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Estimating The Economic Impact Of Commercial Real Estate

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Supplement to the Three Rivers Model.

Supplement to the Three Rivers Model.

http://www.ciremagazine.com/article.php?article_id=1330

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  • Thanks Kim! Yes, I agree. This is just the tip of the iceburg and more significant observations can be made by making honest assumptions. What is nice is that a sensitivity analysis can be incorporated to observe a range of assumptions.
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  • Thanks for sharing your approach Ryan, it gives a useful snapshot of the foundations. Rather than relying on the flow-effect multpliers I sometimes add another component or two - such as estimated wages of forecast employees in commercial premises, or estimated local retail spend from the forecast residents of a housing development. Many assumptions are needed, but it's usually possible to make a start on these based on current employment/residential patterns, and so these estimates can be more 'localised' than is possible with the traditional multipliers.

    Kim Houghton
    Strategic Economic Solutions (Australia)
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  • Agreed. The purpose of the work is to begin to quantify economic impacts and provide a cheap and easy way to do so.
    The original article does speak to tax revenues. I argue taxes should be considered fiscal impacts because if you lable them as economic impact then incrasing tax rates could imply economic growth. In reality, increasing tax rates usually has a negative effect on economic growth. I think fiscal impact is very important to consider - I just would not lable it as economic impact because it is misleading.
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  • Certainly not for the rigorous academic economic impact evaluation, but this is a methodology that gives some exposure to what has often been considered a black box to the public when working to quantify impacts of projects.
    The tax rates and public revenues from construction sales taxes, wage based government levies and forecasting such receipts are often important in getting public support for projects. The simplified model using RIMS II and the government BEA multipliers getting to the wages and total output is better than back of the envelope guesstimates. However, a more robust evaluation may still be necessary for proving value of projects or comparing on project to another.
    Scott Sigman, M.Sc. - LSE
    Trade and Transportation
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    Estimating The Economic Impact Of Commercial Real Estate Estimating The Economic Impact Of Commercial Real Estate Presentation Transcript

    • Estimating the Economic Impact of Commercial Real Estate OVERVIEW
    • Economic Impact
      • How is it measured?
      • What is included?
    • How is economic impact measured?
      • Total Output - value produced by the final demand dollars cycling through the economy.
      • Total Earnings - the amount of total output paid in compensation.
      • Total Employment -the number of jobs created or sustained.
    • What is included?
      • Direct Impact
      • Indirect Impact
      • Induced Impact – Effects of households
      • .
    • Three Rivers Model
      • What inputs are needed?
      • How does it work?
    • What inputs are needed?
      • RIMS II Multipliers
      • Building Size
      • Cost per square foot
      • Building occupancy (total or per square foot)
    • How does it work?
      • Step 1: Define Region and Order RIMS II Data
      • Step 2: Calculate Final Demand
      • Step 3: Apply Multipliers
    • Step 1: Define Region and Order RIMS II Data
      • Define geographic scope
        • County up to Country level
      • Select data series
        • Annual
        • Benchmark
      • Choose data type
        • Type I
        • Type II
      • http://www.bea.gov/regional/rims/
    • Step 2: Calculate Final Demand
      • Construction Phase
      • Building Size
      • X Cost per sf
      • Final Demand
      • Business Operations Phase
      • Direct Employment Multiplier
      • ÷ Total Employment Multiplier
      • Calculated Multiplier
      • X $1,000,000
      • Final Demand per Employee
      • X # of Employees
      • Final Demand
    • Step 3: Apply Multipliers Step 1 Step 2 Step 3 Total Employment Multiplier/1Million Total Earnings Multiplier Total Output Multiplier Final Demand
    • Case Study – Construction
      • Final Demand: 100,000 sf x $150 per sf = $15 Million
      Step 1 Step 2 Step 3 19.3875/1,000,000 0.7593 2.3339 $15,000,000
    • Case Study – Business Operations
      • Final Demand: 2.1554/17.6334 x $1,000,000 x 400 = $48 Million
      Step 1 Step 2 Step 3 17.6334/1,000,000 0.7903 2.0506 $48,893,600
    • Advanced Application
      • Multipliers can be disaggregated
      • Total value added can be observed
      • Properties can be allocated for different uses
      • Sales and employment taxes can be estimated
      • Apply it to several projects simultaneously
      • Building operations can be considered
    • Conclusion
      • Quantifying the economic impact of commercial real estate development is often ambiguous.
      • The Three Rivers Model is a fairly simple way of measuring gross economic impacts.
      • It is based in RIMS II data that is highly regarded, easily obtained, and inexpensively purchased.
    • Publication Web Address: http://www.ciremagazine.com/article.php?article_id=1330
    • Contact Information
      • Ryan Stokes
      • Consultant
      • Constellation Real Estate Services
      • 4221 Sherrod Street
      • Pittsburgh, PA 15201
      • Phone: 412-512-1864
      • E-mail: [email_address]