Anthony Guma, Jason Pearson, Kate Wittels, Richard de Neufville and David Geltner
The purpose of this paper is to demonstrate the potential value of significant vertical phasing – that is, the addition of five or more stories to an existing building – as a…
Abstract
Purpose
The purpose of this paper is to demonstrate the potential value of significant vertical phasing – that is, the addition of five or more stories to an existing building – as a valuable real option in real estate development, in particular for corporate real estate strategy.
Design/methodology/approach
The demonstration is done through in‐depth case studies of four major projects in North America: the 24 story, 880,000 square feet expansion of the Health Care Service Corporation building in Chicago; the Court Square Citicorp Campus in New York City; the Bentall Five project in Vancouver; and the Tufts University School of Dental Medicine building in Boston.
Findings
Vertical expansion appears to have significant organizational and logistical advantages for corporate developers, such as the ability to keep staff in one building, and the elimination of the need to relocate with its resulting inconvenience and potential to lose employees. Further, the financial analysis indicates that the option to expand vertically is a reasonable way for corporate developers to access convenient expansion space, while limiting their downside risk. Commercial developers on the other hand may find that the ability to scale back designs in the case of market downturns is particularly valuable. The case studies also confirm by example that the vertical expansion of buildings is technically possible. Although the process of erecting a major new building on top of a fully occupied building is clearly complex, it is not extraordinary difficult so long as the possibility of vertical expansion is built into the original design.
Originality/value
Vertical expansion of buildings has not been appreciated as an attractive feasible option for flexible development of real estate in a risky environment. These case studies and analysis bring this possibility to the attention of the real estate industry and corporate real estate managers.
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As global economic systems become increasingly more complex and dynamic and the universal language of historical accounting is being profoundly altered, the theory and tools we…
Abstract
As global economic systems become increasingly more complex and dynamic and the universal language of historical accounting is being profoundly altered, the theory and tools we use in neo-classical economics, traditional finance, and valuation are beginning to prove inadequate to the tasks being required of them. Hence, there is a need to consider new avenues of thought and new tools. In this conceptual chapter, I explore the use of real options “in” engineering systems design as a means to achieve more rigorous and insightful results in the design and valuation of economic systems, particularly that of the firm. In the process, I gain further insight into the causes and cures for systemic disturbances generated by the presence and selection of real options in economic systems.
Indicators of economic and social phenomena can be useful descriptive and analytical inputs for public policy. The “social indicators movement” has emerged in the last decade and…
Abstract
Indicators of economic and social phenomena can be useful descriptive and analytical inputs for public policy. The “social indicators movement” has emerged in the last decade and is devoted to the measurement of widely‐ranging dimensions of human welfare. For the most part, questions of systematic measurement for public policy are explored here. Drawing initially on some traditions of measurement in economics, the principal aim is to provide a broad theoretical frame of reference for policy indicator design. Questions of indicator development necessarily involve ideas of suitability or validity of indicators designed for a purpose. Approaches to indicator design for the purpose of enhancing collective decision‐making—including formal model building approaches—are subsumed as special cases once a more general theory is espoused in sections II and III.
Elen Riot, Cecile Chamaret and Emmanuelle Rigaud
As some areas of the luxury market have been industrializing because of their expanding scale and scope, the commoditization trend is threatening luxury brands along the value…
Abstract
Purpose
As some areas of the luxury market have been industrializing because of their expanding scale and scope, the commoditization trend is threatening luxury brands along the value chain. Too many products might flood the market. Because the commodity trap has not so far been commonly referred to as the source of the problem, the efforts of firms to decommoditize have seldom been described. The purpose of this paper is to describe and interpret one type of successful reaction to this problem: the exclusive partnership made by Louis Vuitton with artist Takashi Murakami. The paper identifies the strategy along the value chain and its step by step implementation and influence on commoditization.
Design/methodology/approach
The paper identifies the strategy behind this partnership and its step by step implementation. It uses a qualitative method because it would like to understand complex phenomenon and explore in depth, some strategic operations and decisions. More precisely, it is a case study research because it works on a contemporary situation and allows to retain the meaningful characteristics of real-life events as organizational, managerial and social processes
Findings
LV strategy raises the difficulty for competitors to imitate or to propose same value products as the value added to LV product is almost unique with Murakami ' s touch. With this strategy they impact commoditization as defined by Reimann et al. Also, we formulate a few recommendations and insist on the integration of all the parts of the upstream value chain- especially operations – to achieve a successful long-term retail strategy.
