The Practical Problems of Long-Term Real Estate Investing

In the early months of the 2007-08 financial crises, a loan manager faces a real estate financing decision. Should he approve a bullet structure three-year loan to a longstanding client, a legendary Texan developer? The developer, who near retirement downsized his business, is seeking financing for his only project: residential or commercial development on an attractive piece of land in suburban Houston. The loan manager considers the decision in light of the mortgage market turmoil, seeing commercial projects as safer, but also factoring that the residential market could bring higher returns if the market stabilizes soon. The manager collects the data and asks an analyst to assess the risks; that ultimately requires assessing the economics of both projects from both the bank’s and the developer’s perspectives. The bank could still change the interest rate on the loan to receive adequate compensation for the risk it carries, but the loan manager knows that doing so will change their long-term client willingness to take on the loan.

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International Real Estate Review

International Real Estate Review ◽

10.53383/100227 ◽

2016 ◽

Vol 19 (3) ◽

pp. 371-409

Author(s):

Yuen-Meng Wong ◽

Keyword(s):

Real Estate ◽

Interest Rates ◽

Turn Of The Millennium ◽

Market Returns ◽

Stock Market Returns ◽

Fully Integrated ◽

Empirical Tests ◽

Market Capitalisation ◽

Domestic Stock

Real estate investment trusts (REITs) are a niche alternative investment class. Since their introduction in Asia at the turn of the millennium, the REIT market in the region has experienced phenomenal growth. In particular, the Malaysia REIT (M-REIT ) market capitalisation has seen a spectacular growth of close to 20 folds from its inception in 2005 until the end of 2013. This paper chronicles the development of the M-REIT market which is rather unique as it provides a common platform for the existence of both conventional and Islamic REITs. Empirical tests are also conducted to uncover the returns characteristics of the M-REIT market. M-REIT returns are significantly correlated with domestic stock markets but only weakly correlated with changes in interest rate, with long-term proxies having a stronger impact than short-term proxies. The results from a correlation analysis are further confirmed by regression testing which shows that M-REIT returns are most significantly driven by domestic stock market returns while only mildly by changes in interest rates and not significantly driven by returns in regional REIT markets. These findings possibly imply that M-REITs (i) subscribe more to the characteristics of equity than those of bonds, (ii) are not 'pure' yield-play instruments, (iii) are often regarded as long-term investment, and (iv) may not be fully integrated with global and regional REIT markets.

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Motivation, Dilemma and Countermeasures of Foreign Bond Financing of Real Estate Enterprises?Based on Perspective of Financial Internationalization

Proceedings of Business and Economic Studies ◽

10.26689/pbes.v3i5.1589 ◽

2020 ◽

Vol 3 (5) ◽

Author(s):

Yasai Liu

Keyword(s):

Sustainable Development ◽

Real Estate ◽

Real Estate Market ◽

Financing System ◽

Real Estate Enterprises ◽

Financing Channels ◽

Financing Costs ◽

Financial Internationalization ◽

The Cost

Several real estate enterprises in China (hereinafter referred to as housing enterprises) rely on overseas financing to meet their financing needs, but it is fraught with challenges such as high financing costs. Premised on the internationalization of finance, combined with the background of "staying and not speculating" and establishing a long-term mechanism for real estate market, based on the investigation of the financing motives of real estate enterprises, combined with a large amount of data, the present study examines the current situation and predicament of overseas financing of housing enterprises. It proposes four feasible countermeasures to promote sustainable development of real estate enterprises overseas financing including building a special financing system to reduce the cost, expanding various financing channels, strengthening the supervision of overseas bond financing, and reducing the loss devaluation of RMB internally and externally.

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Demonetisation and Indian Stock Market

MUDRA Journal of Finance and Accounting ◽

10.17492/mudra.v5i2.14333 ◽

2018 ◽

Vol 5 (2) ◽

Author(s):

Ruchika Gahlot

Keyword(s):

Linear Regression ◽

Real Estate ◽

Stock Prices ◽

General Public ◽

Financial Service ◽

Medium Term ◽

Donald Trump ◽

Cash Transaction ◽

Indian Stock Market

Demonetisation of 500 and 1000 bank notes was announced by PM Modi on 8th Nov 2016. There were number of speculation relating to its effects on general public and different sectors of Indian economy. This paper studies the effect of demonetisation on stock prices of different sectoral indices and Nifty listed on NSE by using t test, f test and linear regression. The results revealed that Nifty, automobiles, FMCG, Financial service, media and banking and real estate were major sectors affected by demonetisation decision as they are based on cash transaction. The prices of indices of NSE were influenced by S and P 500 in medium term and long term which may be the effect of policy of US president Donald Trump who was elected as President of U.S. on 8th November 2016.

