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Niveau: N.v.t. Leerjaar: N.v.t.
Keyword (page) Definition (page)
1 agency risk (p. 238) Agency risk is the economic dispersion resulting from the consequences of having another party (the agent) making decisions contrary to the preferences of the owner (the principal). (p. 238)
2 binomial option pricing (p. 232) Binomial option pricing is a technique for pricing options that assumes that the price of the underlying asset can experience only a specified upward movement or downward movement during each period. (p. 232)
3 blue top lots (p. 231) Blue top lots are at an interim stage of lot completion. In this case, the owner has completed the rough grading of the property and the lots, including the undercutting of the street section, interim drainage, and erosion control facilities, and has paid all applicable fees required. (p. 231)
4 cap rate (p. 239) In real estate, the cap rate (capitalization rate) or yield is a common term for the return on assets (7.33% in this example). (p. 239)
5 contagion (p. 245) Contagion is the general term used in finance to indicate any tendency of major market movements—especially declines in prices or increases in volatility—to be transmitted from one financial market to other financial markets. (p. 245)
6 exchange option (p. 226) An exchange option is an option to exchange one risky asset for another rather than to buy or sell one asset at a fixed exercise or strike price. (p. 226)
7 favorable mark (p. 243) A favorable mark is a biased indication of the value of a position that is intentionally provided by a subjective source. (p. 243)
8 finished lots (p. 231) Finished lots are fully completed and ready for home construction and occupancy. (p. 231)
9 intrinsic option value (p. 229) An intrinsic option value is the greater of $0 and the value of an option if exercised immediately. (p. 229)
10 land banking (p. 230) Land banking is the practice of buying vacant lots for the purpose of development or disposition at a future date. (p. 230)
11 low-hanging-fruit principle (p. 229) The low-hanging-fruit principle states that the first action that should be taken is the one that reaps the highest benefits over costs. (p. 229)
12 managed returns (p. 243) Managed returns are returns based on values that are reported with an element of managerial discretion. (p. 243)
13 market manipulation (p. 244) Market manipulation refers to engaging in trading activity designed to cause the markets to produce favorable prices for thinly traded listed securities. (p. 244)
14 model manipulation (p. 243) Model manipulation is the process of altering model assumptions and inputs to generate desired values and returns. (p. 243)
15 natural resources (p. 225) Natural resources are real assets that have received no or almost no human alteration. (p. 225)
16 negative survivorship bias (p. 235) A negative survivorship bias is a downward bias caused by excluding the positive returns of the properties or other assets that successfully left the database. (p. 235)
17 paper lots (p. 231) Paper lots refers to sites that are vacant and approved for development by the local zoning authority but for which construction on streets, utilities, and other infrastructure has not yet commenced. (p. 231)
18 perpetual option (p. 227) A perpetual option is an option with no expiration date. (p. 227)
19 political risk (p. 238) Political risk is economic uncertainty caused by changes in government policy that may affect returns, perhaps dramatically. (p. 238)
20 pure play (p. 225) A pure play on an investment is an investment vehicle that offers direct exposure to the risks and returns of a specific type of investment without the inclusion of other exposures. (p. 225)
21 risk-neutral probability (p. 233) A risk-neutral probability is a probability that values assets correctly if, everything else being equal, all market participants were risk neutral. (p. 233)
22 rotation (p. 237) Rotation is the length of time from the start of the timber (typically the planting) until the harvest of the timber. (p. 237)
23 selective appraisals (p. 243) Selective appraisals refers to the opportunity for investment managers to choose how many, and which, illiquid assets should have their values appraised during a given quarter or some other reporting period. (p. 243)
24 smoothing (p. 242) Smoothing is reduction in the reported dispersion in a price or return series. (p. 242)
25 split estate (p. 225) A split estate is when surface rights and mineral rights are separately owned. (p. 225)
