Real Estate and Design  

gustavo...
1. Location--which actually means spatial linkages for occupants must be better than the competition.
2. Price--Nothing priced higher than the competition sells well.
3. Constrained supply--whether persons admit it or not, the game of real estate is always fundamentally about creating supply in a way that competition can be limited, or eliminated entirely. Some times the site alone creates a monopoly position. Sometimes one must buy up potentially competitive sites and put them to other uses.
4. Equal or Superior product--if you have superior location, priced reasonably with constrained supply, then you only need adequate design to be financially feasible. Because this can frequently be achieved in real estate development, especially in retail and commercial real estate development, there is no economic need for exceptional, or even good design in order to make money. This is the part of the real estate game that many people just do not understand. This is why expensive neighborhoods, or mixed use developments HAVE to adopt ordinances, or restrictive convenants, or planning constraints, or zoning constraints, in order to achieve even minimum standards of design. The regulations are effectively subsidies to impose better design that what the real estate market, inherently subject to monopolistic regimes because of nonfungible locational and trade area characteristics would otherwise produce.
Good design and architecture make real estate developments sell better and be more satisfying to customers.
Designer branded architecture may bring a higher price, especially after the architect has been canonized as a great architect worth preserving...but not always.

One more thing...
When I said markets were unrelated to the architectural merit of a building, what I meant was that a building with brilliant architure can show up most anywhere. The best neighborhoods often do not have the best architecture in USA, anyway.
Columbus, Indiana, has the best architecture of ANY small town I've ever been in, because a trust fund was created to subsidize the hiring of some great architects.
Beverly Hills, CA, where houses are phenomenally expensive and opulent beyond many persons' imagining generally suck in comparison.
There is a reason so much great architecture is built on marginal land. I am thinking here of Luis Barragan, a real estate agent much of the time, because he had a hard time getting hired to design buildings, built his first real subdivision of his homes on a malpai parcel, also known as a lava flow, that no other developer wanted. When land is expensive, and mortgages will be required, then roughly 80% of the market value has to be in the improvements and 20 % in the land, or the bankers won' put either a construction loan, or a take-out permanent loan on the property.
Lenders do NOT want super-improvements; i.e., buildings costing vastly more than their lots, only about 4 times what their land costs (after site improvements to make the site buildable).
Why? Its all about controlling lending risk with financial rules of thumb.
If an architect can design within these rules of thumb, then the lender will consider the risk of doing something new and different.
But after considering something new and different, most lenders will then say, "No. Do something like what has already been successful, so that if the market tanks, the I have CYA with my boss."
Truly adventuresome architecture in housing often requires a person with deep pockets who can carry the property until it proves itself in the market place without construction financing.

pt. 2
Truly adventuresome architecture in commercial and industrial and R&D, requires huge institutional players (preferrably quasi monopolists) building monuments to themselves (headquarters), but even then it usually requires an unusually large equity contribution, plus an institution owned by a holding company that also owns a lender, an insurance company, or a real estate investment trust, to quell the inherent conservatism of persons deploy large sums of capital that could earn alot more by being reinvested in the monopoly's business, rather than its real estate.
Basic real estate 101: real estate is a piggy bank with low yield, unless you leverage it way up (finance a high loan-to-value ratio), so that the rate of return on equity is spiked through the high leverage on the equity (i.e., a hundred million dollar building appreciating at 2.5%/yr over 15 years--about the best you can hope for historically--with 10 percent equity invested makes you alot more than a 10 million dollar building does with a 10 million dollar equity investment under the same appreciation scenario). but if you're going to use a lot of debt to make a lot of return on investment, then you've got to be very conservative in what you build to persuade a lender to take such a lending position...unless the equity player owns the lender, as is often the case with, say, East Asian players.
So there are a lot of financial forces (read risk management constraints) encouraging doing what's been done before with just enough variation to fit the site. Phillip Johnson understood this and accepted it, when he built both the bevelled top skyscrapers for the oilcos in Houston and the ATT tower with the funny cornice in Manhattan. Basically, he gave them the net/rentable/sf the financial model required for the ground rent and if it looked like and had the space program of every other high rise from foundation to top floor, well, the lenders and equity players just didn't much give a damn what Phillip did to the tops...unless what he did cost them rentable square footage. A few extra bucks for a pointy roof? Who cares? We'll pump a few extra barrels of crude out of Angola, or Kuwait, or what have you. So Phillip gave the big players what they wanted and, considering that guys who run these large corporations are saavy dudes, they probably all had a good laugh about the cockamamie roofs down at 54th and 5th Avenues in the University Club, or at the Petroleum Club down in Texas, or whatever clubs these sorts of folks go to these days.

