What is Commercial Real Estate Finance and Investment?
Real estate finance centres on the investment required and likely returns from property construction. Real estate can provide long-term, stable income with capital growth potential. It is a good diversifier in a bonds and equity portfolio. Its risk-return ratio is lower than equities but higher than bonds. For lenders it provides asset backing and an illiquidity yield pickup over corporate bonds.
Need to know key terms...
Prefs, promotes and waterfall: the language of private equity. Describes and defines the return sharing structure between the investors and the fund manager.
Green Alpha: the potential extra income / capital return achieved by properties with the best sustainability features.
Retrofit: changes to the property's systems or structure after its initial construction and occupation to improve amenities and make significant reductions in energy and water usage.
Whole Loans: a stretched debt comprising senior debt and a mezzanine tranche from a single source, where the lender reserves the right to syndicate the senior and the retain the mezz.
WAULT: Weighted Average Unexpired Lease Term. A key metric in judging a propertys vulnerability to future vacancies, evidence of long term stable income or an opportunity for refurbishment / redevelopment.
Real Estate 2.0: Market features which have changed since the credit crisis in an attempt to avoid or minimise the impact of market failure.