26 timberland investment management organizations (TIMOs) (p. 236) Timberland investment management organizations (TIMOs) provide management services to timberland owned by institutional investors, such as pension plans, endowments, foundations, and insurance companies. (p. 236)
27 time value of an option (p. 229) The time value of an option is the excess of an option’s price above its intrinsic value. (p. 229)
28 backwardation (p. 267) When the slope of the term structure of forward prices is negative, the market is in backwardation, or is backwardated. (p. 267)
29 basis (p. 271) The basis in a forward contract is the difference between the spot (or cash) price of the referenced asset, S, and the price (F) of a forward contract with delivery T. (p. 271)
30 calendar spread (p. 272) A calendar spread can be viewed as the difference between futures or forward prices on the same underlying asset but with different settlement dates. (p. 272)
31 contango (p. 267) When the term structure of forward prices is upward sloping (i.e., when more distant forward contracts have higher prices than contracts that are nearby), the market is said to be in contango. (p. 267)
32 convenience yield (p. 262) Convenience yield, y, is the economic benefit that the holder of an inventory in the commodity receives from directly holding the inventory rather than having a long position in a forward contract on the commodity. (p. 262)
33 cost of carry (p. 261) In the context of futures and forward contracts, a cost of carry (or carrying cost) is any financial difference between maintaining a position in the cash market and maintaining a position in the forward market. (p. 261)
34 crisis at maturity (p. 254) A crisis at maturity is when the party owing a payment is forced at the last moment to reveal that it cannot afford to make the payment or when the party obligated to deliver the asset at the original price is forced to reveal that it cannot deliver the asset. (p. 254)
35 distant contracts (p. 259) Contracts with longer times to settlement are often called distant contracts, deferred contracts, or back contracts. (p. 259)
36 front month contract (p. 259) On an exchange, the futures contract with the shortest time to settlement is often referred to as the front month contract. (p. 259)
37 inelastic supply (p. 266) Inelastic supply is when supplies change slowly in response to market prices or when large changes in market prices are necessary to effect supply changes. (p. 266)
38 informationally inefficient term structure (p. 271) An informationally inefficient term structure has pricing relationships that do not properly reflect available information. (p. 271)
39 initial margin (p. 257) The collateral deposit made at the initiation of a long or short futures position is called the initial margin. (p. 257)
40 law of one price (p. 270) The law of one price states that in the absence of trading restrictions, two identical assets will not persist in trading at different prices in different markets because arbitrageurs will buy the relatively underpriced asset and sell the relatively overpriced asset until the discrepancy disappears. (p. 270)
41 maintenance margin requirement (p. 257) A maintenance margin requirement is a minimum collateral requirement imposed on an ongoing basis until a position is closed. (p. 257)
42 margin call (p. 257) A margin call is a demand for the posting of additional collateral to meet the initial margin requirement. (p. 257)
43 marginal market participant (p. 264) The marginal market participant to a derivative contract is any entity with individual costs and benefits that make the entity indifferent between physical positions and synthetic positions. (p. 264)
44 marked-to-market (p. 253) The term marked-to-market means that the side of a futures contract that benefits from a price change receives cash from the other side of the contract (and vice versa) throughout the contract’s life. (p. 253)
45 normal backwardation (p. 268) In normal backwardation, the forward price is believed to be below the expected spot price. (p. 268)
46 normal contango (p. 268) In normal contango, the forward price is believed to be above the expected spot price. (p. 268)
47 open interest (p. 252) The outstanding quantity of unclosed contracts is known as open interest. (p. 252)
48 perfectly elastic supply (p. 265) With regard to supply, on one end of the spectrum is a perfectly elastic supply, in which any quantity demanded of a commodity can be instantaneously and limitlessly supplied without changes in the market price. (p. 265)
49 rolling contracts (p. 259) Rolling contracts refers to the process of closing positions in short-term futures contracts and simultaneously replacing the exposure by establishing similar positions with longer terms. (p. 259)
