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Article
Publication date: 14 June 2019

Tanu Aggarwal and Priya Solomon

The purpose of this paper is to examine the impact of residential and commercial loans on total real estate sector loans by using partial least square–structured equation…

Abstract

Purpose

The purpose of this paper is to examine the impact of residential and commercial loans on total real estate sector loans by using partial least square–structured equation modelling (PL–SEM) method. The residential loans as a mediator have been used to know the mediation effect between commercial and total real estate loans of banks in India. The residential loans as a mediator govern the relationship between commercial loans and total real estate loans in India. Real estate sector development is a lucrative opportunity for India. The real estate sector plays a major role in shaping economic conditions of the individuals, firms and family.

Design/methodology/approach

The research is descriptive in nature. The study on residential loans, commercial loans and total real estate loans has been taken into consideration, and on the other hand the measurement and structural model have been employed to the study the impact of residential loans and commercial loans on total real estate loans in India by using PL–SEM. The residential loans as a mediator have been taken to study the mediation effect of the relationship between commercial loans and total real estate loans in India.

Findings

The outcome of the structural model that is bootstrapping technique shows that there is an impact of residential and commercial loans by public and private sector banks on total real estate sector development in India. The residential loans show the full mediation effect between commercial loans and total real estate loans as the value of variation accounted for (VAF) is more than 1.93 which shows residential loans govern the nature of variable between commercial loans and total real estate loans.

Practical implications

The public and private sector banks are contributing to the real estate sector development in India which increases the economic growth of the country. The mediation analysis shows that residential loans are an important aspect between commercial and total real estate loans in India as the demand for residential housing is more in India. The increasing role of banks in the real estate sector strengthens the financial capability in the real estate sector market, and the property buyers will able to purchase more property which leads to increasing demand for real estate sector.

Originality/value

The research paper is original, and PL–SEM has been used to find the results.

Details

Journal of Property Investment & Finance, vol. 37 no. 5
Type: Research Article
ISSN: 1463-578X

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Article
Publication date: 5 October 2015

Andrea Sharam, Lyndall Elaine Bryant and Thomas Alves

The purpose of this paper is to identify the financial barriers to the supply of affordable apartments in Australia and examine whether demand aggregation and…

Abstract

Purpose

The purpose of this paper is to identify the financial barriers to the supply of affordable apartments in Australia and examine whether demand aggregation and “deliberative development” (self-build) can form a new affordable housing “structure of provision”.

Design/methodology/approach

Market design, an offshoot of game theory, is used to analyse the existing apartment development model, with “deliberative development” proposed as an innovative alternative. Semi-structured interviews with residential development financiers are used to evaluate whether deliberative development could obtain the requisite development finance.

Findings

This investigation into the financial barriers of a deliberative development model suggests that, while there are hurdles, these can be addressed if key risks in the exchange process can be mitigated. Hence, affordability can be enhanced by “deliberative development” replacing the existing speculative development model.

Research limitations/implications

Market design is a new innovative theoretical approach to understand the supply of housing, offering practical solutions to affordable apartment supply in Australia.

Originality/value

This research identifies financial barriers to the supply of affordable apartments; introduces theoretical understandings gained from market design as an innovative solution; and provides evidence that a new structure of building provision based on “deliberative development” could become a key means of achieving more affordable and better designed apartments.

Details

International Journal of Housing Markets and Analysis, vol. 8 no. 4
Type: Research Article
ISSN: 1753-8270

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Article
Publication date: 30 September 2013

David Wyman, Elaine Worzala and Maury Seldin

The purpose of this exploratory paper is to examine the lack of reliability of traditional neo-classical models and to argue that it is due to the hidden complexity and…

Abstract

Purpose

The purpose of this exploratory paper is to examine the lack of reliability of traditional neo-classical models and to argue that it is due to the hidden complexity and non-linearity that may operate at times in residential housing markets. As a result, market efficiency may be a special case, rather than the prevailing rule. An alternative framework that incorporates the higher order concepts of complexity – based on the non-linear, emergent behavior of multiple agents – is required to model discontinuities and imbalances in the housing markets.