It was like a Master in Real Estate! Expressss!
Very good points.
Thanks.
I,m still thinking about it.
Another thing:
Is furniture ("original" "signed") over valuated VS architecture("original" "signed") under valuated?
Let's see, take a chair...:
"a classic", "original" ,"designed by a famous classic designer", chair,
How many time more cost vs ordinary/regular one?, 5 times/10 times/ 20times/ up to 50times?
Now take an architecture building...:
"a classic", "original" ,"designed by a famous classic architect" building /house
How many time more cost vs ordinary/regular one?, 1 and 1/2 times / up to 2 ? 3 times!
First I thought, one reason could be: well somebody could have spend 20,000 extra in a chair, but not many 20,000,000 extra for a house. OK, but, if we compare with pictures? masterpieces, I mean (a Picasso, a Van Gogh), they could cost 150,000,000!
No way, architecture "signed" houses are under-valuated to me.
Plus:
If have an "original" chair, Designed by, let's say Le Corbusier, it will be sharing his "originality" with 10.000/100.000 other "originals" produced legally 60 years later..., hard to find the Le Corbusier hand their endeed.
Compared with the original house designed by Le corbuiser, only one, a single piece, "haute couture", made to the size and needs to the original customer...
Is furniture over-valuated and architecture under-valuated?

These are very good questions...
They are, if I may paraphrase:
1. Is furniture undervalued vs. real estate?
2. Is the real estate designed by great architects undervalued vs. the art of a Picasso?
Let me try Number 2 first, because it calls attention to the distinction between the market value of a unique, portable and decorative artifact and the market value of a fixed, uniquely located and designed real estate property with a combination of real estate utility (rentable sf) and a prized architectural dimension.
First, let's define real estate: it is property rights that allow the use and enjoyment of space within a legally defined piece of land, sea, or air. We buy, sell, and rent the property rights. We don't actually transfer the site. It is where it is and, while one can pick up a building and move it occassionally, or quarry and sell the earth and stone, or extract minerals from it, the legally defined size is stuck abstractly, where it is, and can only be legally redefined by subdivision, or combination, and even then it does not really change location--just form.
So: Frank Lloyd Wright builds a house; i.e., on a parcel of real estate he puts up a space for a person/family to live in. It has the utility of living space, at a given location, even if he forgets all his virtuousity and unexpectedly builds a tract ranch house. By this, I mean a certain kind of person with a certain kind of job and income and commute can bid for that location in the land economy. Think of the land economy as a topographic map where the topo lines are value/sf above zero value, rather than elevation above sea level. Expensive land and neighborhoods have a high elevation of price. Poor one have low elevations and so on in between. There are islands of price. Valleys of price. Mountain ranges of price. Plateaus of price. The house exists in this dimension of price.
Now, let's add that Frank does his best and makes a masterpiece and adheres his red tile. He dies. The house becomes legend as does he. Everyone who is an architecture lover and who is willing to live at that location, part or full time, bids on it. There aren't very many of his masterpieces and they don't come up often. Bidding is very competitive. It brings a big price to someone with a lot of cash, a love of fine architecture, some need to live there and a willingness to maintain the house and grounds and pay the taxes and insurance and so on.

