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June 25, 2002 -- News Brief

Colwell delivers keynote at European Real Estate Society conference

Peter Colwell, professor of finance and ORER Professor of Real Estate Research, delivered the keynote address on land valuation issues in June at the 9th Annual European Real Estate Society Conference in Glasgow. Established in 1994, the ERES is a structured and permanent network between real estate academics and professionals across Europe. Participating organizations include national property research societies, academic researchers, and real estate practitioners. At the ERES meeting, Colwell also presented a paper on bargaining power and property class in the Chicago office market.

Establishing Land Values

His keynote focused on land valuation issues. Land valuation -- the estimation of land values -- is, according to Colwell, all about developing modeling technology. Key is determining what variables to include in the model and how and whether to specify functional relationships. Noted Colwell,

"Today much modeling remains casual, impressionistic, and intuitive. Modeling technology is interactive with the development of theory: if we do not know what to look for and where to look, then we are not likely to find anything interesting. If we have no theoretical constructs, then we are likely to misinterpret what we do find. So it is impossible to create a fabric out of the disparate threads of research in land valuation without weaving in some notions from theory."

After a review of historic trends that included references to Ed Mills, the Declaration of Independence, and Ozzy Osbourne, Colwell jumped to the modern era and identified four modern rules of valuation.

  1. land residual techniques where the income to land is separated from total income and capitalized into land value
  2. regression analysis in which total value (transaction price) is the dependent variable and commodity attributes are the explanatory variables
  3. repeat sales analysis or the ratio of first sale to second sale
  4. nonparametric approaches in which the results are expressed without imposing a preconceived notion of the shape of the urban value surface

Colwell criticized artificial methods of approaching land data such as using developed property sales.

"Why, then, do we not simply estimate land values from data on transactions involving vacant land? Some authors argue that doing so is an impossible dream, because land transactions are almost nonexistent in central cities. But, in fact, the contrary is true. Major urban downtowns are home to numerous sites with almost zero capital. These sites include parking lots and teardowns. Transactions involving these sites are essentially land transactions. In fact, it is the part of a developed city outside the hub of commercial activity that will typically have few land transactions."

While in Scotland, Colwell also conducted research at the University of Aberdeen on optimal retail outlets in the UK and groundwater contamination and hybrid repeat sale analysis. He also gave seminars on the bargaining power and class paper as well as on coping with technological change in retail real estate. He is an honorary professor at the University of Aberdeen.


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