Real Estate & Infra

Question 1

Residential real estate

Answer 1

largest sector totaling 75% of global mkt

Question 2

Infra Types

Answer 2

Economic & Social or Greenfield Brownfield & secondary stage

Question 3

Real property categories

Answer 3

residential & commercial

Question 4

Largest allocation to infra

Answer 4

SWF. Because govt own more infrastructure compared to others. But nowadays, PPP are acquiring more

Question 5

Residential real estate

Answer 5

Owner occupied & benefit - price appn

Question 6

Commercial real estate

Answer 6

Residential properties owned for lease or rental, office building, etc.

Question 7

Pvt mkt index replicating real estate performance

Answer 7

are not directly investable

Question 8

Tax benefit on direct RE invt

Answer 8

Non-cash property depreciation exp & tax deductible int expense

Question 9

Indirect RE Invt

Answer 9

LP, MF, Equities, REIT & ETF - can be public or private.

Question 10

REIT Types

Answer 10

Equity REITs - Invest in properties outright or through partnerships and joint ventures (must report EPS based on net income as per GAAP or IFRS)
Mortgage REITs - Underwrite loans to real estate (mortgages) or invest in MBS; and Hybrid REITs - Invest in both these types. All REITs avoid double taxation

Question 11

REIT disadvantage

Answer 11

Higher correlation with public equity mkt compared to private RE

Question 12

Senior Debt

Answer 12

First mortgage & Investment grade commercial mortgage backed securities. Since the underlying assets are bonds, both the risks and returns are bond-like.

Question 13

Core real estate strategies

Answer 13

Open-end funds generally offer exposure to well-leased, high-quality commercial and residential real estate in the best markets, also called core real estate strategies. Investors expect core real estate to deliver stable returns, primarily from income from the property.

Question 14

Core plus real estate strategies

Answer 14

value-add investments that require modest redevelopment or upgrades to lease any vacant space together with possible alternative use of the underlying properties.

Question 15

value-add real estate strategies

Answer 15

To earn higher returns, investors may engage in value-add real estate strategies, such as larger-scale redevelopment and repositioning of existing assets.

Question 16

opportunistic real estate strategies

Answer 16

The most opportunistic real estate strategies include major redevelopment, repurposing of assets, taking on large vacancies, or speculation on significant improvement in market conditions.

Question 17

Benefit of RE & Infra

Answer 17

Low correlation with other asset. Portfolio diversification, generate bond like CF whereas equity investment have only price appreciation benefit.
infrastructure investments typically support services that face inelastic demand and/ or benefit from high barriers to entry, generate steady cash returns, and have a longer life cycle, equity investments in infrastructure offer lower correlation with public market equities and the broader economy. Infrastructure debt tends to experience lower default rates and higher recovery than similar fixed-income instruments, and it is less subject to fluctuation over the economic cycle. Both RE & Infra provides some protection against inflation

Question 18

Bond-Like Return Characteristics

Answer 18

Senior Debt, Core & Core-plus

Question 19

Cash-Flow Growth Investment Strategies

Answer 19

Core-plus, Value-add & Opportunistic

Question 20

Infrastructure CF

Answer 20

Availability Payment, Usage-based payment & Take or pay arrangement

Question 21

Economic Infra assets

Answer 21

Transportation ass - Road, bridge, tunnel, airport, seaport, railway
Info & Comm ass - Telecom towers & Data center
Utility & Energy ass - Electrical grid, power generation, transmission, potable water production, gas storage & distribution, liquefied natural gas terminals, oil & gas infra, solid waste treatment

Question 22

Social Infra assets (directed toward human activities) (least riskier)

Answer 22

Educational assets, Health care assets, social housing, correctional facilities, govt / municipal buildings

Question 23

Greenfield Investment

Answer 23

Developing new asset & infra. Build operate transfer cycle. Intent may be to lease or sell or hold & operate

Question 24

Brownfield investments (investor who wants long-term, stable returns because they have some historical data of operation)

Answer 24

expand existing facilities and may involve privatization of public assets or a sale leaseback of completed greenfield projects. They are characterized by a shorter investment period with immediate cash flows and an operating history

Question 25

Secondary-stage investments (lowest expected risk)

Answer 25

Invest in existing infrastructure facilities or fully operational assets that do not require further investment or development over the investment horizon. These assets generate immediate cash flow and returns expected over the investment period. Some assets never reach this stage because they continuously require additional capital and development.

Question 26

Infra Investment forms

Answer 26

Direct investment in underlying infra (large investment needed, prioritize domestic infra needs) & Indirect investment - Infra funds, Infra ETF, Holding equity in publicly traded infra providers or MLP (trade on exchanges, pass through entity like REIT

Question 27

High Risk profile

Answer 27

Greenfield projects without guarantees of demand upon completion—e.g., variable electricity prices, uncertain traffic on roads and through ports. Located in OECD countries and emerging markets. High weighting to capital appreciation

Question 28

Medium-Risk Profile

Answer 28

Mostly brownfield assets (with some capital expenditure requirements) & some greenfield assets (with limited construction and demand risk). Located primarily in OECD Countries. Mix of yield and capital appreciation

Question 29

Low-Risk Profile

Answer 29

Brownfield assets with mitigated risks—e.g., fully constructed with contracted/ regulated revenues. Located in the most stable OECD countries. High weighting to current yield

Question 30

Compared with similar fixed-income instruments

Answer 30

infrastructure debt has higher recovery rates & lower default rates

Question 31

Appraisers vs equity investors in RE

Answer 31

Appraisers of Private Real Estate place heavy emphasis on current market conditions and recent trends vs Equity investors in public real estate heavy emphasis on discount future cash flows