50 storage costs (p. 262) Storage costs of physical commodities involve such expenditures as warehouse fees, insurance, transportation, and spoilage. (p. 262)
51 swap (p. 252) A swap is a string of forward contracts grouped together that vary by time to settlement. (p. 252)
52 basis risk (p. 287) Basis risk is the dispersion in economic returns associated with changes in the relationship between spot prices and futures prices. (p. 287)
53 Bloomberg Commodity Index (BCOM) (p. 295) The Bloomberg Commodity Index (BCOM), formerly the Dow Jones-UBS Commodity Index, is a long-only index composed of futures contracts on 22 physical commodities. (p. 295)
54 collateral yield (p. 289) Collateral yield, is the interest earned from the riskless bonds or other money market assets used to collateralize the futures contract. (p. 289)
55 commodity-linked note (p. 285) A commodity-linked note (CLN) is an intermediate-term debt instrument whose value at maturity is a function of the value of an underlying commodity or basket of commodities. (p. 285)
56 convergence at settlement (p. 291) Convergence at settlement is the process of the futures price nearing the spot price as settlement approaches, and the two prices matching each other at settlement. (p. 291)
57 excess return of a futures contract (p. 287) The return generated exclusively from changes in futures prices is known as the excess return of a futures contract. (p. 287)
58 fully collateralized position (p. 287) A fully collateralized position is a position in which the cash necessary to settle the contract has been posted in the form of short-term, riskless bonds. (p. 287)
59 heterogeneous (p. 292) A heterogeneous value differs across one or more dimensions. (p. 292)
60 inflation (p. 277) Inflation is the decline in the value of money relative to the value of a general bundle of goods and services. (p. 277)
61 inflation risk (p. 280) Inflation risk is the dispersion in economic outcomes caused by uncertainty regarding the value of a currency. (p. 280)
62 investable index (p. 294) An investable index has returns that an investor can match in practice by maintaining the same positions that constitute the index. (p. 294)
63 nominal price (p. 277) A nominal price refers to the stated price of an asset measured using the contemporaneous values of a currency. (p. 277)
64 production-weighted index (p. 295) A production-weighted index weights each underlying commodity using estimates of the quantity of each commodity produced. (p. 295)
65 real price (p. 277) A real price refers to the price of an asset that is adjusted for inflation through being expressed in the value of currency from a different time period. (p. 277)
66 Reuters/Jefferies Commodity Research Bureau (CRB) Index (p. 296) The Reuters/Jefferies Commodity Research Bureau (CRB) Index is the oldest major commodity index and is currently made up of 19 commodities traded on various exchanges. (p. 296)
67 roll return (p. 289) Roll yield or roll return is properly defined as the portion of the return of a futures position from the change in the contract’s basis through time. (p. 289)
68 roll yield (p. 289) Roll yield or roll return is properly defined as the portion of the return of a futures position from the change in the contract’s basis through time. (p. 289)
69 spot return (p. 289) Spot return is the return on the underlying asset in the spot market. (p. 289)
70 Standard & Poor's Goldman Sachs Commodity Index (S&P GSCI) (p. 295) The Standard & Poor’s Goldman Sachs Commodity Index (S&P GSCI) is a longonly index of physical commodity futures. (p. 295)
71 brownfield project (p. 310) Investable infrastructure can also be an existing project, or brownfield project, that has a history of operations and may have converted from a government asset into something privately investable. (p. 310)
72 double taxation (p. 307) Double taxation is the application of income taxes twice: taxation of profits at the corporate income tax level and taxation of distributions at the individual income tax level. (p. 307)
73 downstream operations (p. 306) Downstream operations focus on refining, distributing, and marketing the oil and gas. (p. 306)
74 evergreen funds (p. 313) Unlisted open-end funds, also called evergreen funds, allow investors to subscribe to or redeem from these funds on a regular basis. (p. 313)
75 excludable good (p. 315) An excludable good is a good others can be prevented from enjoying. (p. 315)
76 gates (p. 313) Gates are fund restrictions on investor withdrawals. (p. 313)
77 greenfield project (p. 310) Investable infrastructure can originate as a new, yet-to-be- constructed project, referred to as a greenfield project, which was designed to be investable. (p. 310)