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INVESTMENT STRATEGIES OF INSTITUTIONAL INVESTORS: SOVEREIGN WEALTH FUNDS VS ENDOWMENTS

MGIMO Review of International Relations ◽

10.24833/2071-8160-2013-6-33-117-126 ◽

2013 ◽

pp. 117-126

Author(s):

E. S. Biryukov

Keyword(s):

Real Estate ◽

Hedge Funds ◽

Institutional Investors ◽

Private Equity ◽

Investment Strategy ◽

High Yield ◽

Income Volatility ◽

Sovereign Wealth Funds ◽

The World

The paper considers two main original approaches to investing the assets of institutional investors (the total amount of their assets in the world is about 100 trillion dollars) – the one of Norway's sovereign wealth fund Global and approach of Yale's endowment fund. Fund Global with assets of $ 716 billion dollars is the largest institutional investor in the world, its strategy is based on the assumption that markets are efficient and their long-term growth lies in the balance of investment in stocks , bonds, and , since more recent time - in real estate. Financiers of Yale in the 1990s revolutionized the approach to investment, firstly, by reducing the proportion of stocks and bonds in favor of private equity and real estate, and secondly , by shift from investments in the domestic market to foreign markets. Not all institutional investors are ready to follow these strategies because of the risk of negative returns in times of crises, but in the medium- and long-term, these approaches allow to beat inflation. For example, Yale's endowment has grown since 1985 to 2012 from 1.6 to 19 billion dollars, and high yield allows to transmit 1 billion dollars (!) to the budget of the university annually. Endowment funds are one of the key sources of revenues of leading American universities. Analysis of the investment policy of endowment funds and sovereign wealth funds shows that fundamental changes in the concept of investing began to occur since the late 1980s - early 1990s . Institutional investors of both these types ceased to focus on conservative instruments - bonds and deposits , and use other options: Global - stocks , Yale – private equity , hedge funds, real estate investments , etc. With the expand of the spectrum of instruments in which the funds are invested the income volatility increases either, and therefore the institutional investors should be both transparent and explain to the public the motives of investment strategy changes.

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A comparative computational and behavioral analysis of real estate performance

Journal of Property Investment and Finance ◽

10.1108/jpif-09-2016-0069 ◽

2017 ◽

Vol 35 (3) ◽

pp. 290-320 ◽

Cited By ~ 1

Author(s):

James R. DeLisle ◽

Terry V. Grissom

Keyword(s):

Asset Pricing ◽

Financial Crisis ◽

Real Estate ◽

State Space ◽

Hyperbolic Discounting ◽

Time Preferences ◽

Content Type ◽

Agent Behavior ◽

Market State

Purpose The purpose of this paper is to investigate changes in the commercial real estate market dynamics as a function of and conditional to the shifts in market state-space environment that can influence agent responses. Design/methodology/approach The analytical design uses a comparative computational experiment to address the performance of property assets in the current market based on comparison with prior structural patterns. The latent variables developed across market sectors are used to test agent behavior contingent on the perspectives of capital asset pricing conditionals (CAPM) and a behavioral momentum/herd construct. The state-space momentum analysis can assist the comparative analysis of current levels and shifts in property asset performance given the issues that have arisen with the financial crisis of 2007-2009. Findings An analytic approach is employed framed by a situation-dependent model. This frame considers risk profiles characterizing the perspectives and preferences guiding a delineated market state. This perspective is concerned with the possibility of shifts in market momentum and representativeness conditioning investor expectations. It is observed that the current market (post-crisis) has changed significantly from the prior operations (despite the diversity observed in prior market states). The dynamics of initial findings required an additional test anchored to the performance of the general capital market and the real economy across time. This context supports the use of a modified CAPM model allowing the consideration of opportunity cost in a space-time dynamic anchored with the consideration of equity, debt, riskless asset and liquidity options as they varied for the representative agents operating per market state. Research limitations/implications This paper integrates neoclassical and behavioral economic constructs. Combines asset pricing with prospect theory and allows the calculation of endogenous time-preferences, risk attitudes and formulation and testing of hyperbolic discounting functions. Practical implications The research shows that market structure and agent behavior since the financial crisis has changed from the investment and valuation perspectives operating as observed and measured from 1970 up to 2007. In contradiction to the long-term findings of Reinhart and Rogoff (2008), but in compliance with common perspectives and decision heuristics often employed by investors, this time things have changed! Discounting and expected rates of return are dynamic and are hyperbolic and not constant. Returns and investment for property assets are situational (market state-space specific) and offer a distinct asset class, not appropriately estimated by many of the traditional financial models. Social implications Assist in supporting insights to measure in errors and equations that result in inefficient resource allocation and beta discounting that supports the financial crisis created by assets subject to long-term decision needs (delta function). Originality/value The paper offers a combination and comparison of neoclassic asset pricing using a modified CAPM (two-pass) approach within the structural frame of Kahneman and Tversky’s (1979) prospect theory. This technique allows the consideration of the effects of present bias, beta-delta functions and the operation of the Allais Paradox in market states that are characterized by gains and losses and thus risk aversion and risk seeking behavior. This ability for differentiation allows for the development of endogenous time-preferences and hyperbolic discounting factors characteristic of commercial property investment.

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Challenged from the Outside

10.7591/cornell/9781501754371.003.0011 ◽

2021 ◽

pp. 216-234

Author(s):

Daniel R. Garodnick

Keyword(s):

Real Estate ◽

Short Term

This chapter discusses how residents of Stuyvesant Town received a colorful missive from Gerald Guterman, a real-estate speculator, which attacked and directly undermined the Tenants Association and Brookfield, the new partner of the complex buildings. It explores Guterman's plan of converting the Stuy Town property to a co-op and selling units to tenants at $130,000 per unit. It also points out how Guterman's plan sparked an anxious debate about who would become the owner of units that were not sold to the tenants who lived in them. The chapter mentions Guterman's intention to sell occupied rent-stabilized units to individual outside investors, a scenario most longtime rent-stabilized renters objected to. It also elaborates Daniel Garodnick's concerns on Guterman's model of short-term ownership that lacked any long-term affordability protections.

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