Do Discount Rates Predict Returns and Risk for Private Equity? Evidence from Commercial Real Estate

2017 ◽  
Author(s):  
Liang Peng
Keyword(s):  
Real Estate ◽  
Private Equity ◽  
Commercial Real Estate ◽  
Discount Rates

The Trouble with Lenders: Subtleties in the Debt Financing of Commercial Real Estate

2016 ◽  
pp. 1-14
Author(s):  
Craig Furfine
Keyword(s):  
Real Estate ◽  
Interest Rates ◽  
Private Equity ◽  
Commercial Real Estate ◽  
Strategic Decision ◽  
Holistic View ◽  
Operating Income ◽  
Final Property ◽  
Retail Shopping ◽  
Management Issues

With interest rates near all-time lows in late 2015, Stanley Cirano knew it was an opportune time to consider the financing on his portfolio of commercial real estate. Cirano Properties was the general partner on three separate private equity investments of retail shopping centers in suburban Chicago. The first, Brookline Road Shopping Center, had been acquired in 2006 and had been managed through the financial crisis and real estate downturn. The property was performing well and Cirano wondered whether it made sense to refinance or sell. The second property, Columbus Festival Plaza, had been acquired in a 2010 bankruptcy auction. Although the property had needed a good amount of capital improvements, Cirano was proud of the growth in net operating income he had been able to generate. The final property, Deerwood Acres, had been developed by Cirano himself after acquiring the property in 2013 from the previous owner, who had been operating a go-cart track and drive-in theater on the land. Cirano expected great things from the property, though his lease-up had been slower than anticipated. Although the three properties had different levels of performance and presented different management issues, they all shared the fact that they were all significantly financed, in part, with debt. As the properties were acquired at different times, Cirano had simply selected what seemed like reasonable financing at the time. With his concern that interest rates would soon be rising, Cirano thought it made sense to take a holistic view of his portfolio, consider what debt options were available to him, and make a sound strategic decision on the financing of all his assets at the same time.

Expect the Unexpected: Risk Measurement and Management in Commercial Real Estate

2017 ◽  
pp. 1-16
Author(s):  
Craig Furfine
Keyword(s):  
Real Estate ◽  
Private Equity ◽  
Foreign Currency ◽  
Cash Flows ◽  
Commercial Real Estate ◽  
Risk Measurement ◽  
High Quality ◽  
Logistics Market ◽  
Overseas Investment ◽  
Future Condition

In early December 2013, Roxann Biller, Associate at the Chicago-based private equity firm Delta Quantitative Real Estate Capital, was asked to assess the risk associated with the firm's first potential overseas investment. Haifu Sentā Gendaino (HSG) was a large multi-tenant logistics property located in the Gaikando area of Tokyo. High-quality tenants currently occupied the property, so at first glance the risks of investing in the property seemed minimal. However, Biller knew that she had to consider the potential drawbacks. This would mean gaining a better understanding of each tenant, trying to forecast the future condition of the Tokyo logistics market, and considering what new risks her firm would face because the property's cash flows were in a foreign currency.

scholarly journals Financial geography II: Financial geographies of housing and real estate

2018 ◽  
Vol 43 (2) ◽  
pp. 376-387 ◽  
Author(s):  
Manuel B. Aalbers
Keyword(s):  
Real Estate ◽  
Hedge Funds ◽  
Private Equity ◽  
Rental Housing ◽  
International Investment ◽  
Commercial Real Estate ◽  
Housing Associations ◽  
Residential Housing ◽  
Mortgage Securitization ◽  
Financial Geography

Geographers have started studying residential (housing) and commercial real estate (offices, retail, leisure) at the intersection of financial and urban geographies to understand how the built environment – chunky and spatially fixed – has been turned into a (quasi-)financial asset – ‘unitized’ and liquid – through a range of regulatory and socio-technical changes and constructions. The financialization of real estate is not limited to the rise in household debt, mortgage securitization and international investment in office markets, but increasingly also affects rental housing: private equity, hedge funds and REITs buy up large portfolios of social and private rented housing, while housing associations use derivatives and other financial instruments. This report surveys the most recent research on finance, real estate and housing.

