Introduction to the project assessment process

prof. Paola Mutti

prof. Alessandra Pandolfi

SCHOOL OF
ARCHITECTURE AND
SOCIETY
Master of Science in
Architecture

Master of Science in Architecture

Course of Project Appraisal
Politecnico di Milano School of Architecture and Society
Milan, 13th March 2015

Index

INTRODUCTION
TO THE PROJECT
ASSESSMENT
PROCESS

Economics and Values

Factors that make the real estate market untypical
Three kinds of environment
Real estate markets principal features
SCHOOL OF
ARCHITECTURE AND
SOCIETY
Master of Science in
Architecture
Project Appraisal

Milan
13th March 2015

prof. Mutti
prof. Pandolfi

Economics and Values

INTRODUCTION
TO THE PROJECT
ASSESSMENT
PROCESS

Economy is the science that studies the economic choices

that people do to satisfy needs, that are practically unlimited,
with limited (or even scarce) resources homo oeconomicus
Real estate appraisal (Estimo) is the science that aims to
evaluate goods through physical and economic measures,
based on specific postulates

SCHOOL OF
ARCHITECTURE AND
SOCIETY
Master of Science in
Architecture
Project Appraisal

Milan
13th March 2015

prof. Mutti
prof. Pandolfi

Economics and Values

Definitions of Analysis

INTRODUCTION
TO THE PROJECT
ASSESSMENT
PROCESS

From Hoepli dictionary:

1. Research method based on the dissection, concrete or abstract,
abstract of an object
or a concept into its constitutive parts: a. of a philosophical concept, of an
historical period
LANG grammatical analysis, search of the grammatical value of all the
words creating a phrase
| logical analysis, search of the syntactic value of the constitutive parts of a
phrase
| phrase analysis, dissection of the phrase into propositions
2. Proceeding of dissection of a substance or a whole of substances in order
to establish its fundamental characters: blood analysis, urine analysis
chemical analysis, search of the qualitative or quantitative constitution of a
chemical substance
medical analysis, examination of healthy or ill parts of the human body
with a therapeutical purpose

SCHOOL OF
ARCHITECTURE AND
SOCIETY
Master of Science in
Architecture
Project Appraisal

Milan
13th March 2015

prof. Mutti
prof. Pandolfi

Economics and Values

Definitions of Evaluation

INTRODUCTION
TO THE PROJECT
ASSESSMENT
PROCESS

From Hoepli dictionary:

1. Action and results of evaluating
Determination of a value,
value of the price of an object: to call an expert for the
evaluation of a plot of land, of a house, of a jewel
Value of what is evaluated: an evaluation, real estate or not, of 100.000 Euros
2. Extensively, approximate calculation: evaluation of profits and losses for the next
management year
SCHOOL OF
ARCHITECTURE AND
SOCIETY
Master of Science in
Architecture
Project Appraisal

Milan
13th March 2015

prof. Mutti
prof. Pandolfi

Economics and Values

The postulates

1. An estimated value refers to the assessment goal(s)

2. The prediction activity is intrinsically related to all of the
assessment actions
3. A price value is at the basis of the value judgment
4. Assessing means comparing
5. The value judgment must be objective and generally
legitimate, this means it should be formulated referring to the
ordinarity principle
6. The value judgment must be transparent

INTRODUCTION
TO THE PROJECT
ASSESSMENT
PROCESS

SCHOOL OF
ARCHITECTURE AND
SOCIETY
Master of Science in
Architecture
Project Appraisal

Milan
13th March 2015

prof. Mutti
prof. Pandolfi

INTRODUCTION
TO THE PROJECT
ASSESSMENT
PROCESS

Appraisal and Values

The postulates

Assessment principles
Goals

Prediction

Price

Comparing

Ordinarity

Transparent

Economic principles (core criteria)

Basic principles
Market price

Production costs
Secondary principles

Replacement value

Transformation value

Complementary value

Other economic factors

Theorems

Master of Science in
Architecture

Valuation procedures

Valuation models
Synthetic models
Direct
Parametric
Sales comparison
approach

Analytic models

Statistic models
Other models

SCHOOL OF
ARCHITECTURE AND
SOCIETY

Regression analysis
Monoparametric
Multiparametric

Project Appraisal

Milan
13th March 2015

prof. Mutti
prof. Pandolfi

INTRODUCTION
TO THE PROJECT
ASSESSMENT
PROCESS

Economics and Values

Project Appraisal

The Project Appraisal/Assessment is a subject that was created to reply to

the need of controlling the economical unequal distribution referring to
ancient cadastres (preceding the geometrical formulation of the registered
goods) and it identifies different types of values for goods:
1. Costs values
Production costs
referring to the production and
Carrying out/construction costs
carrying out activities concerning goods Technical construction costs
2. Market values
referring to the exchange activities
concerning goods in a market

