REE-4313 Lecture Notes - Lecture 1: Cash Flow, Life Insurance, Transaction Cost

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- Real Estate Investment Process
o The Investment Process (private investors’ perspectives)
Identify the investors’ goals and objectives
Wealth constraints
Risk preferences
Return requirements
Competitive advantages
Analyze the market conditions and environment
Develop cash flow and return estimates
Expected cash flow from operations and sale
Expected returns (unleveraged and leverages)
Apply decision criteria
- Real Estate Investment: Key Participants
o The Equity Investor
The owner, landlord (lessor), borrower (mortgagor)
o The Debt Investor
Mortgage lender (mortgagee)
o The User
Owner occupant; tenant (lessee)
o The Government
Federal, state, and local
- Market
o Who Are the Equity Investors?
Individuals, Partnerships, PE Firms (about 50%)
Pension Funds (about 20%)
REITs (about 20%)
Other Institutions and Corporations
Life insurance companies
Sovereign wealth funds
Foundations
Various goals, risk tolerances, expertise, capacities, tax structures
o Who Are the Debt Investors?
Commercial Banks (about 45%)
Investors in CMBs (about 20%)
Life Insurance Companies (about 15%)
Other Institutions and Corporations
Government Agencies (loans secured by MF assets)
Pension funds
Mortgage REITs
Pension Funds
o The Interaction between Space & Capital Markets
Space (user) Market
Where users of space compete for location
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