2016 Theses Master's

The Myth of Intrinsic Value

Dokhanian, Daniel

This work offers for analysis the discrepancy between the perceived and actual performance of multifamily real estate submarkets of major metropolises. The research encompasses a case study of nine submarkets in New York City, NY: Bronx County, Kings County (Brooklyn), Midtown West, Morningside Heights/Washington Heights, Queens County, Stuyvesant/Turtle Bay, the Upper East Side, the Upper West Side, and the West Village/Downtown. Two of these submarkets are scrutinized in particular: the Bronx and the Upper East Side. An examination of each market’s capitalization rates (between 2002 and 2016) serve to illustrate investor perceptions of these markets’ risk and growth metrics whereas rental and vacancy rates (between 1995 and 2016) are offered to elucidate the actual performance of markets judged by these same metrics. A review of each market’s returns between 2002 and 2016 is also given. The inconsistencies between CAP rates (perceptions) and rents/vacancies (reality) in these neighborhoods evoke the biases and misconceptions commonly purveyed in the real estate investment community and, to a degree, the potential pitfalls and flaws in traditional valuation methodologies applied to investment securities more generally.