Abimael Martell
5eb6a13860
* feat(layout): banded region segmentation for vertically-changing column layouts Pages whose column structure changes down the page (newsletter bands, figure-split flows, a three-column strip inside a two-column page) cannot be represented by one full-height column set: the projection profile either finds nothing and Y-interleaves the columns, or weaves the odd band's text into the wrong buckets. - Split pages into horizontal bands at full-width whitespace gaps (wide spanning items are excluded from occupancy — separators sit inside the very gaps being sought), detect columns independently per band, and re-merge consecutive bands with matching gutters across empty gaps so figure floats keep flowing down their columns while headline-separated bands stay independent. - Engage only on contradicting evidence: a prose-validated band whose column count differs from the page-level structure. Pages the flat column model already explains keep their current ordering. - Read short prose columns (5-14 lines, >=60% width fill on >=60% of lines in every column) as newspaper instead of Y-interleaving them as tabular. Kept as a standalone reading-order refinement so the table pipeline's is_newspaper_layout veto is unaffected. - Split ordering entry points: order_multi_column_region keeps every page-level defense; order_validated_band (banded planner only) trusts validated bands, skipping line-count minimums and straggler splitting that would misfire on Y-cohesive bands. * docs(layout): record why the band wide-item test is per-item Assembling same-baseline fragments into runs before the wide test was implemented and measured against the reading-order benchmark: word-gap and gutter-gap distributions overlap in real documents, so assembled runs fused narrow-guttered column pairs into page-wide lines, emptied the occupancy, and disengaged banding on pages it rescues — a measured regression with no measured win. Keep the per-item test (a fragmented separator can suppress a cut, which only misses an engagement) and document the boundary for future attempts. * fix(layout): keep figure placeholders out of band whitespace probes An image placeholder sitting between two matching column bands is the very figure float whose flow-through the band merge exists for, yet it read as content twice: its glyph box filled the occupancy gap (blocking the cut) and the merge probe counted it as separator content (blocking the merge). Both probes now see text layout items only. * fix(layout): anchor band-merge matching on the founding band's columns The merge comparison ran against the widened union, whose gutter is the intersection of its constituents' gutters. Across a chain of one-directionally drifting bands that intersection can walk past GUTTER_TOLERANCE and reject a band identical to the run's own first member. Compare candidates against the founding band's raw columns instead: the run's column system is defined by its founder, so drift can no longer accumulate in either direction. Union widening is kept for item bucketing only. * test(layout): differential coverage for the band-merge anchor rule - banded_layout_rejects_creeping_drift: a band within tolerance of the moving union but 36pt from the founder must not join the run — the case the anchor rule exists for; the pre-anchor union admitted it. - Reword the founder-anchor chain test as the invariant lock it is. - Note at the merge site why a reject-overlapping-unions guard is unimplementable: detect_columns returns contiguous partitions whose adjacent regions share boundary coordinates, so the check degenerates to exact-equality matching and rejects every legitimate merge; the boundary-disagreement zone is bounded by GUTTER_TOLERANCE and split proportionally by greatest-overlap bucketing.
6.2 KiB
HowShould CommercialRealEstate
BePriced?
Commercial real estate pricing
needs disciplined and systematic
analysis of the data.
C O M M E R C I A L R E A L E S T A T E pricingisliketheweather:everyonetalks about it, but few understand it. Most observers base “appropriate” real estate pricing on historical norms. The cap rate—anindicatorofvaluerelativetosta- bilized net operating income (NOI) before capital expenditures, tenant improvement,andleasingcommissions— isthemostcommonlyusedmetricofreal estate pricing. But cap rates have been largelyunresponsivetoalternativeratesof return available to investors, with the exception of BBB bonds, throughout
C E N T E R
P E T E R L I N N E M A N
8 4 Z E L L / L U R I E R E A L E S T A T E
Table I: Cap rate correlations Cap Rate Correlation With:* BBB Corp 10-Year Bond Yield S&P Dividend Treasury (10-15 yr) Yield Multifamily 0.187 0.771 0.068 Industrial-0.221 0.748-0.307 CBD Office-0.449 0.694-0.458 Retail-0.181 0.649-02.58
- Based on 25 years of data for the 10-yrT & S&P DivYld; and 14 years for BBB. Figure 1: NCREIF cap rates vs. 10-yearTreasury 12 10 8 Percent 6 4 2 1982 1986 1990 1994 1998 2002 2006 Apartment Retail ndustrial 10-yr reasury CBD Office
most of the past twenty-five years (Table
