Real Estate (13th ed.)

Citation

Ooi, J. (2003), "Real Estate (13th ed.)", Journal of Property Investment & Finance, Vol. 21 No. 2, pp. 203-205. https://doi.org/10.1108/jpif.2003.21.2.203.2

Besides the author, what caught my eyes when I browsed through a catalogue of real estate books was the claim by the publisher that Real Estate is the longest continuously published book in real estate. On reviewing the book, I noticed that the first edition of this book was published way back in 1922 by Prentice‐Hall, with Nelson L. North and Philip A. Benson as the authors. Alfred A. Ring took over as the third author with the fifth edition in 1960, and Jerome Dasso as the fourth author with the eighth edition in 1977. James D. Shilling, who is currently the President of the American Real Estate and Urban Economics Association (AREUEA), became the fifth author of Real Estate in the twelfth edition in 1995. He is the author of this thirteenth edition.

The book contains 703 pages, which are organized in 34 chapters covering many decisions faced in the world of real estate. The chapters are in themselves divided and arranged into six major themes as follows:

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  Part 1 – Value analysis;

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  Part 2 – Appraisal;

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  Part 3 – Property development;

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  Part 4 – Spatial economics;

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  Part 5 – Real estate finance; and

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  Part 6 – Law and brokerage.

The major decision facing most participants in real estate is the investment decision. Why invest in real estate? Which type of property to buy? How much to pay for the property? When to divest? The book devoted nine chapters in Part 1 to help the readers understand these important real estate decision issues. It starts with the basics – investment environment, valuation concepts, risk and return in real estate, federal taxes affecting real estate, and mechanics of fixed‐rate mortgage financing. Besides presenting a step‐by‐step framework to determine after‐tax cash flow and after‐tax equity reversion, Chapter 7 on investment analysis also provides an interesting table contrasting the main value determinants, investment characteristics, principal risks and most likely investor of different property types.

Part 2 focuses on the real estate appraisal process. Comprising only four chapters, it begins with an overview of the appraisal process. This is followed by a discussion on the capitalization approach to valuing income‐property, and the direct sales‐comparison approach to valuing single‐family properties. One common confusion amongst students, and if I may include practitioners as well, is the relationship between discount rates and capitalization rates. I was, therefore, pleased to note that the book dedicated one section to help readers distinguish between discount rates and capitalization rates, and understand how the rates are derived. Part 2 is aptly concluded with a chapter on advanced appraisal topics. However, the coverage was incomplete as the chapter only dealt in depth with two issues – namely, the concept of highest‐and‐best use and valuation of leasehold interests. The application of option pricing to valuation of specific options in real estate ought to have been covered here.

Part 3 focuses on property development. Also comprising four chapters, it provides an overview of the property development process and a conceptual basis for making property development decisions. A case example of an office building was employed to illustrate how to calculate the intensity of use for a vacant site. The main argument here is that improvements should be added to a vacant site to the point where the marginal cost equates marginal revenue. At this point, the site will be at its highest‐and‐best use. The choice between redevelopment and refurbishment is also illustrated using the case study of an apartment block.

Part 4 covers spatial economics and urban area structures. Comprising three chapters, it gives an appreciation on why urban areas grow, and how land is allocated among different users. The interaction of supply and demand in local real estate markets is examined in Chapter 19. A framework to conduct a market study and feasibility analysis is presented in Chapter 20.

Part 5 is devoted to real estate finance issues. It has five chapters covering debt and equity financing, real estate investment trusts (REITs), mortgage underwriting and securitization, and homeownership financing. Of all the chapters in the book, I find Chapter 22 on REITs most interesting and comprehensive in its coverage. The chapter gives a good conceptual understanding of REITs – how they operate, the various REIT structures, and how REIT dividends relate to return. It also illustrated how REITs are valued, and discussed the factors that may influence REIT values. The consequences of companies choosing not to be structured as REITs but as real estate operating companies, which are similar in nature to property companies, is also covered. At the end, the author also posed a very pertinent question – why equity securitization works in America and not in other countries?

Part 6, comprising nine chapters, covers a variety of topics on real property rights and interests, leasing and lease analysis, government limitations to ownership, brokerage, sale and purchase contracts, and title transfer and closing.

In summary, the book attempted to cover a wide range of real estate issues. This is both its strength as well as its weakness. Strength because it provides an integrated framework for readers to appreciate the dynamic relationships between real estate issues. However, because of the wide scope, some of the topics are not discussed in depth. Overall, it is well written and the book is appropriate for use as a reference for university students and practitioners.