real estate damage economics & statistics randall bell, phd, mai

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Real Estate Damage Economics & Statistics Randall Bell, PhD, MAI

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Page 1: Real Estate Damage Economics & Statistics Randall Bell, PhD, MAI

Real Estate Damage

Economics & Statistics

Randall Bell, PhD, MAI

Page 2: Real Estate Damage Economics & Statistics Randall Bell, PhD, MAI

OverviewOverview Real Estate Damages

Overview / Bell Chart / DC Matrix Loss of Use – Project Delay

Construction Defect / Delay of Sale / Delay of Unoccupied Sale / Delay of Land Sale / Delay of Development

Economic Waste Costs vs. Benefits

Regression Modeling Simple Regressions / Multiple

Regressions

Page 3: Real Estate Damage Economics & Statistics Randall Bell, PhD, MAI

Hurricane Hurricane DamageDamage

Page 4: Real Estate Damage Economics & Statistics Randall Bell, PhD, MAI

Bikini AtollBikini Atoll

Page 5: Real Estate Damage Economics & Statistics Randall Bell, PhD, MAI

Marshall Islands - Nuclear Weapons Testing

Page 6: Real Estate Damage Economics & Statistics Randall Bell, PhD, MAI

Marshall Islands - Nuclear Weapons Testing

Nuclear Testing – Bikini Atoll

Page 7: Real Estate Damage Economics & Statistics Randall Bell, PhD, MAI

Marshall Islands - Nuclear Weapons Testing

Nuclear Testing Crater

Page 8: Real Estate Damage Economics & Statistics Randall Bell, PhD, MAI

Marshall Islands - Nuclear Weapons Testing

Nuclear Testing – Bikini Atoll

Page 9: Real Estate Damage Economics & Statistics Randall Bell, PhD, MAI

“Bravo Crater” - Bikini Atoll

Bravo Crater – Bikini Atoll

Page 10: Real Estate Damage Economics & Statistics Randall Bell, PhD, MAI

Measuring Radioactive Fallout

Testing for Radiation

Page 11: Real Estate Damage Economics & Statistics Randall Bell, PhD, MAI

EarthquakeEarthquake

Page 12: Real Estate Damage Economics & Statistics Randall Bell, PhD, MAI

Avila BeachAvila Beach

Page 13: Real Estate Damage Economics & Statistics Randall Bell, PhD, MAI

ChernobylChernobyl

Page 14: Real Estate Damage Economics & Statistics Randall Bell, PhD, MAI

Love CanalLove Canal

Page 15: Real Estate Damage Economics & Statistics Randall Bell, PhD, MAI

Love CanalLove Canal

Page 16: Real Estate Damage Economics & Statistics Randall Bell, PhD, MAI

Love CanalLove Canal

Page 17: Real Estate Damage Economics & Statistics Randall Bell, PhD, MAI

Other Cases Of Other Cases Of

Real Estate Real Estate DamageDamage

Page 18: Real Estate Damage Economics & Statistics Randall Bell, PhD, MAI

Bell ChartBell ChartII General GeneralIIII Transactional TransactionalIIIIII Legal LegalIVIV Distress DistressVV External ExternalVIVI Building BuildingVIIVII Site SiteVIIIVIII Environmental EnvironmentalIXIX

ConservationConservationXX Natural Natural

Page 19: Real Estate Damage Economics & Statistics Randall Bell, PhD, MAI

DETRIMENTAL CONDITION DETRIMENTAL CONDITION MODELMODEL

Unimpaired Value

A

Val

ue

Time

BDetrimental

Condition Occurs

Stages of Recovery and Value Effects

C

AssessmentCost & Responsibility Use Uncertainty Factor (Risk)

D

RepairCost & Responsibility Use Project Incentive (Risk)

E

On-GoingCost & ResponsibilityUse

FMarket Resistance (Risk)

Page 20: Real Estate Damage Economics & Statistics Randall Bell, PhD, MAI

DETRIMENTAL CONDITION MATRIX

StagesAssessment Repair Ongoing

Issu

es

Co

stU

seR

isk

Cost to Assess & Responsibility

Engineering Phase I,II,III Studies

Repair Costs & Responsibility

Repairs Remediation Contingencies

Ongoing Costs & Responsibility

Operations & Maintenance (O&M)

Monitoring

All Loss of Utility While Assessed

Disruptions Safety Concerns

Use Restrictions

All Loss of Utility While Repaired

Income Loss Expense Increase

Use Restrictions

OngoingLoss of Utility

Alterations to Highest & Best Use

Uncertainty Factor

Discount, if any, where extent of

damage is unknown

Project Incentive

Financial incentive, if any, to complete

repairs

Market Resistance

Residual resistance, if any,

due to situation

Page 21: Real Estate Damage Economics & Statistics Randall Bell, PhD, MAI

Loss of Use - Project Loss of Use - Project DelayDelay

Area Wide CalamitiesArea Wide Calamities Construction DelaysConstruction Delays Environmental Environmental CleanupCleanup

Delayed Sale or LeaseDelayed Sale or Lease Legal/Title DisputesLegal/Title Disputes

Page 22: Real Estate Damage Economics & Statistics Randall Bell, PhD, MAI

TimeTimeValueValue

Of MoneyOf Money

Page 23: Real Estate Damage Economics & Statistics Randall Bell, PhD, MAI

The Power of InterestThe Power of Interest The “banker’s secret” is to understand

the relationship between time and money.

