CAIA - 16 - Investment Styles, Portfolio Allocation And Real Estate Derivatives Flashcards Preview

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Flashcards in CAIA - 16 - Investment Styles, Portfolio Allocation And Real Estate Derivatives Deck (35)
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1

___ ___ is the risk in a change in property ownership.

Rollover risk is the risk in a change in property ownership.

2

Characteristics of Core Real Estate:

 

1. Assets are most ___, most ___and least ___

2. Low ___

3. Return comes from ___

4. Properties are ___-___

 

Characteristics of Core Real Estate:

 

1. Assets are most liquid, most developed and least levered

2. Low volatility

3. Return comes from income

4. Properties are bond-like

3

___ refers to changes in financing or nature of real estate that increase liquidity.

Rollover refers to changes in financing or nature of real estate that increase liquidity.

4

Characteristics of value-add real estate:

 

1. Significant amount of return derived from ___ ___ ___

2. Moderate ___

3. Not as ___as core

4. Property type is not ___, not ___ ___or needs ___ ___

5. Specialized ___

6. More ___

 

Characteristics of value-add real estate:

 

1. Significant amount of return derived from increased property value

2. Moderate volatility

3. Not as reliable as core

4. Property type is not core, not fully leased or needs new strategy

5. Specialized management

6. More leverage

5

The characteristics of opportunistic real estate:

 

1. ___ risk

2. ___risk

3. ___ ___

4. Often accessed via ___ ___ real estate funds

5. Value appreciation occurs over ___ years

6. ___ risk

7. Properties are ___ -like

8. Used to access ___ -___ properties

 

The characteristics of opportunistic real estate:

 

1. Development risk

2. Leasing risk

3. High leverage

4. Often accessed via private equity real estate funds

5. Value appreciation occurs over 3-5 years

6. Rollover risk

7. Properties are equity-like

8. Used to access cross-border properties

6

There are 3 key reasons to use styles in real estate portfolio analysis:

 

1. ___ ___

2. Monitoring ___ ___

3. ___ ___

There are 3 key reasons to use styles in real estate portfolio analysis:

 

1. Performance measurement

2. Monitoring style drift

3. Style diversification

7

To make a real estate style box, the ___ styles may be used along with ___type.

To make a real estate style box, the NCREIF styles may be used along with market type.

8

What is the cap rate (equation)

NOI / Property value

9

___ ___are considered estimates of expected real estate returns.

Cap rates are considered estimates of expected real estate returns.

10

Historically, cap rates have been between ___% and ___% for core real estate.

Historically, cap rates have been between 5% and 10% for core real estate.

11

An expected real estate return approximated by a cap rate is often expressed as a ___ ___ ___, which is the excess of the cap rate over the yield of a default-free 10-year bond.

An expected real estate return approximated by a cap rate is often expressed as a cap rate spread, which is the excess of the cap rate over the yield of a default-free 10-year bond.

12

True voalatility of core real estate risk (equation)

13

Beta of true returns (equation)

14

Expected returns of value-added and opportunistic real estate my be estimated in 3 ways:

 

1. Using ___ ___rates

2. Using ___ ___rates

3. Using a ___ ___

 

Expected returns of value-added and opportunistic real estate my be estimated in 3 ways:

 

1. Using observed cap rates

2. Using absolute hurdle rates

3. Using a risk premium

15

Using ___ ___ for value-add/opportunistic real estate may generate inaccurate results because ___ is less reliable

Using cap rates for value-add/opportunistic real estate may generate inaccurate results because NOI is less reliable

16

Using absolute hurdle rates does not account for changing ___ ___and ___.

Using absolute hurdle rates does not account for changing interest rates and inflation.

17

Using a ___ ___is probably the best approach for estimating expected returns of non-core properties.

Using a risk premium is probably the best approach for estimating expected returns of non-core properties.

18

Derivatives on housing prices offer three potential benefits:

 

1. ___ ___

2. ___ ___

3. Ability to ___-___residential real estate

Derivatives on housing prices offer three potential benefits:

 

1. Price revelation

2. Risk Management

3. Ability to short-sell residential real estate

19

The ability of real estate derivatives to provide developers and investors effective risk management depends on :

 

1. The ability of indices to ___ ___ ___ in ___.

2. The ability of derivatives to offer ____

The ability of real estate derivatives to provide developers and investors effective risk management depends on :

 

1. The ability of indices to accurately represent changes in value.

2. The ability of derivatives to offer liquidity

20

Baum and Harzell (2012) suggest seven advantages to property derivates:

 

1. ___ ___ ___than direct real estate

2. ___ ___to real estate returns

3. Smaller ___ ___

4. ___ ___to real estate returns

5. Enabling ___ ___

6. No ___ ___

7. ___ without needing ___

Baum and Harzell (2012) suggest seven advantages to property derivates:

 

1. Lower transaction costs than direct real estate

2. Instant access to real estate returns

3. Smaller management costs

4. Diversified exposure to real estate returns

5. Enabling short selling

6. No withholding taxes

7. Leverage without needing debt

21

Baum and Hartzell (2012) suggest six disadvantages to property derivatives.

 

1. ___ and ___market

2. ___risk

3. Lack of acceptable ___

4. Large losses due to ___ ___

5. ___risk (difference between actual performance and index performance)

6. Substantial ___ ___due to mark to market

Baum and Hartzell (2012) suggest six disadvantages to property derivatives.

 

1. New and illiquid market

2. Counterparty risk

3. Lack of acceptable indices

4. Large losses due to high leverage

5. Basis risk (difference between actual performance and index performance)

6. Substantial accounting volatility due to mark to market

22

A ___ ___ ___ ___is a swap agreement between two parties to exchange payments based on the property market.

property total return swap is a swap agreement between two parties to exchange payments based on the property market.

23

In a property total return swap, the buyer pays an amount each year based on ___ or ___ ___ ___and the seller pays the ___ ___ on a ___ ___.

In a property total return swap, the buyer pays an amount each year based on fixed or floating interest rates and the seller pays the total return on a property index.

24

A property total return swap's market value at the time its struck is ___

A property total return swap's market value at the time its struck is zero

25

Property total return swaps have relatively ____ counterparty risk.

Property total return swaps have relatively low counterparty risk.

26

The margins (if added) on property total return swaps is typically ___%-___%.

The margins (if added) on property total return swaps is typically 5%-20%.

27

Where are property total return swaps are traded

Property total return swaps are traded over the counter.

28

Market participants consider a swap's fixed rate represents the ___ ___ ___ on a specific segment of the real estate market.

Market participants consider a swap's fixed rate represents the implied expected return on a specific segment of the real estate market.

29

Total property swaps can be used as a ___ or to provide ___ ___.

Total property swaps can be used as a hedge or to provide instant exposure.

30

Exchange-traded contracts have little counterparty risk since parties to the contracts ___ ___ ___.

Exchange-traded contracts have little counterparty risk since parties to the contracts deposit mandatory collateral.

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