Real Estate Assets Features and Urban Cycles

prof. Paola Mutti

prof. Alessandra Pandolfi

SCHOOL OF

ARCHITECTURE AND

SOCIETY

Master of Science in

Architecture

Master of Science in Architecture

Course of Project Appraisal Politecnico di Milano School of Architecture and Society

Milan, 20th March 2015

Real estate assets features and urban cycles

REAL ESTATE

ASSETS FEATURES

AND URBAN CYCLES

SCHOOL OF

ARCHITECTURE AND

SOCIETY


Architecture

Project Appraisal

Milan

13th March 2015

prof. Mutti prof. Pandolfi

2

Index

A matter of cycles that work diachronically

Life cycles of real estate assets

Life cycles of urban systems

REAL ESTATE

ASSETS FEATURES

AND URBAN CYCLES

SCHOOL OF

ARCHITECTURE AND

SOCIETY


Architecture

Project Appraisal

Milan

13th March 2015


3

A matter of cycles that work diachronically

Assessing a project or Assessing a project or a real estate asset meansa real estate asset means

Understanding its intrinsic features


Understanding its extrinsic features

Real estate market cycles


REAL ESTATE

ASSETS FEATURES

AND URBAN CYCLES

SCHOOL OF

ARCHITECTURE AND

SOCIETY


Architecture

Project Appraisal

Milan

13th March 2015


4


Evans integrated modelEvans integrated model

Simple situation (Evans)

Fred land situation (Evans)

Disuse period situation (integration)

Non-development bond situation (integration)

Non-development bond and disuse period

situation (integration)

REAL ESTATE

ASSETS FEATURES

AND URBAN CYCLES

SCHOOL OF

ARCHITECTURE AND

SOCIETY


Architecture

Project Appraisal

Milan

13th March 2015


MA

RK

ET

E

NV

IRO

NM

EN

T n

. 3

CONSTRUCTIONS

MARKET

SALES AND RENTS

MARKET

FINANCIAL MARKET

POLITICAL-

LEGISLATIVE,

SYSTEM

DEMOGRAPHIC-

SOCIAL SYSTEM

CULTURAL-

TECNOLOGIC

SYSTEM

ECONOMICAL

SYSTEM

5


TheThe spatialspatial organizationorganization ofof existingexisting buildingsbuildings (C(C1010)) andand thethe followingfollowing qualitativequalitative andand functionalfunctional stagesstages (C(C11ww00))

The decreasing trend of the VSE(Cti) curve is determined from the physical and economical deterioration. This phenomenon could be usefully contrasted, both giving to the real estate asset the most adequate typologic and technologic features, with the realization during the lifecycle of targeted interventions of preservation, re-use and conservation and/or with filtering processes. The saw-tooth curve represents the possibility of prolonging in this way the normal lifecycle (CVN)

BU

ILT

LA

ND

VA

LU

E (

VSE

(C11))

TIME

NORMAL LIFECYCLE

(CVN(C))

PROLONGED

LIFECYCLE (CVP(C))

Ct0 Ctb Ctd Ctr Ctw Ctu Ctv Ctz tw-t0

tz-t0

DC

IcI=

VSE

(C1c1

)

Evans integrated model

REAL ESTATE

ASSETS FEATURES

AND URBAN CYCLES

SCHOOL OF

ARCHITECTURE AND

SOCIETY


Architecture

Project Appraisal

Milan

13th March 2015


6

The higher curve represents the geometric place of high vales of transformation of the existing spatial organization (VSL(C'ti)). The balance point (P) represents the moment in which it gets convenient to substitute the initial structure (Ct0) with new spatial elements (C'ti (i>m)) even completely different in the spatial and functional features. If this balance in the financial calculation is verified, when the normal or prolonged lifecycle of the Ct0 configuration has ended, the place is disused for a period that ends when it gets financially convenient to realize the existing buildings substitution or radical interventions of transformation

VSL(C11)

VSE(C11)

BU

ILT

LA

ND

VA

LU

E (

VSE

(C11))

FR

ED

LA

ND

VA

LU

E (

VSL

(C11))

TIME

VSE

(C1c1

)

Ct0 Ctm Ctz



MA

RK

ET

E

NV

IRO

NM

EN

T n

. 3

CONSTRUCTIONS

MARKET

SALES AND RENTS

MARKET

FINANCIAL MARKET

POLITICAL-

LEGISLATIVE,

SYSTEM

DEMOGRAPHIC-

SOCIAL SYSTEM

CULTURAL-

TECNOLOGIC

SYSTEM

ECONOMICAL

SYSTEM

REAL ESTATE

ASSETS FEATURES

AND URBAN CYCLES

SCHOOL OF

ARCHITECTURE AND

SOCIETY


Architecture

Project Appraisal

Milan

13th March 2015


7

The higher curve represents the geometric place of high values of transformation of the existing spatial organization (VSL(C'ti)). The balance point (P) represents the moment in which it gets convenient to substitute the initial structure (Ct0) with new spatial elements (C'ti (i>m)), even completely different in the spatial and functional features. If this balance in the financial calculation is verified, when the normal or prolonged lifecycle of the Ct0 configuration has ended, the place is disused for a period that ends when it gets financially convenient to realize the existing buildings substitution or radical interventions of transformation

