Income and Appraised Values: A Reexamination of the FRC Returns Data |
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Authors: | William C Wheaton Raymond G Torto |
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Institution: | Department of Economics and Center for Real Estate Development, Massachusetts Institute of Technology, Cambridge, Massachusetts 02139.;Department of Economics, University of Massachusetts, Boston, Massachusetts 02125. |
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Abstract: | This paper compares the income of those office properties that are included in the FRC index, with the appraised values that are used to determine the index's appreciation component. We find that the appraised value of the portfolio was a constant multiple of its current income, over the 1978–1988 period. This seems at odds with what modern valuation theory would suggest, since both nominal interest rates and several measures of real rates varied widely over the sample. An alternate interpretation of our results is that the appraised values were based on a set of expectations about future income growth, that turned out over the period, to be continually at odds with respect to actual income. |
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