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