78 intangible assets (p. 315) Intangible assets are economic resources that do not have a physical form. (p. 315)
79 intellectual property (p. 315) Intellectual property (IP) is an intangible asset that can be owned, such as copyrighted artwork. (p. 315)
80 investable infrastructure (p. 309) Investable infrastructure is typically differentiated from other assets with seven primary characteristics: (1) public use, (2) monopolistic power, (3) government related, (4) essential, (5) cash generating, (6) conducive to privatization of control, and (7) capital intensive with long-term horizons. (p. 309)
81 midstream operations (p. 307) Midstream operations and midstream MLPs—the largest of the three segments—process, store, and transport energy and tend to have little or no commodity price risk. (p. 307)
82 negative costs (p. 317) Negative costs refer not to the sign of the values but to the fact that these are costs required to produce what was, in the predigital era, the film’s negative image. (p. 317)
83 present value of growth opportunities (PVGO) (p. 308) In corporate finance, present value of growth opportunities (PVGO) describes a high value assigned to an investment based on the idea that the underlying assets offer exceptional future income. (p. 308)
84 privatization (p. 312) When a governmental entity sells a public asset to a private operator, this is termed privatization. (p. 312)
85 public-private partnership (p. 312) A public-private partnership (PPP) occurs when a private sector party is retained to design, build, operate, or maintain a public building (e.g., a hospital), often for a lease payment for a prespecified period of time. (p. 312)
86 regulatory risk (p. 312) Regulatory risk is the economic dispersion to an investor from uncertainty regarding governmental regulatory actions. (p. 312)
87 unbundling (p. 315) In recent years, there has been an increased interest in unbundling IP from corporations and permitting it to be purchased as a stand-alone investment. (p. 315)
88 upstream operations (p. 306) Upstream operations focus on exploration and production; midstream operations focus on storing and transporting the oil and gas. (p. 306)
89 amortization (p. 325) . Reduction in principal due to payments is known as amortization. (p. 325)
90 balloon payment (p. 331) A balloon payment is a large scheduled future payment. (p. 331)
91 collateralized mortgage obligations (CMOs) (p. 336) Collateralized mortgage obligations (CMOs) extend this MBS mechanism to create different security classes, called tranches, which have different priorities to receiving cash flows and therefore different risks. (p. 336)
92 commercial mortgage loans (p. 333) Commercial mortgage loans are loans backed by commercial real estate (multifamily apartments, hotels, offices, retail and industrial properties) rather than owner-occupied residential properties. (p. 333)
93 commercial mortgage-backed securities (p. 340) Commercial mortgage-backed securities (CMBS) are mortgage-backed securities with underlying collateral pools of commercial property loans. (p. 340)
94 conditional prepayment rate (p. 338) The annualized percentage of a mortgage’s remaining principal value that is prepaid in a particular month is known as the conditional prepayment rate (CPR). (p. 338)
95 core real estate (p. 322) Core real estate includes assets that achieve a relatively high percentage of their returns from income and are expected to have low volatility. (p. 322)
96 covenants (p. 333) Covenants are promises made by the borrower to the lender, such as requirements that the borrower maintain the property in good repair and continue to meet specified financial conditions. (p. 333)
97 cross-collateral provision (p. 334) In order to mitigate the risk to which they are exposed, lenders commonly use a cross-collateral provision, wherein the collateral for one loan is used as collateral for another loan. (p. 334)
98 debt service coverage ratio (p. 335) A related measure is the debt service coverage ratio (DSCR), which is the ratio of the property’s net operating income to all loan payments, including the amortization of the loan. (p. 335)
99 equity REITs (p. 341) Equity REITs invest predominantly in equity ownership within the private real estate market. (p. 341)
100 fixed charges ratio (p. 335) The fixed charges ratio is the ratio of the property’s net operating income to all fixed charges that the borrower pays annually. (p. 335)
101 fixed-rate mortgage (p. 324) A fixed-rate mortgage has interest charges and interest payments based on a single rate established at the initiation of the mortgage. (p. 324)
102 fully amortized (p. 325) An asset is fully amortized when its principal is reduced to zero. (p. 325)
