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    Nature of Real Estate and Real Estate Markets

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    This document discusses the nature of real estate and real estate markets. It defines property and outlines the constitutional protections for private property in the US. Real estate is described as a bundle of tangible and intangible assets and property rights. The real estate profession encompasses many roles. Real estate values are determined by property markets involving buyers and sellers, user/rental markets involving tenants, and capital markets involving investment. Government plays a role through regulation and taxation.

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    Nature of Real Estate and Real Estate Markets

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    Amy
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    This document discusses the nature of real estate and real estate markets. It defines property and outlines the constitutional protections for private property in the US. Real estate is described as a bundle of tangible and intangible assets and property rights. The real estate profession encompasses many roles. Real estate values are determined by property markets involving buyers and sellers, user/rental markets involving tenants, and capital markets involving investment. Government plays a role through regulation and taxation.

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    This document discusses the nature of real estate and real estate markets. It defines property and outlines the constitutional protections for private property in the US. Real estate is described as a bundle of tangible and intangible assets and property rights. The real estate profession encompasses many roles. Real estate values are determined by property markets involving buyers and sellers, user/rental markets involving tenants, and capital markets involving investment. Government plays a role through regulation and taxation.

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    Download as docx, pdf, or txt
    21 views3 pages

    Nature of Real Estate and Real Estate Markets

    Uploaded by

    Amy
    This document discusses the nature of real estate and real estate markets. It defines property and outlines the constitutional protections for private property in the US. Real estate is described as a bundle of tangible and intangible assets and property rights. The real estate profession encompasses many roles. Real estate values are determined by property markets involving buyers and sellers, user/rental markets involving tenants, and capital markets involving investment. Government plays a role through regulation and taxation.

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    of 3

    Nature of Real Estate and Real Estate Markets Lecture 2

    Property – anything that can be owned or possessed.


    Something that the government will protect your ownership of a ‘property right’

    The US Constitution – 5th Amendment


    No person shall …be deprived of life, liberty, or PROPERTY, without due process of law; nor
    shall PRIVATE PROPERTY be taken for public use, without just compensation.

    14th Amendment
    … nor shall any state deprive any person of life, liberty, or property, without due process of
    law…

    Types of Property
    Tangible Property – Something that you can physically touch (car, office building)

    Intangible Property – Something that you cannot touch but which exists (Partnership
    interest, share of corporate stock, bitcoin)

    Intellectual Property - Form of intangible property coupled with a government granted right
    (Patent, copyright, trademark)

    Real estate as an amalgamation of tangible assets (land and improvements)

    Real estate as an amalgamation of intangible assets (Property Rights and Entitlements –


    Water Rights, Air Rights, Mineral Rights) (Governmental Entitlements – Zoning Approvals,
    Building Permits)

    Real Estate as a Bundle of Rights


    - Right to own and possess (to the exclusion of others)
    - Right to use and enjoy
    - The ability to unbundle (separate) those rights
    - The ability to dispose of, transfer & convey the various components

    Real Estate Profession


     Brokerage  Government regulation and
     Development taxation
     Construction  Housing assistance
     Leasing  Mortgage finance
     Property management  Construction finance
     Asset (portfolio) management  Long-term finance
     Real Estate Law  Investment management
     Appraisal  Environmental consulting
     Market consulting  Environmental remediation
     Planning
    Real Estate Values
    What determines the Real Estate Values?
    1) Property Market
    a) Market for ownership of Real Estate assets

    b) Buyers & Sellers


    Buyers
    - purchase for their own use
    - lease to others
    - Purchase to develop

    c) Supply & Demand

    2) User Markets
    a) Market for physical real estate
    Buyers (Tenants) receive right to use space called the space market or rental market
    Market where rental rates are determined. These markets are very local and usually highly
    competitive. There are separate local markets for various property types: retail, office,
    industrial, etc.

    b) Supply & Demand


    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

    Segmentation of User/Space Markets


    - Both supply & demand side of user markets are very specific to location & building
    type
    - Implies user/space markets are highly segmented/highly localized
    - 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 & across property types.

    3) Capital Markets
    a) Buying and Selling Money
    Markets for buying and selling equity securities and debt instruments. Supply of, and
    demand for, MONEY

    Capital markets include primary markets, where newly created investment products are sold
    to investors, and secondary markets, which trade existing securities

    Real Estate competes for funds in the capital markets with other asset classes for e.g.
    Stocks, Bonds, Mutual Funds, Annuities, Precious Metals, Commodities, Derivatives.
    Public Capital Markets Real Estate Markets
     Multiple buyers and seller  Absence of centralized market (or
     Open price quotes even price lists)
     High degree of liquidity  Assets trade infrequently in private
     Informationally efficient 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
    4) Governmental Sector
    a) Regulation
    Federal, State, and Local REGULATION of real estate activities
    - Federal environmental laws
    - Federal & state building regulations (Americans with Disabilities Act – ADA)
    - Local zoning laws and building codes

    b) Taxation
    Federal, State, and Local TAXATION of real estate
    - Federal and state income taxes
    - Local property (ad valorem) taxes

    Positive Aspect
    Example – Opportunity Zones
    An Opportunity Zone is an economically distressed community where, under certain
    conditions, new investments may be eligible for preferential federal income tax treatment.

    Construction of infrastructure that directly or indirectly benefits real estate


    - Utilities
    - Roadways
    - Transit systems
    - Airports ports
    - Parks and public recreation areas

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