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Flashcards in CAIA - 14 - Real Estate as an Investment Deck (43)
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1

The 5 advantages of real estate are:

 

1. ___ returns

2. Hedge against ___ ___

3. ___

4. Steady ___ ___

5. ___ ___advantages

The 5 advantages of real estate are:

 

1. Absolute returns

2. Hedge against unexpected inflation

3. Diversification

4. Steady cash inflows

5. Income tax advantages

2

There are 3 disadvantages in real estate

 

1. ___ of characteristics

2. ___assets that cannot be easily ___or ___

3. Highly ___

There are 3 disadvantages in real estate

 

1. Heterogeneity of characteristics

2. Lumpy assets that cannot be easily bought or sold

3. Highly illiquid

3

Two difference between a long-term lease and a bond:

 

1. A bond is not ___ ___

2. As maturity nears, the market value of a building is driven more by ___ ___ ___.

Two difference between a long-term lease and a bond:

 

1. A bond is not inflation linked

2. As maturity nears, the market value of a building is driven more by local market fundamentals.

4

When a building is empty, its value can behave more like ___.

When a building is empty, its value can behave more like equity.

5

The ___-___asset allocation process focuses on analyzing the macro environment and risk premiums.

The top-down asset allocation process focuses on analyzing the macro environment and risk premiums.

6

The driving factor of the ___-___asset allocation process is the relative attractiveness of individual investment opportunities.

The driving factor of the bottom-up asset allocation process is the relative attractiveness of individual investment opportunities.

7

Real estate can be classified in 4 ways:

 

1. ___ vs ___

2. ___vs ___

3. ___vs ___

4. ___vs ___

Real estate can be classified in 4 ways:

 

1. Equity vs Debt

2. Domestic vs International

3. Residential vs Commercial

4. Private vs Public

8

___ is a residual claim on an investment.

Equity is a residual claim on an investment.

9

___ is a fixed claim on an investment

Debt is a fixed claim on an investment

10

Mortgages with considerable credit risk may behave like ___, and ownership of real estate with long-term leases may behave like ___.

Mortgages with considerable credit risk may behave like equity, and ownership of real estate with long-term leases may behave like debt.

11

Most international real estate investments are made in ___.

Most international real estate investments are made in stocks.

12

The degree of international investing usually depends on the asset allocator's ___.

The degree of international investing usually depends on the asset allocator's country.

13

Institutional investors invest primarily in ___ of ___backed by residential real estate for residential exposure.

Institutional investors invest primarily in pools of mortgages backed by residential real estate for residential exposure.

14

Credit risk of commercial properties depend on ___ ___, while credit risk of residential properties depends on the ___ ___.

Credit risk of commercial properties depend on cash flows, while credit risk of residential properties depends on the borrower's creditworthiness.

15

The advantages of investing in private real estate are the ability to select ___ ___, direct ___of ___, and ___-___benefits.

The advantages of investing in private real estate are the ability to select specific properties, direct control of investments, and tax-timing benefits.

16

The advantages of public real estate investing is that it is easier to ___, greater ___, low ___ ___, improved ___ ___, and ___in ___.

The advantages of public real estate investing is that it is easier to access, greater liquidity, low transaction costs, improved corporate governance, and transparency in pricing.

17

In order to be a REIT, the following must be in compliance:

 

1. ___% of income must be derived from real estate activities

2. REITs are required to pay out ___% of their taxable income in the form of dividends

In order to be a REIT, the following must be in compliance:

 

1. 75% of income must be derived from real estate activities

2. REITs are required to pay out 90% of their taxable income in the form of dividends

18

An equity REIT has over ___% of its assets in the private real estate equity market.

A mortgage REIT has over ___% of its assets invested in real estate debt.

An equity REIT has over 50% of its assets in the private real estate equity market.A mortgage REIT has over 50% of its assets invested in real estate debt.

19

A ___ REIT invests in both equity and debt and does not comply with either of the 50% cut-offs.

hybrid REIT invests in both equity and debt and does not comply with either of the 50% cut-offs.

20

___ markets include major metropolitan areas

Primary markets include major metropolitan areas

21

___ markets are medium-sized regions, such as suburban areas of primary markets

Secondary markets are medium-sized regions, such as suburban areas of primary markets

22

___ markets are lesser-known regions, smaller populations, and smaller real estate projects.

Tertiary markets are lesser-known regions, smaller populations, and smaller real estate projects.

23

Most commercial real estate is (publicly/privately) held

Most commercial real estate is privately held

24

Anticipated inflation (should/should not) be a return driver.

Anticipated inflation should not be a return driver.

25

The ___ ___states that nominal interest rates are a combination of real interest rates and a premium for anticipated inflation.

The fisher effect states that nominal interest rates are a combination of real interest rates and a premium for anticipated inflation.

26

___ ___is the difference between realized and anticipated inflation.

Unanticipated inflation is the difference between realized and anticipated inflation.

27

Unanticipated inflation (is/is not) a key risk and return driver since it can change ___ ___rates.

Unanticipated inflation is a key risk and return driver since it can change anticipated inflation rates.

28

Many commercial real estate leases in the U.S. contain an ___ ___, which periodically adjusts rental payments based on some measure of inflation.

Many commercial real estate leases in the U.S. contain an escalator clause, which periodically adjusts rental payments based on some measure of inflation.

29

The ___-___ ___, is a framework that divides real estate market into two markets: one for real estate space and one for real estate assets.

The four-quadrant model, is a framework that divides real estate market into two markets: one for real estate space and one for real estate assets.

30

The four-quadrant model provides a graphical representation of the dynamics of a real estate system, which concists of three components: 1) market for ___ ___ ___, 2) ___market, and 3) ___ ___.

The four-quadrant model provides a graphical representation of the dynamics of a real estate system, which concists of three components: 1) market for real estate space, 2) asset market, and 3) construction industry.

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