Actual value
Potential value susceptibility
Normal value ordinarity
Complementary value

SCHOOL OF
ARCHITECTURE AND
SOCIETY
Master of Science in
Architecture
Project Appraisal

Milan
13th March 2015

3. Price values D meets S

prof. Mutti
prof. Pandolfi

Economics and Values

Project Appraisal
The price evaluation is a typical market action (D meets S), but, in some
instances, prices cannot be determined by the market itself, that is why
the Project Appraisal sciences work on:
estimation methods and procedures,
D
S
through which it is possible to P
determine the value of goods (real estate
or not) and of rights on goods (r. of
use, r. of eminent domain, license fee, r.
of way, property r., and so on)
irreproducible goods, that are the
typical objects of estimation procedures
it is difficult to determine a market
price for these goods as meeting point
between D and S

INTRODUCTION
TO THE PROJECT
ASSESSMENT
PROCESS

SCHOOL OF
ARCHITECTURE AND
SOCIETY
Master of Science in
Architecture
Project Appraisal

Milan
13th March 2015

Q
prof. Mutti
prof. Pandolfi

Factors that make the real estate market untypical

INTRODUCTION
TO THE PROJECT
ASSESSMENT
PROCESS

10

Euros per square meter

Real estate market

untypical features
Essential features of
the pure and perfect
competition markets
Three kinds of environment
Real estate markets
principal features

BALANCE PRICE

P
R
I
C
E
S

demand

supply
Supply excess

balance point

Demand excess

QUANTITY

Average and constant actual prices of new houses (13 main towns)
in Euros per square meter

SCHOOL OF
ARCHITECTURE AND
SOCIETY
Master of Science in
Architecture

Constant prices 2005

Actual prices

Project Appraisal

Milan
13th March 2015

prof. Mutti
prof. Pandolfi

Factors that make the real estate market untypical

Real estate market untypical features

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ASSESSMENT
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11

Every assumption about the investment choice in the real estate market
should preliminarily and essentially consider that

the real estate market is sensibly different from

the ideal model of the perfect and pure competition market

SCHOOL OF
ARCHITECTURE AND
SOCIETY
Master of Science in
Architecture
Project Appraisal

Milan
13th March 2015

prof. Mutti
prof. Pandolfi

Factors that make the real estate market untypical

Essential features of the pure and perfect competition markets

Homogeneousness and divisibleness

(features of the product)
Uniqueness
(an only market)
Atomicity
(a great number of participants)
Transparency
(immediate availability of information about transactions)
Fluidity
(the participants can easily enter and leave the market)

INTRODUCTION
TO THE PROJECT
ASSESSMENT
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12

SCHOOL OF
ARCHITECTURE AND
SOCIETY
Master of Science in
Architecture
Project Appraisal

Milan
13th March 2015

prof. Mutti
prof. Pandolfi

Factors that make the real estate market untypical

Essential features of the Real estate markets

Heterogeneousness
Transformability
Indivisibility
Viscousness
Fragmentation
Opacity

INTRODUCTION
TO THE PROJECT
ASSESSMENT
PROCESS

13

SCHOOL OF
ARCHITECTURE AND
SOCIETY
Master of Science in
Architecture

The environment theories by

K. Popper, S. Mattia

Project Appraisal

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prof. Mutti
prof. Pandolfi

Three kinds of environment

Environment n. 1 (or landscape)

INTRODUCTION
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14

Variable distribution of features

in the space of physical objects
DEFINITION: all the elements, processes and interactions having reference to
the systemic, heterogeneous even if unitary structures and dynamics
that constitute the ecosphere or a part of it
SCHOOL OF
ARCHITECTURE AND
SOCIETY
Master of Science in
Architecture
Project Appraisal

Environment n. 1 is nothing else but the world of physical objects to

which a particular real estate asset belongs
It is easy to limit the environment n. 1 field in order to make it merge to the
real estate structure

