Center for Real Estate and Finance Reports

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The Cornell Center for Real Estate and Finance has developed a series of research reports in support of the real estate investment and finance community. CREF faculty perform research and publish on a wide variety of topics within the real estate and finance industry. The faculty includes experts in econometric models, real estate derivatives, and hotel management contracts.


Recent Submissions

Now showing 1 - 10 of 14
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    Real Estate: Private Equity Investment in Shanghai
    Liu, Peng; Loh, Terence (2021-10-22)
    In this case study, you are a consultant engaged to assess whether to invest in Project Innov Star, a Class A office project in Zhangjiang Shanghai, which currently is stalled. The hold up, and thus the opportunity to invest, arises due to a difference of opinion between the two partners. The majority investor (80%) seeks to sell its share, while the 20-percent minority investor would be willing to complete construction with a new partner, or might be open to selling the entire project. Your analysis will yield one of three recommendations: (1) pass on the investment, (2) purchase the majority, 80-percent share, or (3) purchase the entire project and engage a new construction partner. As part of the analysis, you are required to determine the value of the project, which is essentially the value of the land.
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    Second Quarter 2021: Are We There Yet?
    Liu, Crocker; Nowak, Adam; White, Robert Jr (2021-07-15)
    United States hotel prices have rebounded above their statistical lower bound in all regions except the Mountain states, signaling a return toward their pre-pandemic level—although we are not quite there yet. Prices of hotels in gateway cities rose 6 percent, while hotels in non-gateway cities climbed almost 7 percent on average this quarter. Transaction volume also increased for both large hotels and small hotels, with large hotels rising 79 percent and small hotels, 57 percent on a quarter-over-quarter basis. Our moving average trendlines and standardized unexpected price performance metrics indicate that large hotels (those over $10,000,000) are fairly priced, while small hotels are opportunistic buys at best. The cost of debt financing for hotels declined approximately 17 basis points (bps) this quarter with interest rates currently at 5.55 percent for Class A hotels and 5.75 percent for Class B and C hotels. However, the spread in interest rates between hotels and other commercial real estate (relative risk premium) has widened slightly, from 211 basis points in March to 215 basis points at this writing. The total risk associated with hotel REITs has also increased relative to the total risk for other major types of commercial real estate REITs. This indicates that the capital market still perceives hotels to be relatively riskier, although the delinquency rate on hotel loans (currently at 14.27%) continues to decline from its high of 24.3 percent (June 2020) toward its pre-pandemic level of around 1.51 percent (2019Q4). Our economic value added (EVA) and new shareholder value added (SVA) metrics are negative, indicating that borrowing costs exceed operating performance. As a consequence, any deals done will be based on long-term price appreciation for the deal to pencil. Looking toward the next quarter, our leading indicators of hotel price performance indicates that positive price momentum should continue to exist for both large and small hotels.
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    The Phoenix Is Rising
    Liu, Crocker; Nowak, Adam; White, Robert Jr (2021-04-19)
    Although the price of hotels along the east coast declined again this quarter the rate of decline has continued to lessen. Hotels in gateway cities reversed course, outperforming hotels in non-gateway cities. Our moving average trendlines and standardized unexpected price performance metrics indicate that both large and small hotels remain undervalued, pointing to a buy opportunity. There are indications that lenders appetite for hotels continues to increase. A reading of our tea leaves suggests that we should see positive price momentum for both large and small hotels. This is report number 38 of the index series.
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    A Glimmer of Hope Amidst a Hemorrhage
    Liu, Crocker; Nowak, Adam; White, Robert Jr (2021-01-20)
    Prices of hotels along the east coast continue to drop, although the rate of decline has moderated. Hotels on the west coast enjoyed positive price momentum, both on a quarter-over-quarter or year-over-year basis. Hotels in gateway cities exhibited poorer price performance than those in non-gateway cities. Our moving average trendlines and standardized unexpected price performance metrics indicate a positive price reversal for large hotels, while the hemorrhaging continues for small hotels. There are indications that lenders are more willing to finance hotels going beyond best-in-class hotel properties, although the cost of financing and the relative risk premium remain high. This is report number 37 of the index series.
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    Is It Time for Bottom Fishing?
    Liu, Crocker; Nowak, Adam; White, Robert Jr (2020-10-12)
    The prices of hotels in all regions continue to hemorrhage, with hotels in the Middle Atlantic and South Atlantic regions particularly hard hit. In contrast, hotels in the Mountain states suffered the fewest losses. Hotels in gateway cities continued to have lower price decline relative to those in non-gateway cities. Both our moving average trendlines and standardized unexpected price performance metrics indicate continuing negative price momentum for both large and small hotels. The relative risk premium that lenders require for hotels is still higher than that of other commercial real estate, except for retail properties. Our tea leaves suggest that both large and small hotels should continue to decline in price. This is report number 36 of the index series (year 9, issue 3).
