Real Estate Investment Characteristics

Direct real estate investment has some unique characteristics which are listed below. Some or all of these characteristics do not apply to indirect investments in real estate such as the stocks of real estate investment trusts (REITs) or public real estate companies or investments in mortgages and commercial mortgage-backed securities (CMBS).

- Physical control by owner, unlike stocks and bonds, which allows the owner to intervene and change the property for better market positioning

- Durability–No fixed maturity like bonds - Allows owner to develop and implement a dynamic real estate investment strategy

- High heterogeneity and price differentiation

- Limited market price information and costly and time consuming market price discovery process - assessment of market price requires valuation of each property on a case-by-case basis

- High management requirements, including leasing, rent collections, building maintenance, marketing etc.

- Inefficient market with high information asymmetries providing opportunities for higher returns to those that have special information, resources, access to capital and expertise in pursuing certain opportunities

- High transaction costs due to fees and commissions payable upon closing of the transaction

- High capital requirements giving advantage to market participants with greater and faster access to capital

- Low liquidity as the sale of a property is a very time consuming process due to the high capital requirements, high product heterogeneity and high transaction costs

- High Quality Segmentation across property types and sub-qualities within property types, requiring thorough market analysis for the particular quality segment represented by the real estate investment opportunity under consideration

- High Location Segmentation across cities and sub-markets within each city, requiring thorough market analysis for the particular location within which the real estate investment opportunity under consideration is located