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Lecture Sixteen: Institutional Investments (MS PowerPoint)
Lecture Sixteen: Institutional Investments (MS PowerPoint)
Lecture Sixteen: Institutional Investments (MS PowerPoint)
Lecture Sixteen: Institutional Investments (MS PowerPoint)
Lecture Sixteen: Institutional Investments (MS PowerPoint)
Lecture Sixteen: Institutional Investments (MS PowerPoint)
Lecture Sixteen: Institutional Investments (MS PowerPoint)
Lecture Sixteen: Institutional Investments (MS PowerPoint)
Lecture Sixteen: Institutional Investments (MS PowerPoint)
Lecture Sixteen: Institutional Investments (MS PowerPoint)
Lecture Sixteen: Institutional Investments (MS PowerPoint)
Lecture Sixteen: Institutional Investments (MS PowerPoint)
Lecture Sixteen: Institutional Investments (MS PowerPoint)
Lecture Sixteen: Institutional Investments (MS PowerPoint)
Lecture Sixteen: Institutional Investments (MS PowerPoint)
Lecture Sixteen: Institutional Investments (MS PowerPoint)
Lecture Sixteen: Institutional Investments (MS PowerPoint)
Lecture Sixteen: Institutional Investments (MS PowerPoint)
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Lecture Sixteen: Institutional Investments (MS PowerPoint)

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  • 1. Lecture 16 Institutional Investments
  • 2.
    • Pension Funds
      • Many pension funds have committed 5% or more to the real estate sector
      • 2004: U.S. Domestic pension funds held over $140 billion in commercial property equity
    • Real Estate Investment Trusts (REITS)
    Institutional Investments
  • 3. Direct Real Estate Investing vs. Stock and Bond Investing
    • Property assets are relatively illiquid and trade in a multitude of local private markets rather than in centralized public exchanges
    • Real estate assets are geographically fixed and must serve space markets that are geographically segmented
    • Property assets trade in “whole assets” rather than in small shares
  • 4. Initial Problems in Direct Real Estate Investment
    • Large sums of money required to purchase assets
    • Need for property management and asset management
    • Illiquidity of real estate investments
      • Longer time required to sell
      • More expensive to sell
  • 5. Lecture 16 Evolution of Real Estate Products for Institutional Investors
  • 6. Evolution of Real Estate Products for Institutional Investors
    • 1970’s: Commingled Real Estate Fund (CREF)
      • Similar to Limited Partnerships
      • Funds from several pension funds pooled to purchase a diversified portfolio of commercial properties
      • Investment Advisor responsible for asset management and investment decisions
      • Pension fund investors entitled to their pro-rata share of income and proceeds
      • Investors could buy into or cash out any time on the basis of a current appraised value of the CREF shares
  • 7. Evolution of Real Estate Products for Institutional Investors
    • Late 1980’s: Problems in Real Estate Markets
      • S & L deregulations, tax-induced investing, and other sources of money in the market
      • Widespread dissatisfaction among pension fund clients, pared with collapse in property markets, created shake-out and consolidation in real estate investment advisory industry through mid-1990’s.
  • 8. Evolution of Real Estate Products for Institutional Investors
    • 1990’s: Serious Interest in Publicly-Traded Real Estate Securities
      • Real Estate Investment Trusts (REITs)
      • Commercial Mortgage-Backed Securities (CMBS)
      • Pension funds still rely on REIT and CMBS shares for their real estate allocations.
      • Upturn in commercial property markets offered exciting new prospects and opportunities.
  • 9. Public vs. Private Asset Markets
    • Liquidity
    • Informational Efficiency
  • 10. Lecture 16 REIT Performance
  • 11. REIT Growth Since 1989
  • 12. REIT Growth Since 1989
    • Before 1992:
    • Micro-Cap in Size
    • Low Liquidity
    • Highly Leveraged
    • Variable-Rate Debt
    • Advised REITs with little ownership
    • Little property-type focus
    • Since 1992:
    • Small to mid-cap
    • Good Liquidity
    • Lower leverage – 30% - 60%
    • Cheaper debt, some fixed
    • Better-aligned interests and ownership
    • More property focus
  • 13. REIT Ownership
    • (as an approximate percentage of the value of all institutional holdings of the same property type)
    • Malls: 32%
    • Hotels: 17%
    • Retail: 13%
    • Apartments: 7%
    • Office: 6%
    • Warehouses: 5%
  • 14. Lecture 16 REIT Regulation
  • 15. REIT Regulation
    • REITs cannot be closely-held corporations
      • No five or fewer individuals may own more than 50% of the REIT stock; must have at least 100 shareholders
    • 75% or more of the REIT’s total assets must be real estate, mortgages, cash, or federal government securities, and 75% or more of the REIT’s yearly gross income must be derived directly or indirectly from real estate property
  • 16. REIT Regulation
    • 90% or more of the REIT’s annual taxable income must be distributed to shareholders as annual dividends
    • REITs must derive their income from primarily passive sources like rents and mortgage interest, and not from short-term trading and the like.
  • 17. Lecture 16 Industry Associations
  • 18. Industry Associations
    • Pension Real Estate Association (PREA)
    • National Council of Real Estate Investment Fiduciaries (NCREIF)
    • Association for Investment Management and Research (AIMR)
    • National Association of Real Estate Investment Trusts (NAREIT)
    • Real Estate Research Institute (RERI)

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