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Commercial real estate investors prefer coastal, gateway, markets for liquidity, demand density, and durable returns. Yet, these areas are more vulnerable to the effects of climate change from more intense and frequent weather events such as hurricanes and typhoons as well as to gradual changes such as sea-level rise. Recognition is growing of the risks that these events pose to investment performance, but little is known about how this risk has impacted property values and returns when an event such as a hurricane occurs. This is the first study to analyze the impact on property values and returns from hurricanes causing the most significant damage by value over the past 30-plus years throughout the nation. Using individual property data from the National Council of Real Estate Investment Fiduciaries database, we find a significant impact on the value and rates of return, after accounting for any additional capital expenditures for repairs, for properties that are in areas impacted by a hurricane, relative to areas that were not impacted by a hurricane. These impacts vary by property type and can last for several years after the hurricane hit land in the area. [ABSTRACT FROM AUTHOR]

This article reports empirical evidence on the nature and magnitude of real depreciation in commercial and multifamily investment properties in the United States. The article is based on a much larger and more comprehensive database than prior studies of depreciation in such properties, and it is based on actual transaction prices rather than appraisal estimates of property or building structure values. The article puts forth an "investment perspective" on depreciation, which differs from the tax policy perspective that has dominated the previous literature in the United States. From the perspective of the fundamentals of investment performance, depreciation is measured as a fraction of total property value, not just structure value, and it is oriented toward cash flow and market value metrics of investment performance such as internal rate of return and holding period return. Depreciation from this perspective includes all three age‐related sources of long‐term secular decline in real value: physical, functional and economic obsolescence of the building structure. The analysis based on 107,805 transaction price observations finds an overall average depreciation rate of 1.5%/year, ranging from 1.82%/year for properties with new buildings to 1.12%/year for properties with 50‐year‐old buildings. Apartment properties depreciate slightly faster than nonresidential commercial properties. Depreciation is caused almost entirely by decline in the property's current real income, only secondarily by increase in the capitalization rate ("cap rate creep"). Depreciation rates vary considerably across metropolitan areas, with areas characterized by space market supply constraints exhibiting notably less depreciation. This is particularly true when the supply constraints are caused by physical land scarcity as distinct from regulatory constraints. Commercial real estate asset market pricing, as indicated by transaction cap rates, is importantly related to depreciation differences across metro areas. [ABSTRACT FROM AUTHOR]

This paper examines U.S. public and private commercial real estate returns at the aggregate level and by the four major property types over the 1994-2012 time period. Returns are carefully adjusted for differences between public and private markets in financial leverage, property type focus and management fees. Unconditionally, we find that passive portfolios of unlevered core real estate investment trusts (REITs) outperformed their private market benchmark by 49 basis points (annualized) over the 1994-2012 sample period. Our baseline vector autoregression results suggest that REIT returns do not embed additional commercial real-estate-specific information useful in predicting private market returns. These results strongly suggest that equity REIT returns react to fundamental (latent) asset pricing information more quickly than private market returns given their greater liquidity and price revelation. REITs therefore serve as a fundamental information transmission channel to private market returns when asset pricing variables are omitted. [ABSTRACT FROM AUTHOR]