Real Asset - Real Estate Equity and Markets

Question 1

Absolute return standard means

Answer 1

that returns are to be evaluated relative to zero, a fixed rate, or relative to the riskless rate, and therefore independently of performance in equity markets, debt markets, or any other markets.

Question 2

Return attribution

Answer 2

is the process of identifying the components of an asset’s return or performance.

Question 3

Commercial real estate includes the following property sectors:

Answer 3

office buildings, industrial centers, data centers, retail (malls and shopping centers, also referred to as “strips”), apartments, health-care facilities (medical office buildings and assisted-living centers), self-storage facilities, and hotels.

Question 4

Styles of real estate investing refer to

Answer 4

the categorization of real estate property characteristics into core, value added, and opportunistic.

Question 5

Style analysis

Answer 5

is the process of understanding an investment strategy, especially using a statistical approach, based on grouping funds by their investment strategies or styles.

Question 6

Core real estate

Answer 6

• assets that achieve a relatively high percentage of their returns from income and are expected to have low volatility.
• tend to be held for a long time to take full advantage of the lease and rental cash flows that they provide.
• share characteristics with fixed-income securities, and are expected to experience lower risk and lower return compared to other investments in real estate.
• The majority of their returns come from cash flows rather than from value appreciation, using very little leverage.

Question 7

Value-added real estate includes

Answer 7

assets that exhibit one or more of the following characteristics: (1) achieving a substantial portion of their anticipated returns from appreciation in value, (2) exhibiting moderate volatility, and (3) not having the financial reliability of core properties.

Question 8

Opportunistic real estate properties are

Answer 8

expected to derive most or all of their returns from property appreciation and may exhibit substantial volatility in value and returns.

Question 9

Income approach

Answer 9

values real estate by projecting expected income or cash flows, discounting for time and risk, and summing them to form the total value.

Question 10

Private equity real estate funds are

Answer 10

privately organized funds that are similar to other alternative investment funds, such as private equity funds and hedge funds, yet have real estate as the underlying asset.

Question 11

Opportunistic refers to

Answer 11

an investment strategy when the major goal is to seek attractive returns locating superior underlying investments.

Question 12

Rollover refers to

Answer 12

changes in ownership, whereas real estate rollover more generally refers to changes in financing (e.g., converting a construction loan to a permanent mortgage loan) or changes in the nature of a real estate project that facilitate investment liquidity and capability to exit (e.g., completion and full leasing of a project).

Question 13

Real estate valuation is

Answer 13

the process of estimating the market value of a property and should be reflective of the price at which informed investors would be willing to both buy and sell that property.

Question 14

Net operating income (or NOI) is

Answer 14

a measure of periodic earnings that is calculated as the property’s rental income minus all expenses associated with maintaining and operating the property.

Question 15

Equity REITs invest

Answer 15

predominantly in equity ownership within the private real estate market.

Question 16

preeminence

attributes

Answer 16

превосходства

свойства, особенности

Question 17

advantages/ shortcomings

Answer 17

недостатки

Question 18

RE investment advantages

Answer 18

1) offers absolute return unaffected by market directions.
2) potential to act as a hedge against unexpected inflation.
3) potential to diversify a portfolio of traditional assets such as stocks and bonds due to the low correlation to various stock indexes.
4) potential to provide income tax advantages through the deductibility of depreciation and the deferred taxation of investment gains until the asset is liquidated.

Question 19

RE investment shortcomings

Answer 19

1) high heterogeneity. Not only are the physical features of the individual properties unique in terms of location, use, and design, but varying lease structures can lead to large differences in income streams.
2) lumpiness, including the indivisibility of direct ownership. The indivisible nature of real estate assets leads to potential problems with respect to large investment sizes and relatively high transaction costs.
3) illiquidity. An important implication of illiquidity is its effect on reported returns and risk which complicates performance measurement and evaluation.

Question 20

RE investment risks

Answer 20

1) business risk.
The risk of loss as a result of changes in general economic conditions.a property that has a well-diversified tenant population is likely to be less subject to business risk.
2) financial risk, the risk associated with the type of financing used. Impacted by the size, cost and structure of debt . Ex: variable-rate loan typically has a higher degree of financial risk compared to a property acquired using a fixed-rate loan.
3) liquidity risk - inability to sell a property on a timely basis and at a competitive price.
4) inflation risk, or the likelihood that the real value of investment holdings will decrease because of the effects of unanticipated inflation.
5)operational risks, as most real estate investments depend on effective management of properties to maintain occupancy rates, preserve the value of the property, and control expenses
6) legal risks, dispersions in economic outcomes that can result from uncertainty from legal events such as securing and maintaining a claim to a real asset. Investors in real estate need to verify that when they pay for a property, they are obtaining a good title, free of encumbrances and liens.

Question 21

encumbrances and liens

Answer 21

обременение и залог

Question 22

real estate investment styles

Answer 22

method that asset allocator uses to organize and evaluate real estate opportunities.

Question 23

A REIT

Answer 23

also manages, renovates, and develops real estate properties, producing revenue for its investors primarily from the rental and lease payments it receives as the landlord of the properties it owns.

Question 24

The key advantage of REITs

Answer 24

is that they provide liquid access to an illiquid asset class for investors who would not otherwise invest in real property.

Question 25

Commingled real estate funds (or CREFs)

Answer 25

are a type of private equity real estate fund that is a pool of investment capital raised from private placements that are commingled to purchase commercial properties.

Question 26

Syndications

Answer 26

are private equity real estate funds formed by a group of investors who retain a real estate expert with the intention of undertaking a particular real estate project.
may operate as REITs, as a corporation, or as a limited or general partnership. However, most real estate syndications are structured as limited partnerships, with the syndicator performing as general partner and the investors as limited partners. This structure facilitates the pass through of depreciation deductions, which are normally high, directly to individual investors and potentially circumvents double taxation.

Question 27

Real estate joint ventures

Answer 27

are private equity real estate funds that consist of the combination of two or more parties, typically represented by a small number of individual or institutional investors, embarking on a business enterprise such as the development of real estate properties.

Question 28

Exchange-traded funds (or ETFs)

Answer 28

a tradable investment vehicle that tracks a particular index or portfolio by holding its constituent assets or a subsample of them.

Question 29

risk of REITs vs private equity real estate

Answer 29

Even though the underlying property investment may be very similar, REITs generally appear to be more risky due to their link to the public equity markets, while private equity real estate appears to be less risky due to infrequent appraisal-based valuations.

Question 30

REIT benefits and shortcomings

Answer 30

1) higher dividend
2) income secured by long-term leases
3) liquidity
4) professional mgnt.
5) transparency

Shortcomings

1) lack of diversification
2) slow growth
3) tax treatment
4) losses do not pass to investors

Question 31

Purpose of the mortgage backed securities markets

Answer 31

serve to increase the amount of capital available for mortgage lending and reduces the risk of each lender’s loan portfolio.