pt. 2
Now consider the Picasso. Its utility is limited to sprucing up a wall. But it is a masterpiece, just like the Wright house. And it costs nothing to maintain other than insurance. And you don't have to keep the Picasso at its current location. If you want, you can roll it up, put it in a tube, sling it over your shoulder and go anywhere with it. Rich persons from all over the world with a taste for masterpieces of painting want it, not just those who are willing to live at its present location.
There are many rich persons in every country in the world capable of bidding on the Picasso. Rich persons have a few places they are fond of. The Picasso can go in everyone of them. The Wright house cannot. Many rich persons capable of bidding on things like the Picasso and the Wright house, worry about inflation hedges. Both things go up in inflation. But such persons also often worry a great deal about their governments seeking to put the pinch on their wealth with taxes, or imprisonment, or what have you. What if your country is overthrown by those hostile to you? Paintings are something you can take with you as you flee, or ship, or widely disperse in various countries you might move to, and you can sell them quickly for cash. Or best of all, if life is stable in a country like USA, or UK, one can amass a huge collection of masterpieces, let them appreciate hugely, then donate them to museum and shelter a huge amount of wealth; then direct the museum to subsequently start buying up other artists, that you just happen to have collected over the years, also, and then bid those up over time so they too can be donated to preserve more of your wealth from taxes. Influencing great museums buying activities is one of the best ways drive up the value of things you have already bought at low prices.
Now, let's compare the Picasso painting with the Wright house. The Picasso painting has many more rich buyers than does the Wright house. The Picasso and the Wright are good inflation hedges and both require a good bit of insurance, and both can be financed (houses 80% loan to value ratio and Picassos about 50% LTV ratio), but the Picasso doesn't cost much to maintain and you don't have to pay property taxes twice a year and so on. And great museums have not really found a way to capitalize on the ownership of real estate designed by great architects the way they have with paintings (a museum can have hundreds of master pieces in a small space, but a Wright house can't be shrunk and stuck in a new wing, because the site and the scale of the house are necessary to the masterpiece of Wright architecture. And great museums have not yet, to my knowledge, contributed to the massive bidding up of Wright houses the way they have with Picassos.

pt 3
As an aside, the staggeringly high prices paid for paintings started back in the 1980s when an American regional shopping center developer reputedly was going through a lean cash flow period and got inspired to buy an old, but struggling art auction house in NYC and introduce financing to the art market reputedly to help inflate its values, spike auction house revenues, and help the person, whomever he was, through some lean times. If true, it was a classic financial play. Introduce financing, watch the number of potential bidders hugely expand, then watch prices skyrocket from the leverage. Booms and busts took over the once conservative, stable art market, just as one observes in other markets of financed assets. But once art markets got addicted to financing, it never went away and I believe continues to contribute to some extent to rising prices.
So all things considered, while there maybe a lot of room for great architecture to appreciate in value, it seems there are understandable drivers for Picasso paintings to be worth a lot more than a Wright house.
Now, to question number 1: is furniture undervalued versus real estate? By this I think you mean, should furniture, due to its huge contribution to the utility of a house, constitute a larger component of the total value of a furnished home?
Furniture's percentage of total property value is based on the tendency for most of it to decline in value over time to almost nothing. USA tax law, in fact, depreciates commercial buildings over something like 30 years, and furniture and fixtures at something like 3-5 years. Furniture is also usually considered part of the business and not part of the real estate, at least in commercial real estate, so furniture's price is underpinned mostly by what a business can justify spending, rather than what the real estate enterprise can justify. Built in furnishings are considered part of the fixed assets of real estate, but even they may have shorter depreciable lives to the tax man in segmented cost accounting than the building itself.
But getting more basic still, furniture costs less than, say, a commercial real estate building, because an single building, regardless of who designs it, is a much larger constellation of sunken contractual costs than would be a single, chair, or even all of the furniture in a building, unless that building were full of priceless masterpieces of furniture.

pt 4
Think about a building. It is not just steel frame and glass skin and some kind of a roof. It is building mechanicals. Linkages to sewer, water, gas, electricity, streets, police service, judicial services, insurance and on and on. A high rise office building is really the physical embodiment of vast constellation of legal contracts not only for construction, but ongoing service and maintenance. And everyone of these service players demand a huge hunk of revenue because they each are spatial monopolists. In turn, they are agreeing to contribute their service to create a spatial monopoly at a given location for a builder and owner. And this building is not a cookie
A chair by contrast is a small fungible product, often made in quite large numbers, so the cost of the constellation of contracts can be spread out over more units.
Brilliance of design, or stupidity of design, cannot alter the basic, underlying economic and financial dynamics that converge to produce a price range for chair, or any other product. Great design can make it worth more, though often it just makes it more costly. Great architecture, or brilliantly green and efficient building design, can enhance the value of a building, also, but the idea that the cost/value/price relationships can be fundamentally changed is probably not consistent with reality. There are more intractable monopoly players impacting a skyscraper than a chair, or even a whole building worth of furniture. If furniture were a monopoly, then it could impose itself on the skyscraper and be a much bigger portion of the total project value, just as local, organized crime controlled construction companies, and large utility players, which are relatively monopolistic in their impact on the project, presently impact project cost and value.
The ultimate game in real estate is to create a building on a site at a location that can be no where else and absolutely has to be there. When this is the case, then all the monopolists that must cooperate to construct and maintain this monopoly building can drive the cost of the building phenomenally high and charge sky high rents, and those rents can be absorbed by tenants, who pass them on to their customers...all because everyone needs to be at that location.
I hope, Gustavo, that I have clarified things for you a bit and not just complexified things. It is the best I can do. I've been out of the business for quite a while and knowledge and skills get rusty in a short time.