Page 24: Real Estate Damage Economics & Statistics Randall Bell, PhD, MAI

The Power of InterestThe Power of Interest The “banker’s secret” is to understand the

relationship between time and money.

If the Indians had taken the $24 in trinkets that they received in 1688 for the Island of Manhattan, and traded to obtain a 6% annual return, today they would have nearly $3 trillion dollars, enough money to not only buy back all of Manhattan, but much of the entire real estate in the United States.

Page 25: Real Estate Damage Economics & Statistics Randall Bell, PhD, MAI

Case Study 1:Case Study 1:

Construction Construction DefectDefect

Page 26: Real Estate Damage Economics & Statistics Randall Bell, PhD, MAI

1. Construction Delay Case1. Construction Delay Case

With a construction delay case, the calculation may be straight forward. If a setback causes a

$1,000,000 project a 60 day delay, and the appropriate return is 12%, then the project

delay could be estimated. 

$1,000,000 @ 60 days @ 12% = $20,000

($1,000,000 x (2/12) x .12)

Page 27: Real Estate Damage Economics & Statistics Randall Bell, PhD, MAI

Case Study 2:Case Study 2:

Delay of SaleDelay of Sale

Page 28: Real Estate Damage Economics & Statistics Randall Bell, PhD, MAI

2. Delay of Occupied 2. Delay of Occupied Improved SaleImproved Sale

Some project delays may be computed with Some project delays may be computed with conventional methodologies using values at the conventional methodologies using values at the “target date” and the “delay date.” They should “target date” and the “delay date.” They should

reconcile with market trend studies. reconcile with market trend studies.

  

Target Date (Escrow Date) Market Value = $1,000,000Target Date (Escrow Date) Market Value = $1,000,000

  

Delay Date Market Value = $1,100,000Delay Date Market Value = $1,100,000

Page 29: Real Estate Damage Economics & Statistics Randall Bell, PhD, MAI

Case Study 3:Case Study 3:

Delay of Delay of Un-Occupied Un-Occupied Improved SaleImproved Sale

Page 30: Real Estate Damage Economics & Statistics Randall Bell, PhD, MAI
Page 31: Real Estate Damage Economics & Statistics Randall Bell, PhD, MAI

3. Loss of Use of Unoccupied Improved Property

A property has a construction defect whereby it must be vacated while repaired. In terms of use and occupancy, the damages could be

benchmarked to the rental rate,

 

16 Months @ $2,600/Month = $41,600

Page 32: Real Estate Damage Economics & Statistics Randall Bell, PhD, MAI

Case Study 4:Case Study 4:

Delay of Land Delay of Land UseUse

Page 33: Real Estate Damage Economics & Statistics Randall Bell, PhD, MAI

4. Delay of Land Use4. Delay of Land Use

Engineers assess the underlying problems and the project delay is one year.

 

Land Market Value, $1,000,000

@ 10% Ground Lease Rate

@ 1 Year Delay =

Project Delay, $100,000

Page 34: Real Estate Damage Economics & Statistics Randall Bell, PhD, MAI

Case Study 5:Case Study 5:

Delay of LandDelay of Land DevelopmentDevelopment

ProjectProject

Page 35: Real Estate Damage Economics & Statistics Randall Bell, PhD, MAI
Page 36: Real Estate Damage Economics & Statistics Randall Bell, PhD, MAI

5. Delay of Land 5. Delay of Land DevelopmentDevelopment

Annual

Market Change -2% 0% 2%

1 Year Delay-19.67% -18.03% -16.39%

2 Year Delay-35.47% -32.81 -30.10%

3 Year Delay-48.17% -44.93% -41.56%

10 Year Delay -88.81% -86.31% -83.31%

Page 37: Real Estate Damage Economics & Statistics Randall Bell, PhD, MAI

Economic Economic WasteWaste

Page 38: Real Estate Damage Economics & Statistics Randall Bell, PhD, MAI

Economic WasteEconomic Waste Costs vs. Benefits

Red Car vs. Blue Car Crashed Car vs. Repaired Car Required Repairs vs. Not Required

Cost of Repair vs. Diminution in Value Types of Cases

Geotechnical / Environmental / Construction Defects

Land Value Legal Compensability vs. Market

Realities

Page 39: Real Estate Damage Economics & Statistics Randall Bell, PhD, MAI

RegressionRegression AnalysisAnalysis

Page 40: Real Estate Damage Economics & Statistics Randall Bell, PhD, MAI
Page 41: Real Estate Damage Economics & Statistics Randall Bell, PhD, MAI

ConclusionsConclusions© Randall Bell, Ph.D., MAI. All rights reserved.© Randall Bell, Ph.D., MAI. All rights reserved.