Milan
13th March 2015

prof. Mutti
prof. Pandolfi

Three kinds of environment

Environment n. 1 (or landscape)

INTRODUCTION
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ASSESSMENT
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15

Environment n. 1 is unsettled and processing

The variable distribution of features in the space of physical objects (Environment n.
1) is nothing else but the effect produced from the actions of external factors
(Environment n. 3)
The sign and intensity of these actions vary referring to the specific nature of places.
As a matter of fact, every following configuration depends from the
interactions with different systems that express Environment n. 3
Environment n. 1 is at the same time:
a unique, complex and complete system
an evolutionary process, in which are integrated the spontaneous activities of
Nature and the ones resulting from the action of the human collectivity, in their
historic, material and cultural dimension [Romano, 1994]

SCHOOL OF
ARCHITECTURE AND
SOCIETY
Master of Science in
Architecture
Project Appraisal

Milan
13th March 2015

prof. Mutti
prof. Pandolfi

Three kinds of environment

Environment n. 2s (or Subjective perception of landscape)

INTRODUCTION
TO THE PROJECT
ASSESSMENT
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16

Environment n. 2s is not unique

As it results from a consideration that is completely natural: every
landscape is perceived in different ways, depending from the subject
that examines it
It should be referred to the existence of real mind processes (or
conscious subjective experiences) that determine the construction of
opinions and/or behaviors of the numerous and subjective visions that are physical, cultural and social of the objects that form
landscapes

SCHOOL OF
ARCHITECTURE AND
SOCIETY
Master of Science in
Architecture
Project Appraisal

Milan
13th March 2015

prof. Mutti
prof. Pandolfi

Three kinds of environment

Environment n. 2s (or Subjective perception of landscape)

INTRODUCTION
TO THE PROJECT
ASSESSMENT
PROCESS

17

In most of the occasions,

Environment n. 2s is not completely defined
Every individual or collective subject creates, as a matter of fact, its own real
world, in the direct, active and selective exploration of a particular physical
environment
This process of decodification of the physical world determines, moreover, the
definition of sectorial environments, that should be related to the different
visual interrelations established from every subject to every element or process
belonging to landscapes (active interpretations of codified inputs) [Popper, 1963]
Environment n. 2s not only changes relating to the different kind of landscape and to
the subject that observes it, but it is also the result of different components
In most of the situations, the different subjects do not perceive even the
necessity of its complete definition

SCHOOL OF
ARCHITECTURE AND
SOCIETY
Master of Science in
Architecture
Project Appraisal

Milan
13th March 2015

prof. Mutti
prof. Pandolfi

Three kinds of environment

Environment n. 3 (or Set of the social constructions)

INTRODUCTION
TO THE PROJECT
ASSESSMENT
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18

Environment n. 3 is the result

of the politicalpolitical-legislative,
demographic--social,
demographic
cultural--technologic
cultural
and economical
systems
The specific nature of real estate assets influences and increases, as it
is sometimes decisive, the continuously varying influence exercised
from Environment n. 3 to the behaviors of the different stakeholders

SCHOOL OF
ARCHITECTURE AND
SOCIETY
Master of Science in
Architecture
Project Appraisal

Milan
13th March 2015

prof. Mutti
prof. Pandolfi

Real estate markets principal features

INTRODUCTION
TO THE PROJECT
ASSESSMENT
PROCESS

19

Heterogeneousness
Transformability
Indivisibility
Viscousness
Fragmentation
Opacity

SCHOOL OF
ARCHITECTURE AND
SOCIETY
Master of Science in
Architecture
Project Appraisal

Milan
13th March 2015

prof. Mutti
prof. Pandolfi

INTRODUCTION
TO THE PROJECT
ASSESSMENT
PROCESS

Real estate markets principal features

Heterogeneousness

20

accessibility
microenvironmental
quality

It depends from real estate assets

The suitability to a particular use

should be connected to the
anthropic, physical and cultural
matrixes or motivations
It depends from the subjective
values of a particular
spatial configuration,
depending from several
objectives that are
present at the same time
and, often, opposites

Need to make real

estate assets more
attractive in the
reference market
economic, social and
political-administrative
issues

material

cultural, sociologic,
creative e spiritual
issues

immaterial

from economic
growth
to sustainability

SCHOOL OF
ARCHITECTURE AND
SOCIETY
Master of Science in
Architecture
Project Appraisal

individual
community

Adversarial nature

weight
vulnerability

Milan
13th March 2015

vocations
prof. Mutti
prof. Pandolfi

Real estate markets principal features

Other immaterial kinds of Heterogeneousness

INTRODUCTION
TO THE PROJECT
ASSESSMENT
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21

