Real Estate and Infrastructure

Question 1

Real estate: Private market

Answer 1

• Direct investment: Purchasing property / Lending money to purchaser
• GPs provide management services, LP provide money

Question 2

Real estate: Public market

Answer 2

Own securities that serves as claims on underlying assets
- REITs, Equity in RE, ETF, MBS (mortgage backed securities), CMBS, mortgage REITs, mortgage ETFs

Question 3

Real estate: Equity investor

Answer 3

• Ownership interest in RE
• Securities of entity that owns RE

Question 4

Real estate: Debt investor

Answer 4

• Owns mortgage or mortgage backed securities
• Debt collateralized by underlying RE

Question 5

Direct RE Investment

Answer 5

Benefits
- Control
- Diversification
- Tax benefits: Deductions for depreciation and interest expense

Drawbacks
- Illiquidity and price opacity
- Complexity in management
- High initial capital
- Concentration risk if portfolio has few properties

Question 6

REITs

Answer 6

• Exempt from double taxation
• Exchange traded and without redemption / liquidation risk
• Specialized investors that give GAAP metrics

Question 7

Types of REITs

Answer 7

• Equity: Direct investment via partnerships
• Mortgage: Lend money for RE or invest in MBS, CMBS
• Hybrid: Both in RE and mortgages

Question 8

[REIT] Core real estate strategies

Answer 8

High-quality commercial and residential properties
- Open-end structures
- Indefinite lives

Question 9

[REIT] Core-plus

Answer 9

Undertake modest development and redevelopment

Question 10

[REIT] Value-add

Answer 10

Undertake larger scale of development and redevelopment

Question 11

[REIT] Opportunistic

Answer 11

Large-scale redevelopment and repurposing of assets, invest in distressed properties

Question 12

Diversification of REITs

Answer 12

• Diversification from investing in many properties
• REIT return correlation w/equity > Direct investment correlation

Question 13

Infrastructure investments

Answer 13

Transportation, Utility, Information and Communications, Social

Question 14

Infra Investment structures

Answer 14

• Construct asset and sell / lease to government
• Buy existing assets from government to lease back
• Public-prive partnership

Question 15

Cash flow from infrastructure

Answer 15

Availability payments = making infra available
Usage-based = highway tolls
Take-or-pay = Requirement to pay minimum purchase price

Question 16

Greenfield investments

Answer 16

Investment in infra assets to be constructed - follow BOT cash flow
- Building: Outflows
- Operating: Inflows
- Transfer: Ownership to government or third party

Question 17

Brownfield investments

Answer 17

Investment to expand or privatize existing infra asset
Sale-leaseback arrangement (Sold to private and leased to government

Question 18

Secondary-stage investments

Answer 18

Investment in operation facilities that do not need further development