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Second point:
About the second point, painting vs architecture. Very good points!. Fixed to the ground vs mobile. OK. Absolutely Great!
First point:
About the first point, furniture vs architecture. I think there was a misunderstood,
I didn,t said
,,,,,,,,, Is furniture undervalued vs. real estate,,,,,,,,,,,
I said that furniture is OVERvalued vs architecture.
So I,m with you, and agree with all your points.
Now,
I,ll go on with your end.
Thanks, you clarified things to me a lot, but I,m afraid I coudn,t complifexied things to you not even a little. So I,ll retry :- )
Other thing, I love the ,,tone,,, the way you speak, It,s not the DCwilson we usually listen, I mean, It,s more a Dcwilson real Estate Agent. And I love it!. That,s what I wanted. It seems Real Estate Agents are the same everywhere! : - )
So, I,ll should go on with the Designer-architected-divine artist -god blessed-all-beatifuuull, point of view? It seems Designers-artist are the same everywhere! : - )
Beacuse, I still think architecture ,,signed,, in UNDERvalued in general (compare it with whatever),
And you are still thinking is: ,,,,what it is?, the reality,,,, and ""Markets are unrelated to architectural merit, IMHO."" And ,,,,Brilliance of design, or stupidity of design, cannot alter the basic, underlying economic and financial dynamics,,,,
At least we agree signed architecture is Undervalued vs signed (better say stickered) furniture.
To me, Things are changing, and faster that what we could expect...
First,
smell...
S M E L L, I think I,m asking for smelll (,,olfato,, in Spanish). ((or intuition)).
Second,
Proofs
If we need concrete proofs, I,ll collect them.
Here are some:

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ONE
Art collectors
If we see/check who could be the potential buyers of these architectural singed real estate masterpieces, the ones that could be more interesting are the art-collectors. They are provably the one that are interested. They provably already know that, and keep it in secret, before the rest realize.
Because, it seem that they used to collect paintings and sculptures, but since not a long time ago ,,classic,, ,,signed,, furniture and provably now architecture.
It,s said in the above article many times, for instance:
,,
"People are thinking of them as art pieces," Doe says. Some buyers, like Zander, aren't stopping at one house-they?re amassing collections.,,
,, Scott Fellows and Craig Brassam started their collection of modern houses in a more quotidian fashion?.,,
I checked my self, two and three years ago. I sold some lamps for an art collector, she need it one to pit it behind a sculpture, to give it some special kind of light plus the juxtaposition between the sculpture and the fixture, well?, She asked me to take it to their home. It was the ,,Kavanagh building,, !! Absolutely great building, a masterpiece. Of course!, if you are going to have a collection, the better place to enjoyed it, it is in a place that could be another masterpiece itself!. When you enter into this buildings, and you fell it!
TWO
This flourishing of real estate agencies specialized in ,,masterpieces,, architecture.
THREE
Just another ,,added value,,
OK, let,s think that ,,design,, it,s just another ,,added value,, that just will help to sell the house/building better, not more-not less.
OK, how much more?
How much do you think someone could expect to get more vs another or ,,not designed,, ?
3% more?
6% more?
10% more?
30% more?
50% more?
100% more?
200% more?
500% more?
10-25%
A ,,design,, ,,signed by a contemporary architect,, sells better:
Because has lots of design /architectural components. And lots of things that could seem unnecessary, because the potential buyer couldn,t appreciate. But they will!
The buyer will say I like it! (and coudn,t recognize which are the things he likes).
Here I could expect a 10-25% higher than an ordinary building.
300%-400%
The above article says:
,,Prices for a house by a brand-name architect such as Neutra, Schindler, or Wright can be TWO or THREE times higher than that for a new one of comparable square footage,,

