Chapter 8 - Land, Infrastructure, and Intangible Real Assets

Question 1

Keyword ‘Agency risk’

Answer 1

Economic dispersion resulting from the consequences of having another party (the agent) making decisions contrary to the preferences of the owner (the principal).

Question 2

Keyword ‘Binomial option pricing’

Answer 2

Technique for pricing options that assumes that the price of the underlying asset can experience only a specified upward movement or downward movement during each period.

Question 3

Keyword ‘Blue top lots’

Answer 3

Interim stage of lot completion. Homebuilder can obtain a building permit upon payment of the ordinary building permit fee.

Question 4

Keyword ‘Brownfield project’

Answer 4

Has a history of operations and may have converted from a government asset into being privately investable

Question 5

Keyword ‘Cap rate’

Answer 5

Capitalisation rate or yield (net income/equity)

Question 6

Keyword ‘Excludable good’

Answer 6

Good others can be prevented from enjoying.

Question 7

Keyword ‘Favourable mark’

Answer 7

Biased indication of the value of a position that is intentially provided by a subjective source.

Question 8

Keyword ‘Finished lots’

Answer 8

Fully completed and ready for home construction and occupancy.

Question 9

Keyword ‘Gates’

Answer 9

Restrictions of fund withdrawals.

Question 10

Keyword ‘Greenfield project’

Answer 10

Investable infrastructure can originate as a new, yet to be constructed project.

Question 11

Keyword ‘Intangible assets’

Answer 11

Economic resources that do not have a physical form.

Question 12

Keyword ‘Intellectual property’

Answer 12

Intangible asset that can be owned, such as copyrighted artwork. For an asset to be owned, it must be excludable.

Question 13

Keyword ‘Land banking’

Answer 13

Practise of buying vacant lots for the purpose of development or disposition at a future date.

Question 14

Keyword ‘Managed returns’

Answer 14

Returns that are based on values that are reported with an element of managerial discretion. There are four primary ways that values and returns can be managed; favourable marks, selective appraisals, model manipulation, and market manipulation.

Question 15

Keyword ‘Market manipulation’

Answer 15

Refers to engaging in trading activity designed to cause the markets to produce favourable results for thinly traded listed securities.

Question 16

Keyword ‘Model manipulation’

Answer 16

Process of altering model assumptions and inputs to generate desired values and returns.

Question 17

Keyword ‘Moneyness of an option’

Answer 17

Extent to which an option is in the money, at the money, or out of the money. The moneyness of undeveloped land, when viewed as a call option, is the excess or deficiency of the value of the developed property relative to the cost of construction.

Question 18

Keyword ‘Negative costs’

Answer 18

Costs required to produce what was, in the predigital era, the film’s negative image. These costs include story rights acquisition, preproduction, principal photography and production, and postproduction.

Question 19

Keyword ‘Paper lots’

Answer 19

Refers to sites that are vacant and approved for development by the local zoning authority, but construction on streets, utilities, and other infrastructure has not commenced.

Question 20

Keyword ‘Political risk’

Answer 20

Potentially adverse outcomes due to changes in government policy that may reduce returns.

Question 21

Keyword ‘Privatization’

Answer 21

When a governmental entity sells a public asset to a private operator.

Question 22

Keyword ‘Public-private partnership’

Answer 22

Occurs when a private-sector party is retained to design, build, operate, and/or maintain a public building, often for a lease payment for a period of time.

Question 23

Keyword ‘Real assets’

Answer 23

Economic resources that directly generate consumption.

Question 24

Keyword ‘Regulatory risk’

Answer 24

Economic dispersion to an investor from uncertainty regarding governmental regulatory actions.

Question 25

Keyword ‘Selective appraisals’

Answer 25

Opportunity for IM to choose how many, and which, illiquid assets should have their values appraised during a given quarter or other reporting period.

Question 26

Keyword ‘Smoothing’

Answer 26

Reduction in the reported dispersion in a price or return series. Smoothed returns can mask risk.

Question 27

Keyword ‘Timberland Investment Management Organisations (TIMOs)’

Answer 27

Provide management services that facilitated the migration of timber ownership from long-time corporate manufacturers of timber-related products to institutional investors such as pension plans, endowments, foundations, and insurance companies.

Question 28

Keyword ‘Unbundling’

Answer 28

In recent years, there has been an increased interest in unbundling IP from corporations and permitting the IP to be isolated and purchased as a stand-alone investment.

Question 29

What value or cost best represents the strike price of a call option when underdeveloped land is described as containing a call option?

Answer 29

The cost of developing or improving the land.

Question 30

When should the implicit perpetual option of undeveloped land be exercised?

Answer 30

When the net benefits of receiving income from the developed assets exceed the net value of retaining the option.