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    Guide to Using the Free Rent Calculator
    Liu, Peng; Su, Luoyi; deRoos, Jan A. (2014-02-01)
    In this step-by-step guide, we show you how to use the Free Rent Calculator, which provides an accurate, visual means to quantify the impact of concessions in commercial leases based on the market conditions and landlord’s risk profile. The calculator allows both landlords and tenants to benchmark the impact of free rent, tenant improvements, and moving allowance on a given set of the asking and offering rents. The calculator determines the resulting effective rent, which is equivalent to the tenant paying a constant base rent over the entire lease term.1 The effective rent serves as a comparison benchmark, allowing users to quickly see the impact of changes to the asking rent and concession package. The tool works by allowing users to specify the structure of the rental payments, tenant improvements (TIs), and the moving allowance, and then computes the maximum free rent period in light of the specified lease terms and concessions. Landlords can use the tool to fine-tune the concession package by determining the appropriate level of free rent that seems attractive without increasing exposure to tenant default. Tenants can use the tool to optimize the free rent and concession structure to create the most desirable pattern of monthly cash outflows from the available options.
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    Insights on Hospitality, Retailing, and Commercial Real Estate: 2014 Cornell Retail Real Estate Roundtable Proceedings
    Lawrence, Benjamin; Liu, Peng (2014-12-01)
    Undeniably, the retail industry spectrum is broad,” said roundtable chair Peng Liu, as he opened the inaugural retail roundtable, held in New York City in June 2014. An associate professor of real estate at the Cornell School of Hotel Administration, Liu added that real estate spans “from the overall economy and retail market trends to technology innovation and big data; and from retail leasing negotiations to shopping center investments and financing. The retail industry is an asset-intensive business with real estate playing a critical role.” Continued growth of internet-based commerce is one source of this phenomenon, and the rise of the internet has also created a new framework for many retailers, in which electronic operations and those at physical stores are blended with each other, as demanded by the customer.
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    Calculating Damage Awards in Hotel Management Agreement Terminations
    deRoos, Jan A.; Berman, Scott D. (2014-08-01)
    When a hotel management agreement is terminated without the consent of the manager, the law clearly allows the manager to recover damages (from the owner) as a result of the termination. In most cases, the owners and managers resolve their issues without litigation. For the substantial number that cannot agree and thus must be adjudicated, the courts have supported solid estimates of forgone fees for determining damage awards, based on careful, defensible calculations of the hotel’s performance during the prospective contractual period. The methodology outlined in this paper provides a way to establish with reasonable certainty the damages that occur from the involuntary termination of a hotel management agreement. While many hotel management agreements contain a liquidated damages clause that establishes the termination fee when the parties agree to terminate the contract, these liquidated damages clauses are not applicable in a situation where the hotel management agreement is terminated even though the manager has not breached the contract. This report provides a numerical example demonstrating that the actual damage amount is at least twice and potentially five times the amount of a typical termination fee. An analysis of recent court cases shows that the courts accept the methodology proposed here, although they may debate the assumptions that underlie the calculations (such as the anticipated inflation rate). What courts will not accept are unsupported estimates and certain expense claims not expressly found in the contract language.
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    What is a Gateway City?: A Hotel Market Perspective
    Corgel, Jack (2012-04-01)
    The United States Office of Management and Budget designates 366 American cities as metropolitan statistical areas (MSAs).2 Fifty of these 366 MSAs contain the majority of the nation’s hotel rooms. For purposes of investing in these locations, hotel capital suppliers rely on ad hoc taxonomies to organize geographic markets along quality lines with labels such as toptier cities, secondary and tertiary cities, coastal cities, and gateway cities. Although high quality hotel investments exist in many markets, the presumption is that assets in top-tier and gateway cities exceed others as IRR generators. Despite widespread acceptance of common taxonomies, definitions that allow for inclusion and exclusion of cities among the various categories are fuzzy at best. More precision regarding the organization of metropolitan hotel markets might promote research on relative pricing of hotels and investment return premiums available in these markets and generally assist the industry in differentiating MSA hotel markets.
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    Demystifying Debt Yields
    Corgel, Jack (2012-06-01)
    Like a thief in the night, debt yield ratios (DY) snuck into the offices of commercial mortgage lenders in the U.S. and took over loan sizing methodology. According to, It is the money center banks and investment banks originating fixed-rate, conduit-style commercial loans that are using the new Debt Yield Ratio. Commercial banks, lending for their own portfolio, and most other commercial lenders have not yet adopted the Debt Yield Ratio.”1