Real Estate Flashcards - Penn Wharton Flashcards

Real Estate Flashcards - Penn (Wharton) Flashcards Industry Players (who interacts with who!) (1) Owners / Equity Investors- Corporate Advisory- Real Estate InvestmentBanks- Investment Sales Broker- Debt/Lenders- Asset Manager(2) Debt/Lenders,- Owners/Equity Investors- Real Estate Investment Banks(3) Developers- Owners/Equity Investors- Consultants(4) Asset Manager- Investment Sales/Broker- Other BuildingsOwner/Equity Investors(5) Property Manager- Broker/Leasing Agent- Building Staff Builders/DevelopersDevelopment and site selection, construction, sales marketing and leasing, property management. Company may hold or sell after development.Ex. Tishman Speyer, Hines, Trammell Crow, REITs, Private owners TenantsSmall to large enterprises. They pay the rent!(Investment) Asset Management- Pick up where the acquisitions people left off- Monitor performance of asset- Perform budget-to-actual analysis- Interact with property management regarding tenancy, obsolescence andmarketing issues- Analyze potential re-positioning, capital improvement, and disposition of assets (Capital Markets) Equity / Debt Analysis (1) Typically work at a Wall Street bank(2) Analyze publicly traded equity and debt- Issue quarterly reports on earnings and company performance- Conclude on a rating, "strong buy", "hold", etc.- Serve as an expert to investors on specific real estate companies-- REITs, CMBS markets, Real estate operating companies Asset ManagersManagement of existing properties and portfolios either for assets owned by the company (like a REIT that owns and manages its buildings), or 3rd party asset management.Ex.3rd Party - Pension fund advisors, ING Clarion, RREEF, JP Morgan, Prudential Equity OwnersInvestors who may have an active or passive role in a property. Typically, opportunity funds (PE) are passive investors while REITS are active.Ex.Opportunity Funds - BlackstoneEquity REITs - VornadoInstitutions - pension funds and insurance companiesCorporations - Target, McDonaldsPrivate Owners - You Community Development- Some developers choose to develop in low-income areas- Enterprise zones, TIFs, Empowerment districts- Community lending requirement = opportunity- Work with urban planners, city government

Finance (Operators) vs Property (Capital Allocators)From closest to "property" to "finance"(1) Company Type:- Owner Operators / REITs <> Hedge Funds- Developers vs

Private Equity Funds(2) Investment Style (in order):-

Development vs. Asset Acquisitions (from core to value add to opportunistic), entity (corporate / LBO), Debt Investing, Distressed, Special Servicing(3) Function (in

order):(A) Zoning/Entitlement, Architecture/Design,

Construction, (B) Leasing and Marketing, Property Management, (C) Asset/Portfolio Management, (4) Debt Financing, Acquisitions (Investment) AdvisoryRecommend allocation of client's portfolio along a variety of variables- Geography, product type (residential, office, industrial) BrokersLeasing brokers, investment sales. Facilitate transactions involving commercial assets. In addition, they provide general real estate advisory services.Ex. CBRE, Cushman & Wakefield, DTZ Rockwood (Investment) Appraisal(1) 3 Separate Methods- Cost Method (replacement cost- Sales-comparable method- Discounted Cash Flows (DCF) (most used!)(2) Produce Report that concludes on the values of a property or properties Investment- Acquisitions (Debt and Equity)- Asset Management- Market Research- Advisory- Appraisals Roles and Responsibilities- Investment- Capital Markets- Operations- Development Capital Markets- Investment/Commercial Banking-Equity/Debt Analysis Community Lending RequirementEx. The City of Los Angeles has a community lending requirement that mandates that 20% of all loans made by banks within the city be directed towards community development projects or initiatives that benefit low-income residents or minority-owned businesses. This requirement applies to all banks with a branch in the city and is designed to help revitalize underserved communities and promote economic equity.Under this requirement, banks

can fulfill their obligation by:-Making direct loans to

community development projects or initiatives- Investing in community development financial institutions (CDFIs)- Purchasing loans from CDFIs Operations- Operations- Property Management- Tenant Consulting- Leasing/Full -Service- Companies (Investment) Acquisitions (Equity / Debt Investments)Analyze Potential Investments- put together all relevant data (engineer's reports, market research, credit-worthiness of tenants, lease terms)- Model pro formas and returns analysis- Perform site visits to kick the tires- Work out the terms of the deal- Divest the investment

Enterprise ZonesSpecific geographic areas to which state and local governments try to attract private business investment by offering lower taxes, subsidies and other government support to spur economics development Developer- Originate project, seek out opportunity- Acquisition, pro forma analysis, due diligence, entitlements- Raise capital; often have little or no money in the deal- Manage design and budget, permitting, coordination, construction- Perform initial sales or leasing, work with brokers- Can also work as a project manager for a fee Strategies & Risk/Reward Spectrum (Expected Return vs.Risk) Low Leverage (70-100% of return driven by current income/yield) vs High Leverage (70-100% of return driven by capital appreciation at back-end)DebtNet LeaseCoreCore+Public EquityBuilt To SuitValue AddDevelopmentDistressted ServicesArchitects, Lawyers, Appraisers, Property Management, Advisory & Consulting, etc.Ex. Property Managers - CBRE, Cushman and WakefieldConsulting - PriceWaterhouse (PWC), Ernst and Young (EY) (Investment) Market Research(1) Analyze potential investments(2) Collect data on sectors or geographic markets- Vacancy Rates- Rent per square foot growth- Employment and other macro-economic statistics(3) Synthesize data and produce reports on trends in different markets(4) Data forms a backbone for investment decision-makers Brokerage & LeasingA junior person in this industry works on reports, marketing materials, research,leasing and space use plans, and assists in structuring leases and sales.(1) Tenant Representation / Consulting - identifies client space needs (buy vs. sell, lease vs. own, etc.). Searches for optimal solution by negotiating with leasing agents(2) Leasing Agent - Tries to lease space to potential tenants(3) Broker - Facilitates the purchase or sale of assets(4) Hybrid / Full-Service Firm Opportunities - Many real estate firms combine several of these functions. Synergies between investments, development, leasing and property management, etc.Tax Increment Financing (TIF)a legal device used by local governments, designed to promote real estate investment and development in depressed and under-valued areas. The local government issues a bond based on the expected increase in an area's value and property tax revenues resulting from development. It then uses the proceeds from the bond to clear the area and provide the infrastructure that lowers overhead costs for developers, thereby making it more

attractive for investment. New owners subsequent pay property taxes based on its higher value, but all tax receipts above the amount collected at the time the TIF was formed go to pay off the bondholders. As far as the city's tax base is concerned, the property is still worth what it was before it was developed.Development- Developer- Home Builder- Community Developer (Capital Markets) Investment / Commercial Banking - Perform work at a portfolio or corporate level, rather than asset level- Concerned with finance first, real estate second- Advise real estate companies on optimal capital structure and capital raising- Match investors and those seeking capital- Mergers & Acquisitions- Debt & equity underwriting- Syndication, securitization- Work for fee