Asset-Level Risk and Return in Real Estate Investments

2020 ◽  
Author(s):  
Jacob S Sagi
Keyword(s):  
Real Estate ◽  
Private Equity ◽  
Structural Model ◽  
Commercial Real Estate ◽  
Liquid Asset ◽  
Equilibrium Search ◽  
Asset Pricing Model ◽  
Holding Period ◽  
Real Estate Investments ◽  
Illiquid Asset

Abstract In stark contrast with liquid asset returns, commercial real estate idiosyncratic return means and variances do not scale with the holding period, even after accounting for all cash flow-relevant events. This puzzling phenomenon survives controlling for vintage effects, systematic risk heterogeneity, and a host of other explanations. To explain the findings, I derive an equilibrium search-based asset-pricing model that, when calibrated, provides an excellent fit to transactions data. A structural model of transaction risk seems crucial to understanding real estate price dynamics. These insights extend to other highly illiquid asset classes, such as private equity and residential real estate.

scholarly journals Private-equity commercial real estate, timberland, and farmland: market integration and information transition dynamics

2020 ◽  
Vol 50 (11) ◽  
pp. 1101-1112
Author(s):  
Bin Mei ◽  
Wenbo Wu ◽  
Wenjing Yao
Keyword(s):  
Real Estate ◽  
Market Integration ◽  
Private Equity ◽  
Real Estate Market ◽  
Commercial Real Estate ◽  
National Council ◽  
Transition Dynamics ◽  
Vector Error Correction ◽  
Market Fundamentals ◽  
Using Data

Using data from the National Council of Real Estate Investment Fiduciaries (NCREIF), we examine market integration of commercial real estate and timberland–farmland assets via the Fama–MacBeth two-step approach under the intertemporal capital asset pricing framework. In addition, we study the information transition dynamics between those markets via the vector error correction model (VECM). We find evidence of market segregation and one-way information flow from the timberland–farmland market to the commercial real estate market. We conclude that commercial real estate and timberland–farmland assets are driven by different market fundamentals and that lagged timberland–farmland returns can help predict current commercial real estate returns. The only exception is during market downturns when commercial real estate and timberland–farmland markets are somewhat integrated and driven by some factors that are not specified in this study.

Wildcat Capital Investors: Real Estate Private Equity

2017 ◽  
pp. 1-12
Author(s):  
Craig Furfine
Keyword(s):  
Real Estate ◽  
Cash Flow ◽  
Private Equity ◽  
Financial Models ◽  
Cash Flows ◽  
Commercial Real Estate ◽  
Office Building ◽  
Equity Structure ◽  
Financial Model ◽  
Real Estate Investments

Wildcat Capital Investors is a small real estate private equity company. Its MBA intern, Jessica Zaski, is asked to develop a financial model for the purchase of Financial Commons, a 90,000 square foot office building in suburban Chicago. By simple metrics, the property seems to be a good value, but with credit conditions tight, Jessica must consider whether outside investors would be comfortable with the risks of investing in the midst of a severe commercial real estate downturn. Wildcat is designed to give students exposure to both the quantitative and qualitative aspects of investing in commercial real estate through a private equity structure. Beyond the numbers, the case allows for a discussion of the process of finding suitable real estate investments. The importance of the simultaneous negotiations that Wildcat must have with the seller, the lender, and the outside investor can be emphasized.By working through the financial models, students will take a given set of assumptions and analyze the cash flows expected to be received by the equity partners of Financial Commons. With a given deal structure, the students can then model the cash flow to both outside equity investors and Wildcat, learning the mechanics of private equity. The model will allow students to investigate how the variations in the underlying assumptions affect returns to the property and to the investors.

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