We use an asset pricing model based on net value to study the asset-specific risk factors of private commercial properties across local markets. To accomplish this, we extend the approach by Korteweg and Nagel (2016) into a pricing setting where the objective is to minimize the pricing errors by a thorough examination of factors. Location, despite being an important consideration both in theory and in practice, remains to be developed into well-defined risk factors. In particular, the risk premium of location risk awaits further investigation. We first investigate an all-encompassing location factor constructed from locational value estimates using local polynomial regressions. Then we attempt to further disentangle between macro-and micro- location risk factors. Macro-location risk represents regional macroeconomic conditions, while our micro-location factor reflects accessibility and amenities offered by a specific location. We also test our location factors against stock market risk factors.
Lin, Wei, and Brent Ambrose. "Pricing the location of commercial properties." In IRES (virtual) Symposium for Doctoral Students. IRES. International Real Estate Society, 2020.
Keywords: Risk Factors, NPV, Location, Gmm, commercial real estate, Clustering, Cash Flow and Asset Pricing