Sources of comercial debt and equity capital

Study Questions

1. For what debt in a general partnership is each of the general partners liable?

2. Why are many pension funds reluctant to invest in commercial real estate?

3. Discuss the role life insurance companies play in financing commercial real estate.

4. Approximately 88 percent of investable commercial real estate (on a value- weighted basis) is owned by "noninstitutional" investors. Who are these investors?

5. Briefly explain a commingled fund. Who are the investors in these funds and why do these investors use commingled funds for their purchases?

6. There are two primary considerations that affect the form in which investors choose to hold commercial real estate. List each and explain how they affect the choice of ownership form.

7. Explain what is meant by the double taxation of income.

8. What are the major restrictions that a REIT must meet on an ongoing basis in order to avoid taxation at the entity level?

9. Compare the tax advantages and disadvantages of holding income-producing property in the form of a REIT to the tax advantaged and disadvantages of holding property in the form of a real estate limited partnership. Does either form dominate from a tax perspective?

10. Of the more than $3.6 trillion in outstanding commercial real estate debt, what percent is traded in public markets? What percent is traded in private markets? What institutions or entities are the long-term holders of private commercial real estate debt? What is the fastest growing source of long-term mortgage funds?

11. Distinguish among equity REITs, mortgage REITs, and hybrid REITs.

12. Define funds from operations (FFO) and explain why this measure is often used instead of GAAP net income to quantify the income-producing ability of a real estate investment trust.

13. How have equity REITs, measured in terms of total returns, performed in recent years relative to alternative stock investments?