Real Estate Indexes
Steven Devaney, July 2021
One of the main objectives of the Israel IVS Forum is to develop a commercial property index for Israel, as exists in the advanced real estate markets in the world since the 1980s. These indexes allow investors to compare performance across different asset managers, different real estate sectors and with other investment markets such as those for equity and bonds. They enhance transparency in the market and therefore attract FDI inflows, which currently are almost non-existent in the Israeli market for direct commercial property holdings. Furthermore, an index would allow investment managers to compare their performance with their competitors and analyse the performance of their own portfolio managers and reimburse them accordingly. For academic researchers they allow for a broad range of research such as the correlation between the index and overall macro performance of the economy. In short, commercial property indexes support the efficient operation of the markets. Developing an index is therefore in the joint interest of economic policymakers, market regulators, institutional investors such as insurance companies and pension funds and fund managers.
Professor Steven Devaney of Henley Business School at the University of Reading is an expert on real estate indexes. He acts as an advisor to the Israel IVS Forum in setting up an Israeli commercial property index. We have asked him to write a short introductory paper to add to our series on International Views and Approaches, to be accessible without prior knowledge of the subject. We are grateful that he has kindly agreed.
RICS and Routes to Membership: Israel Focus
Jen Lemen, May 2021
RICS are not well known in Israel. They are a UK and international organisation representing property professionals worldwide, established over 150 years ago and today with 130,000 members globally, of which 30,000 are registered valuers. RICS have scores of offices throughout Europe, North and South America, Asia and Australasia, the Middle East and Africa. They hold conferences, CPD courses, administer professional assessments, regulate their members and publish professional standards.
The professions represented include Land Surveyors, Valuers, Building Control Inspectors, Rural Surveyors and more. All are termed ‘Chartered Surveyors’ since (land) surveyors were in the UK the first to establish these various other professions (according to the Oxford English Dictionary, a surveyor is an official inspector, especially for measurement and valuation purposes).
In Israel there are only 8 members of RICS, of which 2 are valuers. In many countries it is customary that the senior professionals are members of RICS, which have cooperation agreements with many local national organisations. In order to encourage a similar trend in Israel, we have asked Jen Lemen, who coaches candidates for membership in the UK, to write a short introductory paper on the assessment process, aimed specifically at Israeli valuers.
Capital and Rental Valuation of Hotels
Robert Chess, April 2021
Hotels have been one of the asset classes most damaged by the coronavirus pandemic. Assets such as hotels and shopping centres, which have witnessed a steep decline in revenues, be they permanent or temporary, illustrate the need for DCF valuations, for only DCFs have the necessary flexibilities needed to value abrupt changes to income. Like in many other aspects, the coronavirus pandemic had amplified trends that were already ongoing. In the case of valuations, academics had for decades been encouraging practitioners to fully embrace DCF. Those who find such changes to entrenched practice challenging, should note that Direct Capitalisation is itself a special case of DCF.
In the hospitality sector it had been customary for decades to employ DCF, therefore apart from an interest in the valuation of hotels, which should only be undertaken with specialist skills, we are able to learn from hotel valuations about the application of DCFs in general. Therefore we are delighted that Robert Chess, a notable practitioner and talented writer has agreed to write especially for the Israel IVS Forum this introductory paper on the subject.
Cash flows or cap rates?
Andrew E. Baum, March 2021
The issue of valuation methods and techniques has once again become pertinent this year, due to the disruptions caused by Covid-19. The difficulty in valuing by use of direct capitalisation in periods of swift market transitions, be they temporary or permanent, recalls past criticisms by academics, which have been aired for twenty years. Andrew Baum authored with Neil Crosby a foundational text on the subject, the fourth edition of which has recently been published. We are delighted that he has agreed that we translate, with due changes, an excerpt from the first chapter of Property Investment Appraisal.
Real Estate Valuation and the Sustainability Challenge
Marco Percoco, February 2021
The issue of sustainability in real estate and construction is currently at the top of the international agenda, due to the worrying trends in climate change attributed to human interference. In Israel awareness of the subject is only just beginning, the Interior Committee of the Knesset having approved a few months ago a first pilot for implementing Energy Performance Ratings for newly built properties in Israel. These are similar to the certificates placed on all imported white goods. In Europe they have been in place for a few years and in the UK the Government has committed to ambitious targets for raising the minimum performance ratings in the coming years, as part of their all encompassing plan to attain carbon neutrality by 2050.
In view of this we are pleased that Professor Marco Percoco, the head of the GREEN centre for sustainability at Bocconi University in Italy, has agreed to our request to set out his views as to the role needed of valuers.
Valuation of Property for Lending Purposes
Reiner Lux and Wolfgang Kälberer, February 2021
We have asked Reiner Lux, the head of HypZert, which sets qualifications for valuers undertaking Mortgage Lending Valuations (MLV) in Germany, to write a short introductory piece on Long Term Value (LTV), of which German MLV is the best known example.
We are delighted at having received this paper by Reiner and his colleague Wolfgang Kälberer. LTV has been endorsed by Basel III and the European Union is meant to transpose it into European law. Consequently, LTV is subject to consultation on being added to the new five years' agenda of the IVSC. It appears pertinent for valuers worldwide to become acquainted with it, since global application in one form or another is surely imminent.
The Valuation of Shopping Centres
Christian Luft, January 2021
We have asked Christian Luft, an expert on shopping centre valuations, to write a short introduction on the subject, with an emphasis on recent trends and on his thoughts as to future developments. The intention is that this short paper act as a preliminary acquaintance with international best practice in the field, for the benefit of Israeli valuers and the global real estate valuation community at large.