For the summer of 2020, the MIT Center for Real Estate and its research labs hosted a series of virtual academic seminars, featuring the latest working papers from senior researchers. Over 600 registrants, including industry partners, colleagues, and researchers across MIT, took part in the live or recorded seminars. Themes of the seminars varied: from the impact of the Covid-19 pandemic upon the urban experience to commercial real estate price dynamics in the wake of the pandemic, and ultimately to how we can improve measures of urban vibrancy and healthy and sustainable buildings in a post-COVID-19, built environment. All three labs – the Sustainable Urbanization Lab, the Price Dynamics Platform Lab, and the Real Estate Innovation Lab – invited guest presenters, as well as members of their own teams, to illustrate their research findings with a lively discussion following the presentations. Presentation materials from each seminar, which include slide decks, summaries, and video recordings, can be found in the detailed summary of each seminar below.
COVID-19 & Cities: COVID-19’s Impact on our Urban Well-being
The first event of the CRE Summer Seminar Series took place on Friday, July 31st. Hosted by the Sustainable Urbanization Lab (SUL), the COVID-19 & Cities seminar exhibited six, in-progress studies on how our cities are being affected – from various perspectives – by this pandemic.
The first session of the seminar, presented by Professor Bill Wheaton, discussed the paper that he and Anne Thompson developed, titled “The Geography of Covid-19 Growth in the U.S.: Counties and Metropolitan Areas”. Key points were the impacts of density and urbanity as critical factors in understanding the disparities in infection rates between cities and towns.
Professor Sarah Williams and Innocent Obi of the MIT Civic Data Design Lab discussed their research on mobility patterns in Sierra Leone during COVID-19. In collaboration with the MIT GovLab, the team studied granular data on cellphone calls, population density, and points of interest to identify high-risk and high-leverage locations.
The role of housing conditions in relation to the novel coronavirus was presented by Professor Mariana Arcaya in a study that combines qualitative and quantitative approaches. Titled “Housing and COVID-19 infection in Massachusetts,” Arcaya and co-authors Yael Nidam, Andrew Binet, Reann Gibson and Vedette Gavin analyzed how rapidly increasing and unaffordable housing costs are risk factors. High rents affect both housing arrangements – increasing the number of people living in shared housing – and employment strategies that put communities at a higher rate of infection.
Dr. Juan Palacios, postdoc researcher at the SUL, presented a randomized control trial study conducted in Zhengzhou, a capital city in central China. In the paper, “Return Back to the Street in the Aftermath of Covid,” Palacios and co-authors Erez Yoeli, Yichun Fan, Yuchen Chai, Weizeng Sun, Jianghao Wang and Professor Siqi Zheng provided information regarding the number of neighbors expected in restaurants (high risk) and parks (low risk) in the aftermath of a six-week lockdown. They found that information about what others are doing dramatically influences beliefs and behaviors. More specifically, when individuals receive information about restaurants’ precautionary measures, it increases their likelihood to dine out and are more likely to choose safe restaurants.
Professor Siqi Zheng and co-authors Matthew Kahn and Weizeng Sun explored the likely medium-term effects of the early 2020 economic shutdown on China’s urban air pollution and regulatory dynamics in “Clean Air as an Experience Good: Evidence from China’s post Covid-19 Pollution and Internet Search Dynamics.” The authors pose the question: will pollution return to its pre-shock levels? If clean air is a valued experience good, then the reduction in pollution could have persistent effects on future urban pollution levels, even if the local economies fully recover from the recent recession.
Professor Jinhua Zhao and Baichuan Mo closed the seminar by exploring modeling approaches for epidemic spreading through public transit, using smart card data. In their paper “Modeling Epidemic Spreading through Public Transit using Time Varying Encounter Networks,” the authors identified different scenarios and strategies to limit contagion.
Real or Surreal: COVID-19’s Impact on Commercial Property Pricing
The second virtual symposium of the series was held on Thursday, July 13th. Organized by the Price Dynamics Platform (PDP), the agenda included four working papers and an enlightening panel on COVID-19’s impact on commercial property pricing. The presenters and panelists demonstrated that COVID-19 is having a sharply negative effect on commercial real estate transactions and liquidity. As expected, retail and office properties have suffered much more than industrial and residential properties. Tenants are still paying their rents, but anecdotally there is trouble. Distress in leases for a full year are not yet observable: retail bankruptcies are the only signal at the moment.
The first paper presented, “A First Look at the Impact of Covid-19 on Commercial Real Estate Prices: Asset Level Evidence,” examines the transmission of an asset market shock to the capital markets during the COVID-19 pandemic. The authors – David Ling, Chongyu Wang and Tingyu Zhou – find that daily abnormal returns react negatively to COVID-19 growth, and there is substantial variation across property types.
“The Term Structure of Real Estate Lease Contracts,” by Ernesto Aldana, Dr. Andrea Chegut and Professor Jacob Sagi, indicates that the term structure of lease contracts documents the forward price dynamics of space. This work can help us understand expectations of the prices of space in the immediate, short- and long-term. The results depict a complex outcome where space is slow to reset expectations in the face of shocks. Therefore, immediate lease rates will likely be slow to absorb a shock like Covid-19, but a 5-year forward price will be much more responsive. Overall, these tools can be helpful for forecasting price expectations for very intransparent space markets, such as commercial office properties.
