REAL 4000 UGA Dietz Exam 1 Study
Review
property market equation - space market / capital market
buildings built on air rights - MetLife Building, New York
tangible property - Physical asset that can be owned
Can be real or personal property
EX: Real property, (land and other assets that are permanently attached to the land) buildings, canals,
crops, fences, land, landscaping, machinery, minerals, ponds, roads.
EX: Personal property, (property that is moveable) vehicles, furniture, boats, and collectibles.
intangible property - Non-physical assets such as stocks, bonds, mortgages, leases
real estate as a tangible asset - "Raw" Land
Improvements to the land
Excavation and fill
Sewers and other utilities
Roads and driveways
Structures (improvements on the land)
real estate as a bundle of rights - Exclusive possession of the real property (no trespassing)
Use or enjoyment
Ex., can use as rental property to generate cash flow
Disposition (sale)
Can be unbundled in many ways
Ex., owner leases property to renter
,term real estate used in 3 ways - 1. Real Estate as a tangible asset
2. Real Estate as a bundle of rights
3. Real estate as an industry or profession
Real Estate makes up ___________ of the world's wealth - 50%
real estate generates what percent of US GDP - 25%
real estate generates what percent of local govt revenue - 70%
real estate creates how many jobs for americans - 9 million
buildings built on air rights - MetLife Building, New York
developed land represents what percent of land in the US - 6%
three markets in real estate - Local User Markets
Property Markets
Capital Markets
important distinction of property market - The property market is a function of the Space (User)
Market and the Capital Market
It is helpful to think of the Property Market as a result, NOT as a
Third market equal to the other two; though in reality they are all
Three independent concepts and can influence one another via
Their relationship.
user market (space market) - Market for the physical real estate
,"Buyers" receive right to use space
Called the "space" market or "rental market"
Where rental rates are determined
These markets are very "local" and usually highly competitive
Separate localmarkets for various property types: retail, office, industrial, etc.
demand side of user market - Individuals, households, & firms who require space either for
consumption or production purposes
Five Main Product-Types or "Food Groups" and Others of CRE... (Corporate Real Estate) - Industrial
(e.g. offices, warehouses, garages, and distribution centers)
Multi-family (e.g. duplex, which has two dwellings within a single building, to homes or small apartments
buildings with up to four units)
Office
Retail
Other (e.g. storage units, churches, stadium, hospitals, student housing)
Hotel/ Resorts
supply side of user market - Real estate owners/ operators who rent space to tenants
Segmentation of User (Space) Markets - Both demand and supply side of user markets are very
specific to location & building type
User (space) markets are highly segmented!
(is the process of dividing a broad consumer or business market, normally consisting of existing and
potential customers, into sub-groups of consumers (known as segments) based on some type of shared
characteristic, e.g., geographic, demographic, psychographic, and behavioral.)
Compare to nationally integrated markets (gasoline, steel, financial capital; i.e., homogeneous
commodities that can be moved from place to place)
capital markets - RE competes for funds in capital market with other asset classes, such as stocks
and bonds
Investors select a mix of investments based on expected returns & risk
, Bidding by investors determines:
Risk free rates of various maturities (i.e., the Treasury "yield" curve)
Required risk premiums(the investment return an asset is expected to yield in excess of the risk-free rate
of return...It represents payment to investors for tolerating the extra risk in a given investment over that
of a risk-free asset) for risky investments.
Private Capital/ Property Markets - Absence of centralized market (or even price lists)
Assets trade infrequently in private transactions (thus a lack of _transparency)
Common for "whole" assets to be traded in a single transaction (indivisibility)
Less liquidity than public markets
Higher transaction costs
property (asset) market - Market for ownership claims to RE assets
Buyers/ owners receive rights to cash flows generated by leasing space to tenants
Demand (and supply) side of property market is made up of investors wanting to buy (sell) property
Property market is integrated, NOT segmented like space market
i.e., investment capital can come from anywhere
Institutional-Grade Real Estate is generally - $10MM+
Price of Commercial Property equation - = NOI (Demand for space) / Capitalization Rate (Demand
for Capital)
property value equation - Next Year's NOI / Capitalization Rate
How much is this property worth at a 6.8% capitalization rate? - net operating income /
capitalization rate = $1,948,.8% = $28,656,000
capitalization rate equation - = net operating income / current market value
