The Straight Scoop... "We've just witnessed the sixth straight quarter of negative absorption of office space -- totaling 146 million square feet nationally. And the office vacancy rate will not improve until year-end 2003 after reaching 16.2%. Positive rental growth will not start until 2004." That's the assessment delivered by Lloyd Lynford, CEO of Reis, during his Quarterly Briefing to Reis SE (Subscriber Edition) customers.

How does Reis make such projections? Every 90 days Reis surveys the performance of 200,000 properties nationwide (office, industrial, retail and multifamily) and gathers operating data like free rent, tenant improvement costs, and commission structures. One-off market reports are available for about $150 per market.

Lynford also announced the launch of Reis' online Valuation and Credit Risk Analysis module for Reis SE customers. This module aims to push the value of market information to the property-specific level. It benefits both investors considering a property acquisition and lenders seeking to measure risk, either by property or across a portfolio.

According to Lynford, a typical 10-year financial analysis includes only 30% of cash flow attributable to current operations. This means that future assumptions about market performance are incredibly important. Yet my guess is that most folks make rather crude bets about the future. At least I remember generating ARGUS runs based upon this kind of logic. "Hmm. Last year the market went up 10% in San Francisco. So let's be conservative and increase rents only 5%."

Lynford demonstrated his automated valuation tool on a major San Francisco high rise and generated a current value and ten-year performance model in less than a minute. Then he showed me how to vary the inputs, if I wanted to use different assumptions about, for example, sub-market rental growth, lease rollover probabilities, or brokerage fees. Very powerful stuff.

--Peter Pike