I). Such a relationship defies investment theory,asrealestatepricingshouldchange as property risks and the returns of alter- nativeinvestmentschange. Figure1displaysNCREIFcapratesby property type compared to the ten-year Treasury yield. Because the National Council of Real Estate Investment Fiduciaries (NCREIF) cap rate data is seriouslyflawedduetoappraisallags,itis presented in Figure 2 with an eighteen- monthlag.Thisdataprovidesanoverview ofthepricingofinstitutionalqualityreal estate.Figure2reflectsthesecapratesnet of the ten-year Treasury yield. Since cap rate spreads are highly correlated across propertytypes(TableII),wecanspeakof “cap rates” without reference to property type with little loss of insight. Cap rate spreadswerenegativeintheearlytomid- 1980s, when purchasing real estate was
R E V I E W 8 5
Figure 2: Capratespreadsover10-yearTreasury
Basis Points -200
-400
-600
-800
| 1982 | 1986 | 1990 | 1998 | 2006 |
|---|---|---|---|---|
| Apartment | Industrial | Office-CBD | Retail |
1982 1986 1990 1994 1998 2002 2006
Table II: Correlationsofspreadsbypropertytype Correlation of Cap Rate Spreads Over Treasury Multifamily Industrial CBD Office
| Multifamily | Industrial | CBD Office | |
|---|---|---|---|
| Industrial | 0.937 | ||
| CBDOffice | 0.924 | ||
| Retail | 0.922 | 0.969 | 0.964 |
more about investing in tax losses than burst, cap rates spreads steadily com- real estate cash streams. When tax laws pressed, recently falling to approximately dramatically changed in 1986, cap rate zero. And if NOI cap rate spreads are spreads rose, though they generally roughly zero, cash flow cap rate spreads remained negative due to the availability (after reserves for tenant improvements, of excess leverage through 1990 and pro-leasing commissions, and capital expendi- jections of strong cash flow growth, in tures) are well below zero. spite of weak fundamentals. This compression of cap rates and cap Throughout the first two-thirds of the rate spreads over the past five years has 1990s, spreads substantially widened as generated enormous wealth for real estate capital abandoned real estate. Spreads fur-owners. In fact, the combination of cheap ther widened in the latter part of the debt and cap rate compression covered a 1990s, as investors scorned cash flow dur-multitude of property underwriting ing the tech bubble and treasury rates errors made during the past five years, as drifted downward. As the tech bubble neither cap rate compression nor narrow-
8 6 Z E L L / L U R I E R E A L E S T A T E C E N T E R
ingdebtspreadswerepartoforiginalpro formamodels.Thiscapratespreadcom- pressionoffsetweakcashflowsinapost- recessionary economy from 2002 to 2005, while continued compression, combined with improved cash flows, pushed property values skyward in 2006 throughmid-2007. Cap rate compression reduced the importance of the ability to add value. After all, if all you had to do to make moneywastoleveragetothehiltwhilecap ratesfell,whytakeontheextraworkand riskofattemptingtoaddvalue?Stateddif- ferently: Why print money if it is laying everywhereonthestreets? In Tables III and IV, we demonstrate thepowerofcapratecompressionviavery simple pro forma cash flow analyses that assume Year 1 NOI of $100; a going-in cap rate of 9 percent; an LTV of 70 percent; and an interest rate of 7 percent. Withineachfigure,wedisplaytwoscenar- ios, which vary based on NOI growth assumptions.ScenarioIassumesthatNOI growsby3percentperyear,whileScenario IIassumesavalue-addNOIgrowthof20 percentbetweenyearstwoandthree. The only other difference between TablesIIIandIVisinresidualcaprates, which are assumed to be 6 percent and 9 percent, respectively. Based on these assumptions, we calculate the equity IRRs. It is clear that cap rate compression is a significant factor in driving
returns. That is, cap rate compression from 9 percent to 6 percent increased IRR on leveraged stabilized properties by 250 percent, to a staggering 57 percent. Who needs to take on value add riskatthisreturnforstabilizedassets? Intheearly1980s,moneywasmadein real estate by mastering the creation and syndication of tax gimmicks. In the late 1980s, one made money by mastering bank and S&L connections to over-leverage.Intheearly1990s,onemademoneyin realestatebyhavingaccesstoequity—the morethebetter.Duringthelate1990s,one made money from real estate by realizing large spreads between cap rates and debt costs.And,overthepastfiveyears,theway to make money in real estate was to own realestateonahighlyleveragedbasisascap ratesplunged. Theclassicassetpricingmodelisthe capital asset pricing model (CAPM). CAPM is a simple, yet elegant, model that relates asset pricing to the risk-free rate(F),theabilityofanassettoreduce portfolio variance (B), and the expected rate of return on the market bundle of investableassets(M).CAPMisfarfrom perfect,butprovidesacrudebenchmark for asset pricing, around which discrep- ancies and novelties arise. Specifically, CAPM states that an asset’s price is set suchthattheexpectedreturnforanasset
(R)is R=F+ β(M-F). R E V I E W 8 7