Between other immaterial kinds of Heterogeneousness the ones

referred to the variability and dynamicity of legal and
fiscal conditions should be included, as they dont influence
the determination of the transformability level. Most of these
elements could not be absolutely connected to localizations
The character presence or absence of a manager is at the
same way immaterial. By the way, it should be mentioned that
the purpose or not to obtain incomes of a real estate asset
essentially depends from decisions taken on financial criteria
or made compulsory from specific law dispositions or even
referred to the psychological attitudes

SCHOOL OF
ARCHITECTURE AND
SOCIETY
Master of Science in
Architecture
Project Appraisal

Milan
13th March 2015

prof. Mutti
prof. Pandolfi

Real estate markets principal features

Transformability

INTRODUCTION
TO THE PROJECT
ASSESSMENT
PROCESS

22

Heterogeneousness in most of the situations is staggered:

between the specific ordination process to a specific real estate asset
the evolution/re-organization (or the contrary) of the territorial structure
In these conditions, the original condition of perfect and positive correlation between
the internal quality and the localization importance fails. This phenomenon should
be considered, above all, analyzing the variables:
accessibility
micro-environmental quality
The relative modalities enable the evaluator to define respectively:
the new relationships to the central place or places (accessibility)
the context in which is actually placed (micro-environmental quality)
This variable enables to define the adaptation capability of the total quality
referring to the continuous and, sometimes, radical and unexpected
changes in the time of the solicitations/needs of the Environment n. 3
and/or of the market

SCHOOL OF
ARCHITECTURE AND
SOCIETY
Master of Science in
Architecture
Project Appraisal

Milan
13th March 2015

prof. Mutti
prof. Pandolfi

Real estate markets principal features

Indivisibility

INTRODUCTION
TO THE PROJECT
ASSESSMENT
PROCESS

23

There are essentially two features that determine the real estate assets indivisibility:
dimension
lasting

This condition determines

relevant effects in the financial issues

The dimensional bond imposes a huge and important investment (lump asset)
and only the turning to recent forms of securitization could contribute
to the limitation of complications and risks
In the moment in which, to the investment extent, it is supported even by
lasting, a huge set of complications becomes clear and understandable
Between these complications there are some elements that are particularly
relevant, as:
a) the risk of over-dimensioning and of not setting the product on markets

SCHOOL OF
ARCHITECTURE AND
SOCIETY
Master of Science in
Architecture
Project Appraisal

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13th March 2015

b) the rigidity in the mobility of consumers

c) the consideration in the long term of the investment

prof. Mutti
prof. Pandolfi

Real estate markets principal features

Viscousness

INTRODUCTION
TO THE PROJECT
ASSESSMENT
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24

The action of lasting and to the simultaneous condition of lump asset

should be considered quite totally as responsible of the effect of
limitation of the transactions number
This phenomenon:
depends also from internal reasons of most of the investors
is partially influenced from the huge costs of legal and intermediation transfers,
factor that really becomes the principal cause of hindrance of fluidity and
conditions of fast portfolio adaptation, as a matter of fact, there are no more
detectable, further, relevant and insuperable hindrance to the entrance or exit from
the market of the different subjects that act as promoters or investors

SCHOOL OF
ARCHITECTURE AND
SOCIETY
Master of Science in
Architecture
Project Appraisal

Milan
13th March 2015

prof. Mutti
prof. Pandolfi

Real estate markets principal features

Fragmentation

INTRODUCTION
TO THE PROJECT
ASSESSMENT
PROCESS

25

The Heterogeneousness factor is responsible for the formation of

numerous sub
sub--markets
The classification of the sub-markets is made for the fundamental distinction of the
anthropic activities:
agricultural
Every further division should be considered in
industrial
the constant reference of the laws
offices
of the formation of spatial demand curves
residential
In every situation, at that level the principal elements, that could determine
significant differences in prices, earnings and fluctuations, should be accurately
individuated and studied

SCHOOL OF
ARCHITECTURE AND
SOCIETY
Master of Science in
Architecture
Project Appraisal

Milan
13th March 2015

This knowledge factor is influenced and influences

the knowledge level of the market

prof. Mutti
prof. Pandolfi