Scott, E. (2007), Complex Adaptive Systems: An Introduction to Computational Models of Social Life, Princeton University Press, Princeton, NJ. Miller, N., Rausenkraus, S. and Sklarz, M. (2010), The neighborhood impact of subprime lending, predatory lending and foreclosure, paper presented at the Annual Meeting of the American Real Estate Society, Naples, FL, April.

Robbins, M. and Ahearn, S. (1994), The price of wilderness and scenic beauty: a methodology for the inventory and appraisal of wilderness and scenic land, in DeLisle, J. and Sa-Aadu, J. (Eds), Appraisal, Market Analysis and Public Policy in Real Estate: Essays in Honor of James A. Graaskamp, American Real Estate Society, Kluwer Academic Press, Norwall, MA, pp. 132-49. S&P/Case-Shiller (2010), Home price indices, available at: www.macromarkets.com/csi_ housing/sp_caseshiller.asp (accessed March 17, 2010). Shanaberger, M., Sonntag, R., Clark, T. and Collis, L. (2005), Launch marketing for resort projects, PowerPoint Presentation, ULI Resort Conference, Urban Land Institute, Washington, DC. Shiller, R. (2005), How Wall Street learned to look the other way, New York Times, February 8, New York, NY. Shiller, R. (2007), Historic turning points in real estate, Cowles Foundation Discussion Paper, No. 1610, Yale University, New Haven, CT. Skidelsky, R.J.A. (2009), Keynes: The Return of the Master, Public Affairs, New York, NY. Soros, G. (2008), The New Paradigm for Financial Markets: The Credit Crunch of 2008 and What it Means, PublicAffairs, New York, NY. Taleb, N. (2004), Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets, Random House, New York, NY. Taleb, N. (2007), The Black Swan: The Impact of the Highly Improbable, Random House, New York, NY. Theobald, A.D. (1929), A self-liquidating plan for nancing a subdivision, Journal of Land and Public Utility Economics, Vol. 5 No. 1, pp. 92-4. Tversky, A. and Kahneman, D. (1974), Judgment under uncertainty: heuristics and biases, Science, Vol. 185 No. 4157, pp. 1124-31. Vanderblue, H.B. (1927), The Florida land boom, Journal of Land and Public Utility Economics, Vol. 3 No. 2, pp. 113-31. Weinstein, N.D. (1980), Unrealistic optimism about future events, Journal of Personality and Social Psychology, Vol. 39 No. 5, pp. 806-20. Wheaton, W., Baranski, M.S. and Templeton, C.A. (2009), 100 years of commercial real estate prices in Manhattan, Real Estate Economics, Vol. 37 No. 1, pp. 69-83. Whitehead, A.N. (1929), The Function of Reason, Oxford University Press, London. Whitt, R.S. and Schultze, S.J. (2009), The new emergence economics of innovation and growth, and what it means for communications policy, Journal on Telecommunications & High Technology Law, Vol. 7 No. 1, pp. 216-316. Whitten, R. (1936), Suburban land speculation, Journal of Land and Public Utility Economics, Vol. 12 No. 3, pp. 221-7. Wyman, D. and Worzala, E. (2010), Predatory marketing tactics and speculation in monopolistic land developments, paper presented at the Annual Meeting of the American Real Estate Society, Naples, FL, April. Xiao, Q. (2010), Crashes in real estate prices: causes and predictability, Urban Studies, Vol. 47 No. 8, pp. 1-20. Xiao, Q. and Tan, G.K.R. (2007), Signal extraction with Kalman lter: a study of the Hong Kong property price bubbles, Urban Studies, Vol. 44 No. 4, pp. 865-88.

A new paradigm for real estate valuation? 357

JPIF 29,4/5

Zibel, A. and Choi, C. (2010), Questions and answers about the foreclosure freeze, available at: www.signonsandiego.com/news/2010/oct/15/questions-and-answers-about-the-for eclosure-freeze/ (accessed 3 November 2010). Further reading Shiller, R. (2010), How should the nancial crisis change how we teach economics?, The Journal of Economic Education, Vol. 14 No. 4, pp. 403-9. About the authors David M. Wyman is a doctoral student at the University of Aberdeen in Scotland. He is also the Interim Director of the Arthur M. Spiro Institute for Entrepreneurial Leadership at Clemson University. He has a BA from Cambridge University and an MBA from Craneld University. Before entering the academic arena, he was a toy and game designer with over 50 products that have been taken to market and has worked with companies such as Mattel and Hasbro. Research interests include real estate markets, real estate valuation, and golf course development and management. David M. Wyman is the corresponding author and can be contacted at: dwyman@clemson.edu Maury Seldin, Chairman of the Board of Directors of Homer Hoyt Institute (an independent not-for-prot research organization dedicated to addressing problems of urban growth and development through improving the quality of real estate decision making), is Chairman Emeritus of the Maury Seldin Advanced Studies Institute of Real Estate and Land Economics, Realtor Chair Professor Emeritus at The American University (Washington, DC), and an emeritus member of the Counselors of Real Estate. His numerous books include Real Estate Investment Strategy, Real Estate Market Analysis, and Real Estate Analysis. His consulting and research for business and government on real-estate related matters have served federal, state, and local government authorities; business organizations; professional and trade associations; and other consultants. He has been honored by both the American Real Estate and Urban Economics Association and the American Real Estate Society for his many contributions to the real estate research community. His current research interests are focused on ways to advance the real estate discipline through applications of complexity economics and other disciplines. Elaine Worzala is the Director of the Richard H. Pennell Center for Real Estate Development and a Professor in Real Estate at Clemson University. She is also the interim director of the MRED program at Clemson. She has served as the President of both the American Real Estate Society and the International Real Estate Society and is currently a board member for both organizations. In addition, she serves on the advisory board of the Real Estate Research Institute, the diversity task force for NAIOP and the Accreditation and Education Board as well as the Mid-Atlantic Board of the RICS-Americas. Dr Worzala has completed research grants for the Royal Institution of Chartered Surveyors (RICS), the International Council of Shopping Centers (ICSC), Pension Real Estate Association (PREA) and the Real Estate Research Institute (RERI) in the last few years on diverse topics including institutional real estate investments, currency hedging, graduate real estate education, seniors housing and the institutional investment community, sustainability as it relates to the real estate industry, and real estate valuation issues. Additionally, her research often takes on an international perspective.

358

To purchase reprints of this article please e-mail: reprints@emeraldinsight.com Or visit our web site for further details: www.emeraldinsight.com/reprints