only needs to be 1-2 paragraphs.
Module 1 FRL3062 Assignment: Summarize Value Creation Process Counts as one participation assessment. 10 points. Submit one Word file. Summarize the economic factors that drive intra- and inter-sector outcomes and how this leads to value in Real Estate. Be sure to address 1. How rental CFs are generated; 2. How investment funds are allocated to RE and how this drives discount rates, 3. How a DCF model converts these CFs into a PV, and 4. The role of government. Basically: summarize the second last slide in M1’s lecture, using that picture and the accompanying video lecture. Keep the discussion brief, one – two paragraphs under 1 page in single spacing, but don’t miss any main points. Pay attention to grammar, and also see the rubric for this assignment. Counts as one participation assessment. LN02 – 1LA Chapter 1 Module 1 – La.1 The Nature of Real Estate and Real Estate Markets (MT1) FRL3062 Module 1 LA.1: Introduction to Real Estate 1-‹#› Module 1: Learning Objectives After successfully completing this module, you will be able to: LO1: summarize 3 definitions of “Real Estate;” LO2: discuss the distribution of US land use; LO3: compare the relative importance of RE assets vs. other asset classes, and describe the role of RE in US household portfolios; LO4: contrast RE markets and markets for assets that trade in well-developed, public exchanges; and LO.5: describe the components and interactions that lead to the creation of real estate value. FRL3062 Module 1 LA.1: Introduction to Real Estate 1-‹#› Real Estate is Property Two types of property: Tangible physical assets that can be owned Can be real or personal property Intangible Non-physical assets such as stocks, bonds, mortgages, leases. FRL3062 Module 1 LA.1: Introduction to Real Estate 1-‹#› The Term “Real Estate” Used Three Ways Real estate as a tangible asset: Structures (improvements on the land) Improvements to the land Excavation and fill Sewers and other utilities Roads and driveways “Raw” land FRL3062 Module 1 LA.1: Introduction to Real Estate 1-‹#› The Term “Real Estate” Used Three Ways 2.Real estate as a bundle of rights Exclusive possession of the real property Use or enjoyment Can use as rental property to generate cash flow Disposition Can be unbundled in many ways FRL3062 Module 1 LA.1: Introduction to Real Estate 1-‹#› The Term “Real Estate” Used Three Ways 3.Real estate as an industry and profession FRL3062 Module 1 LA.1: Introduction to Real Estate Brokerage Development Leasing Property management Asset management Real Estate Law Appraisal Market consulting Counseling Planning Government regulation and taxation Housing assistance Mortgage finance Construction finance Long-term finance Investment management 1-‹#› Real Estate in the Economy Half of the world’s wealth Generates over 28% of U.S. gross domestic product (GDP) Housing alone accounts for almost 20% Generates nearly 70% of local government revenue (property tax) Creates jobs for nearly 9 million Americans FRL3062 Module 1 LA.1: Introduction to Real Estate 1-‹#› Land Use in the United States: 2011 1-‹#› CPR = Conservation reserve program ; Food Security Act 85: Add natural cover to highly erodible cropland Developed LandWater areas and federal landCrop landCRP landPasture landRange landForest landOther rural land623182621213 Aggregate Market Values of Selected Asset Categories: 2011 FRL3062 Module 1 LA.1: Introduction to Real Estate 1-‹#› U.S. Household Wealth: 2011 1-‹#› Real Estate Values are Determined by Interactions in Three Sectors User (Space) Markets Capital Markets Governmental Sector FRL3062 Module 1 LA.1: Introduction to Real Estate User Market: Market for the physical real estate “Buyers” receive right to use space sometimes called “space market” or “rental market” Where rental rates are determined 1-‹#› User Market On demand side: individuals, households, & firms who require space either for consumption or production purposes On supply side: real estate owners/operators who rent space to tenants FRL3062 Module 1 LA.1: Introduction to Real Estate Both demand & supply side of user markets are very specific to location & building type Implies user/space markets are highly segmented Compare to nationally integrated markets (gasoline, steel, financial capital; i.e., homogeneous commodities that can be moved from place to place) Because of segmentation, rental prices for physically similar space can vary widely across locations, and across property types. 1-‹#› 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 for risky investments Two types Public capital markets Private capital markets → FRL3062 Module 1 LA.1: Introduction to Real Estate 1-‹#› Public Capital Markets Small homogeneous units (shares) of ownership in assets trade in public exchanges Many buyers and sellers Price quotes available for all to see Characterized by a high degree of liquidity “Informationally efficient” FRL3062 Module 1 LA.1: Introduction to Real Estate 1-‹#› 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 FRL3062 Module 1 LA.1: Introduction to Real Estate 1-‹#› Property (Asset) Market Market for ownership claims to RE assets Buyers/owners receive rights to cash flows generated by leasing space to tenants Demand (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 FRL3062 Module 1 LA.1: Introduction to Real Estate 1-‹#› The Four Quadrants of Real Estate Capital Markets Private (directly held)Public (indirectly held) Equity/ ownersIndividuals, partnerships, firms, & institutionsInvestors in publicly traded real estate companies & equity REITs Debt/ lendersCommercial banks, savings institutions, credit unions, mortgage banks, insurance companies, private lendersInvestors in mortgage-backed securities and mortgage REITs 1-‹#› FRL3062 Module 1 LA.1: Introduction to Real Estate 1-‹#› Characteristics of Real Estate Markets Heterogeneous products Immobile products Localized markets Segmented markets Privately negotiated deals with high transaction costs FRL3062 Module 1 LA.1: Introduction to Real Estate 1-‹#›