Dr. Evans published in The Journal of Real Estate Portfolio Management
For release: April 27, 2016
Dr. Richard Evans, professor in the Department of Finance, Insurance and Real Estate, was recently accepted to be published in The Journal of Real Estate Portfolio Management for his article entitled, “Industrial Real Estate Cycles: Markov Chain Applications.” Dr. Evans co-authored the article with Andrew Mueller, Colorado State University doctoral student in economics.
The article looks at how adding a stochastic element to an existing, well-understood real estate cycle model offers opportunities like those seen in earlier syntheses of real estate analysis and statistics. The discrete real estate cycle points in the existing model require a discrete probability model, here a first order Markov chain. Many existing statistical applications flow from the combined model. Three Markov chain count variables have obvious real estate cycle appeal. “Staying time,” “first recurrence time,” and “first passage time” already exist in the Markov chain literature but only staying time is in the real estate cycle literature. The most fundamental innovation is in probabilistic forecasting. Being able to describe real estate cycle risk, cycle point by cycle point many quarters ahead, could improve evaluation of prospects for property disposal. It is also a simple spreadsheet application to describe real estate cycle risks that influence cash flows from operations across four-quarter spans.