103 idiosyncratic prepayment factors (p. 339) Factors affecting prepayment decisions other than interest rates or other systematic factors are known as idiosyncratic prepayment factors. (p. 339)
104 index rate (p. 329) An index rate is a variable interest rate used in the determination of the mortgage’s stated interest rate. (p. 329)
105 interest coverage ratio (p. 335) Lenders typically examine the interest coverage ratio, which can be defined as the property’s net operating income divided by the loan’s interest payments. (p. 335)
106 interest rate cap (p. 330) An interest rate cap is a limit on interest rate adjustments used in mortgages and derivatives with variable interest rates. (p. 330)
107 loan-to-value ratio (LTV ratio) (p. 333) The loan-to-value ratio (LTV ratio) is the ratio of the amount of the loan to the value (either market or appraised) of the property. (p. 333)
108 lumpiness (p. 322) Lumpiness describes when assets cannot be easily and inexpensively bought and sold in sizes or quantities that meet the preferences of the buyers and sellers. (p. 322)
109 margin rate (p. 330) A margin rate is the spread by which the stated mortgage rate is set above the index rate. (This should not be confused with the same term used to describe a rate associated with margin debt in a brokerage account.) (p. 330)
110 mortgage (p. 323) A mortgage loan can be simply defined as a loan secured by property. (p. 323)
111 mortgage REITs (p. 341) Mortgage REITs invest predominantly in real estate–based debt. (p. 341)
112 mortgage-backed securities (MBS) (p. 335) Mortgage-backed securities (MBS) are a type of asset- backed security that is secured by a mortgage or pool of mortgages. (p. 335)
113 negative amortization (p. 331) Negative amortization occurs when the interest owed is greater than the payments being made such that the deficit is added to the principal balance on the loan, causing the principal balance to increase through time. (p. 331)
114 opportunistic real estate (p. 323) Opportunistic real estate properties are expected to derive most or all of their returns from property appreciation and may exhibit substantial volatility in value and returns. (p. 323)
115 option adjustable-rate mortgage (option ARM) (p. 331) An option adjustable-rate mortgage (option ARM) is an adjustable-rate mortgage that provides borrowers with the flexibility to make one of several possible payments on their mortgage every month. (p. 331)
116 pass-through MBS (p. 336) A pass-through MBS is perhaps the simplest MBS and consists of the issuance of a homogeneous class of securities with pro rata rights to the cash flows of the underlying pool of mortgage loans. (p. 336)
117 prepayment option (p. 327) The ability of the borrower to make or not make unscheduled principal payments is an option to the borrower: the borrower’s prepayment option. (p. 327)
118 PSA benchmark (p. 338) The Public Securities Association (PSA) established the PSA benchmark, a benchmark of prepayment speed that is based on the CPR and that has become the standard approach used by market participants. (p. 338)
119 real estate investment trust (REIT) (p. 341) A real estate investment trust (REIT) is an entity structured much like a traditional operating corporation, except that the assets of the entity are almost entirely real estate. (p. 341)
120 recourse (p. 334) Recourse is the set of rights or means that an entity such as a lender has in order to protect its investment. (p. 334)
121 refinancing burnout (p. 340) Reduced refinancing speeds due to high levels of previous refinancing activity is known as refinancing burnout. (p. 340)
122 residential mortgage loans (p. 324) Residential mortgage loans are typically taken out by individual households on properties that generate no explicit rental income, since the houses are usually owner occupied. (p. 324)
123 residential mortgage-backed securities (p. 336) The residential mortgage-backed securities (RMBS) market is backed by residential mortgage loans. (p. 336)
124 styles of real estate investing (p. 322) Styles of real estate investing refer to the categorization of real estate property characteristics into core, value added, and opportunistic. (p. 322)
125 subprime mortgages (p. 332) Uninsured mortgages with borrowers of relatively high credit risk are generally known as subprime mortgages. (p. 332)
126 unscheduled principal payments (p. 326) If the borrower makes unscheduled principal payments, which are payments above and beyond the scheduled mortgage payments, the mortgage’s balance will decline more quickly than illustrated in Exhibit 14.1, and the mortgage will terminate early. In traditional mortgages, payments that exceed the required payment reduce the principal payment but do not lower required subsequent payments until the mortgage is paid off. (p. 326)
