Saturday, June 27, 2009

sources of commercial real estate equity capital

Investors can hold ownership (equity) positions in commercial real estate through either direct private investment or real estate securities. With direct private investment, individuals and institutional investors purchase and hold title to the properties. Purchasing individual properties directly in the private market gives investors complete control of the asset: who leases it, who manages it, how much debt financing is used, and when it is sold. With securities, in contrast, individuals and institutions invest funds in separate ownership entity which, in turn, purchases and holds title to the real estate. Securitized investment, therefore pool money from multiple investors. Securitized investments are purchased and resold in either "public" or "private" markets. We define public markets as those in which securities are bought and sold on a centralized public exchange, such as the New York Stock Exchange. Private markets are characterized by individually negotiated transactions that take place without the aid of a centralized market. Exchange-traded assets provide investors with a relatively high degree of liquidity and relatively low transaction costs. In contrast, private markets are generally characterized by high transaction costs and low liquidity

No comments: