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PLUS 660-Ashley > 660 Final > Flashcards

660 Final Flashcards

1
Q

What are the three tests to determine whether a project is a public-private joint venture?

A

1) It would not occur with public participation
2) It is a negotiated transaction (not merely compliance)
3) Involves public agency participation through and past completion

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2
Q

What are the three categories of PPJVs?

A
  1. Redevelopment Transactions
  2. Asset Management Transactions
  3. Private Development of Public Facilities
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3
Q

What are Redevelopment (policy-driven) transactions?

A

-driven by policy considerations, would not occur without public assistance. eg. economic development, downtown revitalization, or affordable housing.

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4
Q

What are Asset Management Transactions?

A

Deployment of publicly owned land for private development. Revenue is the major objective but policy considerations. Eg. ports, marinas, airports.

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5
Q

What is Private Development of Public Facilities?

A

P3’s, related but not same as privatization.

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6
Q

What are the three different negotiating styles?

A

1) Situations where a project would not get built without public assistance. Little likelihood of ever paying back the public assistance. (affordable housing) Public Sector looking to get the most “bang for their buck”
2) Situations in which public assistance is needed to create the development but if successful could eventually be sufficiently profitable to pay all or part of the public assistance back. Complex negotiation (hotels)
3) Public Control of a critical asset in which the developer seeks the use of that asset for private development. Public has control of very desirable real estate and negotiates policy goals with real estate transaction.

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7
Q

Why does it matter what kind of negotiation it is?

A

IF you know the type, you can manage the expectations of the agency or developer. Anticipate the deal structure. It is almost always a zero sum negotiation.

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8
Q

Two dimensions of PPJV’s?

A

purpose of the transaction (redevelopment, asset management, public facilities) AND type of negotiation

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9
Q

When does ground leasing not work?

A

Ownership Housing

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10
Q

What type of PPJV transaction works well for residential multi-family?

A

Redevelopment and asset management

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11
Q

What type of PPJV transaction works with office?

A

Type 2 since there is hope that the project may financially support itself. Asset management works well using ground leases

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12
Q

What type of PPJV transaction works with retail?

A

Type 2 transaction because it will create a market. Asset management works well using ground leases.

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13
Q

What type of PPJV transaction works with Industrial land?

A

Type 1 in disadvantaged areas. Occasionally type 2

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14
Q

What type of PPJV transaction works with Hotel?

A

Asset management works very well using ground leases. Often Type 3 or Type 2 for Downtown Revitalization. Never Type 1.

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15
Q

What are the three dimensions of the financial gap?

A

its origins, its size, and its potential for removal

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16
Q

5 typical causes for a “gap” in financial feasibility (PPJV justification)

A
  1. Land cost too high b/c already improved
  2. Land cost too high because land costs are “sticky”
  3. Publicly mandated improvements that don’t add value
  4. Publicly mandated “over improvement” to current market.
  5. Parking problem especially with retail + entertainment.
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17
Q

What are some PPJV solutions?

A
  • use of publicly owned land through advantageous rates
  • leasing or possible sale below market value of land
  • public construction of all or most public infrastructure
  • purchase of asset or nominally public feature by city
  • parking subsidy or publicly financed.
  • joint use facilities by private and public
  • ED grants, energy conservation grants, etc.
  • HTC, NMTC, EB-5 financing, Infrastructure finance districts, CFDs (Mello-roos community facilities district)
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18
Q

Which market creates more municipal cost than it generates in revenue?

A

residential. Should be critically examined when considering tax abatement measures.

19
Q

longer a developer is in a project, the ___ the risk, therefore the ____ the returns

A

lower, lower

20
Q

Who is interested in buying a project from a developer who is more interested in the “opportunity cost” factor?

A

REITS, intitutional assets prefer a stabilized asset as they are more conservative.

21
Q

The difference between selling a project at the prevailing cap rate and ROC is the developer’s ____

A

Profit.

22
Q

When are times when a project is sold?

A

Debt is paid, equity investors are paid, developer is paid. During operation/stabilization. Before operation. Before Perm Financing or after

23
Q

What are three exit strategies for a project?

A

1) sell the property
2) Sell interest in the project
3) Refinance and Hold

24
Q

What are some outcomes of rising interest rates?

A
  • hard to predict but the risk could be substantial
  • likely to cause a steepening in the “credit curve”
  • cap rates will likely be less sensitive to initial increase but will eventually reach a tipping point and cap rates will adjust (about 5 years out).
25
Q

What is a Real Estate Private Equity (REPE)?

A
  • Raises capital from outside investors (LPs). Eg. pension funds endowments, insurance firms, etc.
  • focuses on commercial real estate
  • capital is locked up for a long period of time and is lightly regulated (unlike REITs)
26
Q

What is a REIT (real estate investment trust)?

A
  • Allows public to buy real estate shares in a property
  • tax sheltered dividends
  • similar to mutual funds
  • 90% of income paid to shareholders
  • taxable as a corporation
27
Q

What are the benefits of REITs?

A

-higher dividends, income secured by long-term leases, liquidity, professional management, transparency (SEC0

28
Q

What are the disadvantages of REITs?

A

-lack of diversification, slow growth, tax treatment (dividends treated as personal income), losses do not pass to investors (can’t write off)

29
Q

What are the three approaches to estimating market value?

A

Sales approach, Income Approach, and Cost Approach

30
Q

What is the cost approach and why is it not widely used to estimate market value?

A

estimating the cost of replacing the property. Hard to estimate accrued depreciation

31
Q

What are the two types of adjustment for appraising a property?

A

Transactional Adjustments and Property Adjustments

32
Q

What are examples of transactional adjustments in an appraisal?

A

property rights conveyed, financing terms, conditions of sale, expenditures made immediately after purchase, market conditions

33
Q

What are examples of property adjustments in an appraisal?

A

location, physical characteristics, economic characteristics, use, non realty items.

34
Q

When real property rights (bundle of sticks) don’t add up when comparing a property in an appraisal, what must be done?

A

Throw out. Cannot use as a comparable.

35
Q

Comparable sales must be an _______ transaction in order to be valid in an appraisal.

A

“arm’s length”

36
Q

How do you quantifiably adjust an appraisal for transactional and property adjustments?

A

% or $ value. Do percentage first.

37
Q

What are three categories defining accrued depriciation?

A

Physical, Functional Obsolescence, and External Obsolescence.

38
Q

What are the three monetary reasons for development?

A

income, appreciation, and initial profit from development.

39
Q

What is a broker opinion of value?

A

quick appraisal, not legal.

40
Q

What are the three types of listing contracts?

A

open, exclusive agency, or exclusive right to sale (most common, gets commission regardless of who sells)

41
Q

What are two key roles in the development team for large projects?

A

acquisitions managers and development managers. They overlap during the feasibility study and development managers take the project forward from entitlements on. (Olson, Aaron Hirshi)

42
Q

What are challenges to financing development?

A

Higher equity requirements, cap rates rising so not as much cushion, finding patient capital for predevelopment

43
Q

What is the benefit of Real Estate Crowdfunding?

A

Allows developers to advertise to more people bringing development more into the mainstream. Potentially diversifying investments to create more diversity in local development.

44
Q

What are the risks with Real Estate Crowdfunding?

A

Less private equity in deals means less sophisticated investors. Not protected. No rights or remedies.

PLUS 660-Ashley (2 decks)

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