127 value-added real estate (p. 323) Value-added real estate includes assets that exhibit one or more of the following characteristics: (1) achieving a substantial portion of their anticipated returns from appreciation in value, (2) exhibiting moderate volatility, and (3) not having the financial reliability of core properties. (p. 323)
128 variable-rate mortgage (p. 324) A variable-rate mortgage has interest charges and interest payments based on a rate that is allowed to vary over the life of the mortgage based on terms established at the initiation of the mortgage. (p. 324)
129 after-tax discounting approach (p. 356) In an after-tax discounting approach, the estimated after-tax cash flows (e.g., after-tax bond payments) are discounted using a rate that has been reduced to reflect the net rate received by an investor with a specified marginal tax rate. (p. 356)
130 appraisals (p. 370) Appraisals are professional opinions with regard to the value of an asset, such as a real estate property. (p. 370)
131 backward induction (p. 350) Backward induction is the process of solving a decision tree by working from the final nodes toward the first node, based on valuation analysis at each node. (p. 350)
132 closed-end real estate mutual fund (p. 362) A closed-end real estate mutual fund is an investment pool that has real estate as its underlying asset and a relatively fixed number of outstanding shares. (p. 362)
133 commingled real state funds (p. 359) Commingled real estate funds (CREFs) are a type of private equity real estate fund that is a pool of investment capital raised from private placements that are commingled to purchase commercial properties. (p. 359)
134 comparable sale prices approach (p. 352) The comparable sale prices approach values real estate based on transaction values of similar real estate, with adjustments made for differences in characteristics. (p. 352)
135 data smoothing (p. 371) Data smoothing occurs in a return series when the prices used in computing the return series have been dampened relative to the volatility of the true but unobservable underlying prices. (p. 371)
136 decision node (p. 360) A decision node is a point in a decision tree at which the holder of the option must make a decision. (p. 360)
137 decision tree (p. 349) A decision tree shows the various pathways that a decision maker can select as well as the points at which uncertainty is resolved. (p. 349)
138 depreciation (p. 356) Depreciation is a noncash expense that is deducted from revenues in computing accounting income to indicate the decline of an asset’s value. (p. 356)
139 depreciation tax shield (p. 369) A depreciation tax shield is a taxable entity’s ability to reduce taxes by deducting depreciation in the computation of taxable income. (p. 369)
140 discounted cash flow (DCF) method (p. 352) The income approach is also known as the discounted cash flow (DCF) method when cash flows are discounted rather than accounting estimates of income. (p. 352)
141 effective gross income (p. 353) The effective gross income is the potential gross income reduced for the vacancy loss rate. (p. 353)
142 effective tax rate (p. 365) The effective tax rate is the actual reduction in value that occurs in practice when other aspects of taxation are included in the analysis, such as exemptions, penalties, and timing of cash flows. (p. 365)
143 equity residual approach (p. 357) An alternative approach, often termed the equity residual approach, focuses on the perspective of the equity investor by subtracting the interest expense and other cash outflows due to mortgage holders (in the numerator) and by discounting the remaining cash flows using an interest rate reflective of the required rate of return on the equity of a leveraged real estate investment (in the denominator). (p. 357)
144 exchange-traded funds (ETFs) (p. 362) Exchange-traded funds (ETFs) represent a tradable investment vehicle that tracks a particular index or portfolio by holding its constituent assets or a subsample of them. (p. 362)
145 fixed expenses (p. 353) Fixed expenses, examples of which are property taxes and property insurance, do not change directly with the level of occupancy of the property. (p. 353)
146 FTSE NAREIT US Real Estate Index Series (p. 374) The FTSE NAREIT US Real Estate Index Series is a family of REIT-based performance indices that covers the different sectors of the U.S. commercial real estate space. (p. 374)
147 gearing (p. 360) Gearing is the use of leverage. (p. 360)