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FOUR
You said pictures are transportable and houses not.
Ok but a Picasso cost 100.000.000
And a Le Corbusier 1.000.000
If a collector would buy another Picasso,
I would think, why not to buy 100 architecture masterpieces all over the world instead!
A Le Corbusier in Paris 1.000.000
Another masterpiece In London 2.000.000
Another in Tokio
a Niemeyer in Rio de Janeiro
Some in Singapour,
What we shoud have in Sydney?
In buenos Aires I,d recommend a Clorindo Testa and an apartment at the Kavanagh of course!
in Berlin oh! Here buy 3 or 4 cause it,s (any doubt) undervalued now
and so on,
ONE HUNDRED!,
If there is some problem in Paris, well
Move to another city.
FIVE
And here is a ,,classic,, real estate interpretation:
While you wait for the revaluation that the masterpiece could have itself in the future
Today you could live in the house you could get a rent, (You cannot do that with the picture), or could have a rent.
And being creative...
Rent it for art-collectors doing tourism, than instead of sleeping in a hotel, could live and smell the air of let say Le Corbuiser 6 days. (any doubt could ask 3-4 times an average hotel)
Or to design related studios (Design: fashion, cinema, etc, etc,) (this is provably also happening somewhere)
Or as I said above to house art collections!
For art collectors, a painting is a painting,
About a chair..., they could sit on it... but we can,t think that they buy it for that.
But about architecture, yes they can collect them and also use them, (at least by now, with today prieces).
SIX
Examples of the past:
Many examples of undervalue architecture/areas
In Rome
The downtown central area of Rome, the very historic center is now the more expensive area, for the very rich, but was absolutely abandoned not so long time ago,
And I don,t know how long time ago the ruins where abandoned and people walked over ruins and take the marbles ofthe ruins home to make it,s own house!, In Egypt happened the same.
Soho NY
Buenos Aires
Palermo Viejo neighborhood
San Telmo neighborhood
Here there was a time that eclectic buildings, were cheap.
And about ,,casas chorizo,, ((sausage houses)), very typical from Italian immigration, 15 years ago nobody wanted them, and today are gems that everybody young people looks for. the same I heard happened in San Francisco with the beautiful typical houses.
SEVEN
Kavanah undervalued?
I made a little research:
And the Kavanah it,s about a 10%-40% more expensive than an average ordinary apartment some meters away.
I,ll be back with a deeper research about it.
http://en.wikipedia.org/wiki/Kavanagh_Building

Case in point...
So...soon we will have the choice between a real estate agent and a auction house...
...one for your 500% and more category gustavo!!
http://vistaartanddesign.com/feature.php?feature_id=51#

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http://www.designaddict.com/design_addict/forums/index.cfm/fuseaction/th...

Gustavo...
You make a case worth investigating that designer houses are on the rise as a speculative investment by collectors.
Let me express this phenomenon in terms of real estate appraisal terminology.
There appears to be a recently emerging segment in the housing market.
It is a market of collectible houses.
Home collectors collect houses based on, say, the architects that designed them. Houses designed by certain architects appear to sell for a lot more than houses designed by other collectible architects. In other words, some architects are viewed as more collectible than others. In fact, the collector house market seems to be segmented into submarkets relative to each architect.
Further, many of the same collectors bid against each other for houses all over, say, the USA.
Therefore, the highest and best use of a Wright house is no longer just to be lived in, but to be collected and used as one of a person's several homes. And the best market area from which to draw comparable sales is no longer the immediate neighborhood, because there are no other collector houses in the neighborhood (and no Wright houses either) in that neighborhood.
Instead the best market area to draw comparable sales from is (let us assume the market data supports this hypothesis for this discussion) the entire USA where Wright houses are located, because the same buyers for all these Wright houses and they could be expected to be practicing the principle of substitution in buying any of the houses around the country (again, this is just for discussion).
The principle of substitution is a deductive logic that underpins all real estate appraisal and all of its various methods of arriving at value estimates.
The principle of substitution says that if two things have utility similar enough that a buyer would substitute one for the other and be satisfied, then it follows that one can validly substitute the price of one substitutable thing for another.