Research limitations/implications
There are no research on partnerships between art and luxury. Our extensive analysis of the partnership between LV and Murakami gives a comprehensive view of how this kind of collaboration helps to fight back commoditization. However, more case studies should be studied to know if the strategy is replicable.
Practical implications
This research gives a comprehensive analysis of the adaptation of the value chain to make the partnership a success. It also underlines the need to conduct and to adapt the whole value chain to the specifities of the artist.
Originality/value
There are few research investigating the links and partnerships between artists and luxury brands. The originality is to describe a particular partnership concerning all the parts of the upstream value chain – especially operations – it also makes recommendations concerning potential partnerships between art and luxury to fight back against commoditization.
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Treshani Perera, David Higgins and Woon-Weng Wong
Property market models have the overriding aim of predicting reasonable estimates of key dependent variables (demand, supply, rent, yield, vacancy and net absorption rate). These…
Abstract
Purpose
Property market models have the overriding aim of predicting reasonable estimates of key dependent variables (demand, supply, rent, yield, vacancy and net absorption rate). These can be based on independent drivers of core property and economic activities. Accurate predictions can only be conducted when ample quantitative data are available with fewer uncertainties. However, a broad-fronted social, technical and ecological evolution can throw up sudden, unexpected shocks that result in the econometric outputs sceptical to unknown risk factors. Therefore, the purpose of this paper is to evaluate Australian office market forecast accuracy and to determine whether the forecasts capture extreme downside risk events.
Design/methodology/approach
This study follows a quantitative research approach, using secondary data analysis to test the accuracy of economists’ forecasts. The forecast accuracy evaluation encompasses the measurement of economic and property forecasts under the following phases: testing for the forecast accuracy; analysing outliers of forecast errors; and testing of causal relationships. Forecast accuracy measurement incorporates scale independent metrics that include Theil’s U values (U1 and U2) and mean absolute scaled error. Inter-quartile range rule is used for the outlier analysis. To find the causal relationships among variables, the time series regression methodology is utilised, including multiple regression analysis and Granger causality developed under the vector auto regression (VAR).
Findings
The credibility of economic and property forecasts was questionable around the period of the Global Financial Crisis (GFC); a significant man-made Black Swan event. The forecast accuracy measurement highlighted rental movement and net absorption forecast errors as the critical inaccurate predictions. These key property variables are explained by historic information and independent economic variables. However, these do not explain the changes when error time series of the variables were concerned. According to VAR estimates, all property variables have a significant causality derived from the lagged values of Australian S&P/ASX 200 (ASX) forecast errors. Therefore, lagged ASX forecast errors could be used as a warning signal to adjust property forecasts.
Research limitations/implications
Secondary data were obtained from the premier Australian property markets: Canberra, Sydney, Brisbane, Adelaide, Melbourne and Perth. A limited ten-year timeframe (2001-2011) was used in the ex-post analysis for the comparison of economic and property variables. Forecasts ceased from 2011, due to the discontinuity of the Australian Financial Review quarterly survey of economists; the main source of economic forecast data.
Practical implications
The research strongly recommended naïve forecasts for the property variables, as an input determinant in each office market forecast equation. Further, lagged forecast errors in the ASX could be used as a warning signal for the successive property forecast errors. Hence, data adjustments can be made to ensure the accuracy of the Australian office market forecasts.
Originality/value
The paper highlights the critical inaccuracy of the Australian office market forecasts around the GFC. In an environment of increasing incidence of unknown events, these types of risk events should not be dismissed as statistical outliers in real estate modelling. As a proactive strategy to improve office market forecasts, lagged ASX forecast errors could be used as a warning signal. This causality was mirrored in rental movements and total vacancy forecast errors. The close interdependency between rents and vacancy rates in the forecasting process and the volatility in rental cash flows reflects on direct property investment and subsequently on the ASX, is therefore justified.