148 hedonic price index (p. 373) A hedonic price index estimates value changes based on an analysis of observed transaction prices that have been adjusted to reflect the differing characteristics of the assets underlying each transaction. (p. 373)
149 income approach (p. 352) The income approach values real estate by projecting expected income or cash flows, discounting for time and risk, and summing them to form the total value. (p. 352)
150 information node (p. 350) An information node denotes a point in a decision tree at which new information arrives. (p. 350)
151 NCREIF Property Index (NPI) (p. 370) The NCREIF Property Index (NPI) is the primary example of an appraisal-based real estate index in the United States and is published by the National Council of Real Estate Investment Fiduciaries (NCREIF), a not-for-profit industry association that collects data regarding property values from its members. (p. 370)
152 net lease (p. 355) In a net lease, the tenant is responsible for almost all of the operating expenses. (p. 355)
153 net operating income (NOI) (p. 352) Net operating income (NOI) is a measure of periodic earnings that is calculated as the property’s rental income minus all expenses associated with maintaining and operating the property. (p. 352)
154 net sale proceeds (p. 352) The net sale proceeds (NSP) is the expected selling price minus any expected selling expenses arising from the sale of the property at time T. (p. 352)
155 open-end real estate mutual funds (p. 360) Open-end real estate mutual funds are public investments that offer a non-exchange traded means of obtaining access to the private real estate market. (p. 360)
156 operating expenses (p. 353) Operating expenses are non-capital outlays that support rental of the property and can be classified as fixed or variable. (p. 353)
157 potential gross income (p. 353) The potential gross income is the gross income that could potentially be received if all offices in the building were occupied. (p. 353)
158 pre-tax discounting approach (p. 356) The pre-tax discounting approach is commonly used in finance, where pre-tax cash flows are used in the numerator of the present value analysis (as the cash flows to be received), and the pre-tax discount rate is used in the denominator. (p. 356)
159 private equity real estate funds (p. 358) Private equity real estate funds are privately organized funds that are similar to other alternative investment funds, such as private equity funds and hedge funds, yet have real estate as their underlying asset. (p. 358)
160 profit approach (p. 352) The profit approach to real estate valuation is typically used for properties with a value driven by the actual business use of the premises; it is effectively a valuation of the business rather than a valuation of the property itself. (p. 352)
161 real estate development projects (p. 347) Real estate development projects can include one or more stages of creating or improving a real estate project, including the acquisition of raw land, the construction of improvements, and the renovation of existing facilities. (p. 347)
162 real estate joint ventures (p. 359) Real estate joint ventures are private equity real estate funds that consist of the combination of two or more parties, typically represented by a small number of individual or institutional investors, embarking on a business enterprise such as the development of real estate properties. (p. 359)
163 real estate valuation (p. 351) Real estate valuation is the process of estimating the market value of a property and should be reflective of the price at which informed investors would be willing to both buy and sell that property. (p. 351)
164 real option (p. 347) A real option is an option on a real asset rather than a financial security. (p. 347)
165 risk premium approach (p. 354) The risk premium approach to estimation of a discount rate for an investment uses the sum of a riskless interest rate and one or more expected rewards—expressed as rates—for bearing the risks of the investment. (p. 354)
166 stale pricing (p. 361) The use of prices that lag changes in true market prices is known as stale pricing. (p. 361)
167 syndications (p. 359) Syndications are private equity real estate funds formed by a group of investors who retain a real estate expert with the intention of undertaking a particular real estate project. (p. 359)
168 vacancy loss rate (p. 353) The vacancy loss rate is the observed or anticipated rate at which potential gross income is reduced for space that is not generating rental income. (p. 353)
169 variable expenses (p. 353) Variable expenses, examples of which are maintenance, repairs, utilities, garbage removal, and supplies, change as the level of occupancy of the property varies. (p. 353)