LM 4: Real Estate & Infrastructure Flashcards
What is a title or deed?
document records ownership and land-use rights.
What are the 5 characteristics of real estate that make it unique among asset classes? HUMLL
- High initial investment
- Unique assets (no two properties are the same)
- Multiple investment alternatives (direct investing or fund investing)
- Limits to diversification (hard to diversify in RE due to high cost)
- Lack of investable indexes (indexes are not investable like equity or fixed income indexes)
What are 3 factors of RE that make the price discovery process opaque(not transparent)? PHL
- Price determination (historical prices unlikely to be reflective of current market conditions)
- High transaction costs
- Limited transaction activity (cant establish market-based valuations due to infrequent transactions)
What are the 3 main types of REIT’s?
- Equity REIT’s (Equity in RE)
- Mortgage REIT’s (Investing in MBS)
- Hybrid REIT’s (Mixture of equity RE and mortgage debt)
How do REITs avoid double taxation?
distribute more than 90% of their taxable net income as dividends
What are the 2 ways real estate funds can be structured?
- infinite life open-end funds
- finite life closed-end funds
What is an infinite life open-end fund?
allow investors to make contributions or redemption anytime, and the GP will typically accept them on a quarterly basis
What type of approach to real estate investing do infinite life open-end funds take?
Core real estate
What type of approach to real estate investing do finite life closed-end funds take?
- Core-plus real estate
- Value add
- Opportunistic
What is core real estate vs core plus real estate?
core real estate: consists of well-leased, high-quality commercial and residential properties in the best markets
core plus real estate: consists of growth and income
What is value add real estate vs opportunistic real estate?
value add: larger-scale redevelopment or repositioning of existing properties
opportunistic: taking speculating positions in real estate
What are the 5 benefits of real estate investments? SPIPT
- Stable/predictable income
- Price Appreciation
- Inflation hedging
- Portfolio diversification
- Tax benefits
What are the 5 ranked from safest to most speculative strategies to invest in real estate?
- Senior Debt (safest)
- Core
- Core-plus
- Value-add
- Opportunistic (riskiest)
What is the loan to value (LTV) ratio?
measure comparing the amount of your mortgage with the appraised value of the property
What are the 3 common arrangements of infrastructure investments? AUT
- Availability payments
- Usage-based payments
- Take-or-pay
Describe the 3 common arrangements of infrastructure investments.
- Availability payments: that are earned for ensuring that the asset is available to be used
- Usage-based payments: such as road tolls or facility fees
- Take-or-pay: takes the product from the supplier or pays the supplier a penalty.
What is public-private partnerships (PPP’s)?
used for creating long-lived fixed assets intended for public use like infrastructure
What are development finance institutions?
they provide and coordinate funding for economic development projects.
What are economic infrastructure assets?
infrastructure assets that support economic activity
What are the 3 types of economic infrastructure assets?
- Transportation (Roads, bridges, airports)
- Information and communication technology (ICT) (Telecommunication towers and data centers)
- Utility and energy (Power generation assets (including renewables), electricity transmission infrastructure, waste treatment facilities)
What is social infrastructure?
investments towards human activities:
educational, healthcare facilities, correctional facilities, and provide essential public services.
What are the 3 stages of infrastructure development?
- Greenfield infrastructure investments
- Brownfield infrastructure investments
- Secondary-stage investments
Describe the 3 stages of infrastructure development.
- Greenfield (not yet constructed)
- Brownfield (fully operational)
- Secondary Stage (fully operational like brownfield except no significant capital investments are expected to be needed)
What are the 3 differences between fixed income securities and infrastructure debt?
infrastructure debt:
-lower default rate
-higher recovery
-less fluctuations over economic cycle
What is mortgage liability formula?
LTV * Portfolio Value = Mortgage Liability