“Daily Pricing of Commercial Real Estate,” by Professors Alex van de Minne and Marc Francke, provides a new, Bayesian repeat sales, mixed-frequency approach that shows the estimate portfolio values of privately held commercial real estate on a daily frequency. The research provides a daily price estimate of private real estate during the Covid-19 pandemic in real-time.
The final paper of the seminar presented was “Covid-19 Special Report: Recent Drops in the Market Liquidity Foreshadow Major Price Drops in U.S. Commercial Real Estate Markets.” Co-authored by Dr. Dorinth van Dijk, Professor David Geltner and Anne Kinsella Thompson, the study quantifies liquidity impacts measured by the demand-supply gap regarding asset pricing implications for U.S. private commercial real estate markets of the COVID-19 crisis. So far (using data up to April 2020), New York is hardest hit among the eight metros examined, with a predicted average price drop between 19 and 30 percent, reflecting a drop in liquidity already three-quarters of the total liquidity drop that occurred in the entire Global Financial Crisis of 2008-09.
For more details, view the presentation slides and video recording.
Sustainability in the Built Environment: Paths Toward Healthy Growth in our Urban Environments
The third and final research symposium of the MIT Center for Real Estate’s Summer Seminar Series took place on Thursday, August 27th. The Real Estate Innovation Lab (REIL) hosted the event, which focused on sustainability in the built environment and paths towards healthy growth in real estate, design and planning. The seminar outlined the critical need for sustainable practices and design in the current economic climate, noting that a shift towards creating more health-centered communities will greatly impact our cities, our work environments and our overall livelihood in a Post-Covid 19 future.
The first academic paper of the event was presented by Dr. Juan Palacios, who showcased the research that he and Professors Piet Eichholtz and Nils Kok produced, titled “Moving to Productivity: The Benefits of Healthy Buildings”. This study obtained data from 1,400 municipal workers in the Netherlands to understand the impact of indoor environmental conditions in the workplace and its effects on the health and job satisfaction of the building occupants. Using a fixed effects regression model, the researchers were able to compare the productivity and health of occupants in buildings that lack ventilation systems to those in buildings designed around the principles of natural circulation and sustainable technologies. The results demonstrate a 42% decrease in Sick Building Syndrome, a 1.2% increase in job satisfaction and a 2% drop in sick leave among occupants in Healthy Buildings.
Adriano Borges Costa presented the paper “Roads, Transit and the Denseness of São Paulo’s Urban Development,” which he co-authored with Professors Christopher Zegras and Siqi Zheng. The presentation offered a unique insight into how modes of transportation – including bus, rail, roads, and subways – have impacted commercial development in São Paulo over the last century. This paper provided a great debate on how various transport activities create real estate development and which strategies to employ from both public and private initiatives to influence sustainable growth and urban vibrancy.
Anne Kinsella Thompson, in collaboration with Dongxiao Niu, Dr. Simon Büchler and David Maroti, presented “Predicting City Growth with Machine Learning.” Due to be finalized over the course of 2021, this study uses Wide Data to predict urban vibrancy in both China and the U.S. Using a lasso method approach, the research will explore numerous economic and investment factors to determine the cities and the industries with the most significant growth within each country.
“The Financial Impact of Street-level Greenery on New York Commercial Real Estate,” by Juncheng Yang, Helena Rong, Yuhao Kang, Fan Zhang and Dr. Andrea Chegut, is among the first of its kind within commercial real estate academic research. Presented by Juncheng Yang, this study uses machine learning image recognition techniques to understand the price differential on commercial assets with street level greenery, such as trees and grass, in proximity to the building. Calculating the average percentage of green pixels from collected Google Street View images while comparing it with rental data from Compstak, the researchers developed a Green View Index for the borough of Manhattan. The Green Index results indicate a positive transaction price premium between 4.7-6.3% for transactions in the highest quartile of street level greenery, giving real estate developers an incentive to align with landscape architecture and urban planning experts on this value-enhancing urban amenity.
The final paper of the seminar was presented by Dr. Andrea Chegut, who collaborated with Natasha Sadikin on “The Financial Value of Healthy Buildings”. In light of the current pandemic, this research serves to help real estate developers and owners better understand the financial outcomes of investing in a nascent, newly certified building product type known as “Healthy Buildings”. To investigate the impact of Healthy Buildings, certified Healthy Buildings were matched with nearby control commercial buildings in the same 250 meter block. Though not yet finalized, the preliminary financial findings suggest that Healthy Buildings are indeed similar to Green Buildings’ rental outcomes, with a 4.0% higher effective rent per square foot than non-Healthy Buildings, for the Top Ten U.S. markets.
Directly following these insightful research topics, MIT CRE Industry Relations Head Steve Weikal orchestrated a group discussion between all who presented. This discussion was assisted with some of the MIT CRE’s leading professors, including Professors’ Siqi Zheng and Dennis Frenchman. While this discussion provided a unique perspective and invaluable expertise, it further illustrates the importance of urban vibrancy and sustainability in the development of our buildings and cities throughout the world.
For more details, view the presentation slides and video recording.