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FINC 475 > Chapter 1 Lecture > Flashcards

Chapter 1 Lecture Flashcards

1
Q

A business strategy where a developer/builder starts construction before any homes are sold, in anticipation of sufficient market demand to render the project profitable.

A

speculative construction

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2
Q

ground lease?

A

LOOK UP

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3
Q

What types of real estate?

A
  • agricultural
  • residential
  • commercial
  • industrial
  • special purpose (hotel, hospitals and other medical, theaters)
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4
Q

4 food groups in commercial real estate

A

multi
office
industrial
retail

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5
Q

Who invests in real estate?

A
  • individuals
  • users
  • institutions:
    • pension funds
    • REITs
    • insurance companies
    • banks and savings & loans
    • foreign institutions
    • private funds
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6
Q

Which real estate industry has really grown?

A

large private

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7
Q

Different values for the same investment?

A

investor differences:

  • expectations about the future
  • risk tolerances
  • tax issues
  • current cash versus future benefit
  • investment objectives: diversification, yield, appreciation, tax shelter. usage or ego
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8
Q

value added real estate?

A

LOOK UP

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9
Q

according to the teachers friend, the value of real estate is…

A

what someone is willing to pay

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10
Q

Real estate investments: 4 quadrant investing

A 
public equity (REITs)
public debt (CMBS)
private equity (property)
private debt (loans)

debt returns of income only
equity is income plus capital appreciation

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11
Q

participation loans?

A

LOOK up

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12
Q

Contract that sets forth terms and conditions under which a seller is obligated to render deeds of conveyance to the buyer at some future date

A

contract for deed

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13
Q

investing in real estate: public

A

quoted on exchange or easy price access

more of an efficient market

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14
Q

investing in real estate: private

A

individually negotiated transactions

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15
Q

Public Equity and Public Debt

A

passive RE management

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16
Q

Private equity and private debt

A

active RE management

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17
Q

examples of active debt

A

loan origination
- construction lending
- permanent loans
loan purchase on secondary mortgage market

18
Q

examples of passive debt

A 
pass-through certificates
mortgage real estate investment trust
mortgage-backed securities 
- residential 
- commercial
19
Q

examples of active equity

A

direct ownership of rental property; purchase or development

20
Q

examples of passive equity

A
  • shares in real estate corporation
  • limited partnership shares
  • equity real estate investment trust
21
Q

Mutual funds (30+):

  • diversification
  • risk/return
  • fees/cost
  • “brain damage” (stress)
A
  • high
  • low
  • low
  • low
22
Q

Individual real estate stock (180+):

  • diversification
  • risk/return
  • fees/cost
  • “brain damage” (stress)
A
  • medium
  • medium
  • low
  • medium
23
Q

Passive limited partnership:

  • diversification
  • risk/return
  • fees/cost
  • “brain damage” (stress)
A
  • low to medium
  • low to medium to high
  • high
  • high
24
Q

Sole owner:

  • diversification
  • risk/return
  • fees/cost
  • “brain damage” (stress)
A
  • low to medium
  • medium to high
  • high
  • high
25
Q

Active owner/developer:

  • diversification
  • risk/return
  • fees/cost
  • “brain damage” (stress)
A
  • low to medium
  • high
  • high
  • very high
26
Q

Real estate vs. other investments similarities

A
  • produces a cash flow and/or appreciation
  • same investors
  • passive or active
  • debt or equity
  • has risk -prudent or speculative
27
Q

Real estate vs. other investments differences

A
  • markets traded
  • appraisals
  • large
  • liquidity low
  • long time horizon (except REITs)
  • inflation hedge
  • ego
28
Q

real estate value: utilitarian value

A

may pay more than typical investor

29
Q

3 approaches to value

A

sales comps
cost approach
income approach

30
Q

RE securities valuation methodologies

A
  • DDM
  • CAPM
  • Net asset value per share
31
Q

steps in the investment decision process

A
  1. estimate the stream of expected benefits
  2. adjust for timing differences among expected streams of benefits flowing from investment alternatives (sooner is better)
  3. adjust for perceived risk
  4. rank alternatives
32
Q

How have real estate investments performed? data for investment comparisons scarce, but frequently concluded that…

A

real estate generates returns roughly comparable to common stock, with greater predictability of returns

33
Q

Brueggeman, Chen and Thibodeau analysis–real estate funds outperformed

A

Standard’s and Poor’s 500 stock index and Ibbotson Associates bond index

34
Q

Giliberto compared REIT yields with Standard and Poor’s 500 stock index, 1978 – 1989; found

A

advantage in common stocks

35
Q

Zerbst and Cambon (1984) analyzed earlier studies; found

A

real estate tends to outperform stocks during periods of inflation

36
Q

Clayton and MacKinnon (2001) find

A

REIT returns now closely correspond to returns on small capitalization stocks

37
Q

to be motivated to sell, seller must conclude…

A

most probable selling price is greater than investment value

38
Q

to be motivated to buy, buyer must conclude…

A

investment value is greater than most probable selling price

39
Q

for transaction to be possible…

A

investment value from prospective buyer’s point of view must be greater than from the prospective seller’s point of view

40
Q

the most probable price at which the property would sell in a competitive market as of the date of the appraisal, if it had been exposed to the market for a reasonable time. The estimate assumes reasonably informed parties, each acting in his or her own best interest and with neither subject to undue influence

A

market value

FINC 475 (18 decks)

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