VSL(C11)

VSE(C11)

BU

ILT

LA

ND

VA

LU

E (

VSE

(C11))

FR

ED

LA

ND

VA

LU

E (

VSL

(C11))

TIME Ct0 Ct Ctz

tz-t

DISUSE PERIOD



MA

RK

ET

E

NV

IRO

NM

EN

T n

. 3

CONSTRUCTIONS

MARKET

SALES AND RENTS

MARKET

FINANCIAL MARKET

POLITICAL-

LEGISLATIVE,

SYSTEM

DEMOGRAPHIC-

SOCIAL SYSTEM

CULTURAL-

TECNOLOGIC

SYSTEM

ECONOMICAL

SYSTEM

REAL ESTATE

ASSETS FEATURES

AND URBAN CYCLES

SCHOOL OF

ARCHITECTURE AND

SOCIETY


Architecture

Project Appraisal

Milan

13th March 2015


8

This is the situation in which the existence of a bond of absolute preservation of the initial spatial organization, imposed from the political-legislative system, prevents the substitution in the periods following the formation of the balance point. In this conditions, as it is impossible to operate referring to the market laws, it is necessary to act on the real estate asset to prolongue its maximum lifecycle (lower curve). The other growing curves represent the trends without this bond

BU

ILT

LA

ND

VA

LU

E (

VSE

(C11))

FR

ED

LA

ND

VA

LU

E (

VSL

(C11))

TIME

Ct0

Ctc

Ctz

VSL(C11)

VSE(C11)



MA

RK

ET

E

NV

IRO

NM

EN

T n

. 3

CONSTRUCTIONS

MARKET

SALES AND RENTS

MARKET

FINANCIAL MARKET

POLITICAL-

LEGISLATIVE,

SYSTEM

DEMOGRAPHIC-

SOCIAL SYSTEM

CULTURAL-

TECNOLOGIC

SYSTEM

ECONOMICAL

SYSTEM

REAL ESTATE

ASSETS FEATURES

AND URBAN CYCLES

SCHOOL OF

ARCHITECTURE AND

SOCIETY


Architecture

Project Appraisal

Milan

13th March 2015


9

The VSE and VSL curves are to be considered in the case of a temporary imposition of a normative bond. The disuse period in absence of these conditions (tm-tz) is prolonged in this case (tp-tz)

BU

ILT

LA

ND

VA

LU

E (

VSE

(C11))

FR

ED

LA

ND

VA

LU

E (

VSL

(C11))

TIME Ct0

Ctc Ctz

VSL(C11)

VSE(C11)

Ct Ct0



MA

RK

ET

E

NV

IRO

NM

EN

T n

. 3

CONSTRUCTIONS

MARKET

SALES AND RENTS

MARKET

FINANCIAL MARKET

POLITICAL-

LEGISLATIVE,

SYSTEM

DEMOGRAPHIC-

SOCIAL SYSTEM

CULTURAL-

TECNOLOGIC

SYSTEM

ECONOMICAL

SYSTEM

REAL ESTATE

ASSETS FEATURES

AND URBAN CYCLES

SCHOOL OF

ARCHITECTURE AND

SOCIETY


Architecture

Project Appraisal

Milan

13th March 2015


10


Why is the localization so important?

1. Advantages depending on localization

natural and lasting likely to change, provisional

2. Models of urban systems interpreting the settlement,

growth and development of cities and regional

networks

REAL ESTATE

ASSETS FEATURES

AND URBAN CYCLES

SCHOOL OF

ARCHITECTURE AND

SOCIETY


Architecture

Project Appraisal

Milan

13th March 2015


11


Some fundamental principles

1. Localization and land uses

Cities are widespread and structured The localization of and in the urban

systems can be understood through the

consideration of land uses and functions

2. Urban systems vs. country regions

Relative limits are increasingly uncertain Their uses are ever more mixed Referring relationship is more and more

related and strong

REAL ESTATE

ASSETS FEATURES

AND URBAN CYCLES

SCHOOL OF

ARCHITECTURE AND

SOCIETY


Architecture

Project Appraisal

Milan

13th March 2015


12


The urban rank

1. Demographic rank

It is not the only variable through which defining the urbanization level Density is not the only and sufficient condition of urbanization

2. Measuring the urbanization process

Administrative definition over or underestimating the physical limits Specific regulations Density of population

3. Urbanization process

relating to an increasing economic specialization and to in progress technologies

there are no accepted original sources of the process itself, then it is difficult to understand which are the different issues in different cities

REAL ESTATE

ASSETS FEATURES

AND URBAN CYCLES

SCHOOL OF

ARCHITECTURE AND

SOCIETY


Architecture

Project Appraisal

Milan

13th March 2015


13

The localization problem

The functional classification of cities

1. Core/Central functions coexisting with other uses

2. Transport functions

3. Specific functions

classification systems:

General description: classes identified with a description and determined in a subjective way

Statistic description: classes identified with statistic indexes and determined in an objective way, but through subjective

simplification methods

Statistic analysis: classes identified through statistic methods Regional economic principles Multidimensional statistics: identifying relations between cities and

different parameters

REAL ESTATE

ASSETS FEATURES

AND URBAN CYCLES

SCHOOL OF

ARCHITECTURE AND

SOCIETY


Architecture

Project Appraisal

Milan

13th March 2015


14


Static models

1. Accessibility demand

Von Thunen model Chicago school model

2. Spatial interaction

Gravitation model Entropy law models

3. Models based on market areas that are hierarchically overlapped

Christaller model Loesch model Rank-size rule

4. Intersectorial relationships cities networks

5. Income production and distribution models

Hoyt model Input-output model Lowry model

REAL ESTATE

ASSETS FEATURES

AND URBAN CYCLES

SCHOOL OF

ARCHITECTURE AND

SOCIETY


Architecture

Project Appraisal

Milan

13th March 2015


15


Dynamic models

All these models are referring to:

The catastrophes theory of Ren Thom Bifurcations theory

1. Deterministic models: it is possible to simulate endogenously complex

and structurally different behaviors referring to catastrophes and

bifurcations theories and chaos theories

2. Stochastic models: it is not possible to simulate endogenously complex

and structurally different behaviors completely referring to systems

morphogenetic and auto-organization phenomena Prigogine

REAL ESTATE

ASSETS FEATURES

AND URBAN CYCLES

SCHOOL OF

ARCHITECTURE AND

SOCIETY


Architecture

Project Appraisal

Milan

13th March 2015


16


Cities life cycle model

It analyzes the evolution through time of the relationship between the core

development and the ring tendencies

Urbanization is the growth of population in the core: Absolute phase (AU): the ring population decreases

Relative phase (RU): the ring and core population increases

Suburbanization is the growth of population in the ring, as the core demographic trends decrease:

Absolute phase (AS): the core population decreases

Relative phase (RS): the ring and core population increases

De-urbanization is the reduction of population in the core and the ring: Absolute phase (AD): the core and the ring both decrease

Relative phase (RD): the core decreases more than the ring growth

Re-urbanization is the reduction of population in the core and the ring: Absolute phase (AR): the core and the ring both increase

Relative phase (RR): the core decreases less than the ring reduction

REAL ESTATE

ASSETS FEATURES

AND URBAN CYCLES

SCHOOL OF

ARCHITECTURE AND

SOCIETY


Architecture

Project Appraisal

Milan

13th March 2015


17


Christaller model: the geographical approach to hierarchy

Isotropic space (homogeneous in all directions) for: Demographic density

Physical parameters

Structural features

It defines a hierarchy of goods and services through: The range as max distance at which the good/service could be sold

The threshold as min quantity of good/service efficiently deliverable

Every good or service is produced only if its range is sufficient to cross the min threshold hierarchical scale of goods/services referring to

the relative thresholds

REAL ESTATE

ASSETS FEATURES

AND URBAN CYCLES

SCHOOL OF

ARCHITECTURE AND

SOCIETY


Architecture

Project Appraisal

Milan

13th March 2015


18


Christaller model: the geographical approach to hierarchy

Market principle: higher rank goods/services will be produced by a cities network of higher rank (A) the production of B

(good/service immediately lower) will be placed in the same

network to take advantage of the referring agglomeration

economies as B has a lower range there will be areas without

producers the production localization of Bs will be

equidistant from every A triad

Transportation principle: there is a transportation network that links all the principal centers that forces lower rank cities to be

placed in the barycentre of two principal cities

Administrative organization principle: the entire market area of lower rank cities is included in higher rank centers

REAL ESTATE

ASSETS FEATURES

AND URBAN CYCLES

SCHOOL OF

ARCHITECTURE AND

SOCIETY


Architecture

Project Appraisal

Milan

13th March 2015


19


Loesch model: the economic approach to hierarchy

Isotropic space (homogeneous in all directions) 10 different ways of structuring and setting up a hierarchy of

market areas referring to a growing min production dimension

the first three ways (K=3, 4, 7) are Christallers models,

whereas the following ones (K= 9, 12, 13 and K= 16, 19, 21) are

geographic multiples of the first ones

K could change through the hierarchy the proportional factor between the number of cities of every following level is

not constant different from Christallers model

Unlike Christallers model, every higher rank centre is not able to produce also goods/services of lower ranks cities of the

same level can have a different production structure

production specialization

REAL ESTATE

ASSETS FEATURES

AND URBAN CYCLES

SCHOOL OF

ARCHITECTURE AND

SOCIETY


Architecture

Project Appraisal

Milan

13th March 2015


20


Von Thunen model and Alonso model

REAL ESTATE

ASSETS FEATURES

AND URBAN CYCLES

SCHOOL OF

ARCHITECTURE AND

SOCIETY


Architecture

Project Appraisal

Milan

13th March 2015


21


Core model and Burgess model

Documents

Real Estate Assets Features and Urban Cycles