Chapter 8 - Land, Infrastructure, and Intangible Real Assets Flashcards
Keyword ‘Agency risk’
Economic dispersion resulting from the consequences of having another party (the agent) making decisions contrary to the preferences of the owner (the principal).
Keyword ‘Binomial option pricing’
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.
Keyword ‘Blue top lots’
Interim stage of lot completion. Homebuilder can obtain a building permit upon payment of the ordinary building permit fee.
Keyword ‘Brownfield project’
Has a history of operations and may have converted from a government asset into being privately investable
Keyword ‘Cap rate’
Capitalisation rate or yield (net income/equity)
Keyword ‘Excludable good’
Good others can be prevented from enjoying.
Keyword ‘Favourable mark’
Biased indication of the value of a position that is intentially provided by a subjective source.
Keyword ‘Finished lots’
Fully completed and ready for home construction and occupancy.
Keyword ‘Gates’
Restrictions of fund withdrawals.
Keyword ‘Greenfield project’
Investable infrastructure can originate as a new, yet to be constructed project.
Keyword ‘Intangible assets’
Economic resources that do not have a physical form.
Keyword ‘Intellectual property’
Intangible asset that can be owned, such as copyrighted artwork. For an asset to be owned, it must be excludable.
Keyword ‘Land banking’
Practise of buying vacant lots for the purpose of development or disposition at a future date.
Keyword ‘Managed returns’
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.
Keyword ‘Market manipulation’
Refers to engaging in trading activity designed to cause the markets to produce favourable results for thinly traded listed securities.
Keyword ‘Model manipulation’
Process of altering model assumptions and inputs to generate desired values and returns.
Keyword ‘Moneyness of an option’
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.
Keyword ‘Negative costs’
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.
Keyword ‘Paper lots’
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.
Keyword ‘Political risk’
Potentially adverse outcomes due to changes in government policy that may reduce returns.
Keyword ‘Privatization’
When a governmental entity sells a public asset to a private operator.
Keyword ‘Public-private partnership’
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.
Keyword ‘Real assets’
Economic resources that directly generate consumption.
Keyword ‘Regulatory risk’
Economic dispersion to an investor from uncertainty regarding governmental regulatory actions.
Keyword ‘Selective appraisals’
Opportunity for IM to choose how many, and which, illiquid assets should have their values appraised during a given quarter or other reporting period.
Keyword ‘Smoothing’
Reduction in the reported dispersion in a price or return series. Smoothed returns can mask risk.
Keyword ‘Timberland Investment Management Organisations (TIMOs)’
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.
Keyword ‘Unbundling’
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.
What value or cost best represents the strike price of a call option when underdeveloped land is described as containing a call option?
The cost of developing or improving the land.
When should the implicit perpetual option of undeveloped land be exercised?
When the net benefits of receiving income from the developed assets exceed the net value of retaining the option.