Design/methodology/approach

The paper examines the building block concepts required to model the complexity of the housing market and analyzes their implications. These implications can be counter-intuitive and help explain the failure of policy makers to model the recent bust in global housing markets.

Findings

The paper finds that policy makers need to adopt an analytical framework that incorporates non-linearity, emergence and other building blocks of complexity in order to construct representative financial models that help understand systemic imbalances that may afflict residential housing markets.

Originality/value

This is the first paper to one's knowledge that argues that policy makers should adopt an alternative theoretical framework based on complexity concepts in order to create more effective financial models; such models should include indicators that provide early warning signals of potential discontinuities in housing markets.

Details

International Journal of Housing Markets and Analysis, vol. 6 no. 4
Type: Research Article
ISSN: 1753-8270

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Book part
Publication date: 24 October 2017

Renee Prunty and Mandy Swartzendruber

There is a perception in the United States that campaign contributions equate with vote buying. Outright vote buying is illegal, but many citizens believe that loopholes…

Abstract

There is a perception in the United States that campaign contributions equate with vote buying. Outright vote buying is illegal, but many citizens believe that loopholes in campaign contribution laws allow some to buy votes while perpetuating a façade of legitimacy. Both federal and state laws attempt to regulate campaign contributions, but many of those have been limited by the Supreme Court’s ruling that campaign spending is considered free speech (Buckley vs. Valeo, 1976). Without the ability to limit campaign spending, the amount of money it takes to run a campaign, particularly a presidential campaign, has increased substantially. This had led to an increase in the use of bundling by presidential campaigns, with the winners often rewarding their bundlers. It has also led to an increase in outside independent organizations, known as Super PACs, with an unlimited ability to raise and spend money. This creates an additional problem as a small percentage of wealthy individuals constitute the vast majority of campaign contributors, leading to the perception that politicians cater to the elite. Whether a politician is affected by these factors or not is hard to prove, but it still leaves a perception by voters that their votes are less influential than large campaign contributors and there is always a risk that a vote has been bought.

Details

Corruption, Accountability and Discretion
Type: Book
ISBN: 978-1-78743-556-8

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Article
Publication date: 7 April 2021

Emre Cevikcan and Yildiz Kose

An appropriate space allocation among different residence types gives higher profitability and liquidity for cash flow management in real estate projects for developers…

Abstract

Purpose

An appropriate space allocation among different residence types gives higher profitability and liquidity for cash flow management in real estate projects for developers. Thereby, a balance between debt and equity should be kept for capital formation in developers where high level of cost, profit and risk exists. The purpose of this paper is to provide cash flow optimization under debt and equity financing while providing an appropriate space allocation of residence types via synchronous consideration of profitability and liquidity.

Design/methodology/approach

A novel optimization methodology that includes project financing, optimization and experimental design modules is proposed. The first module, project financing, considers the flexibility of utilizing one or both of debt financing and equity financing when making capital. The optimization module addresses space allocation among different residence types for a construction while maximizing profitability and liquidity using two mixed-integer linear programming models in a pre-emptive manner. The experimental design module assesses the effects of decisive parameters within the methodology via multivariate analysis of variance (MANOVA).

Findings

The proposed methodology is applied to a real-life residential project in Istanbul. The optimization module yielded 42.5% profitability via the first linear programming model and 2.2% trade-off between liquidity and profitability while minimizing the payback period by the second linear programming model. Meanwhile, MANOVA results showed that profit per square meter and sale rate trends are the most prominent factors considering their significant effects on net present value and payback period.

Originality/value

To the best knowledge of the author, related papers focused only on profitability under equity financing. Liquidity (as an objective) and equity financing (as a financing method) have not been handled. Hence, this paper not only performs profitability and liquidity-oriented cash flow optimization under debt and equity financing but also optimizes space allocation of residences for the first time.

Details

Built Environment Project and Asset Management, vol. 11 no. 2
Type: Research Article
ISSN: 2044-124X

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Article
Publication date: 12 June 2017

Jaume Roig Hernando

The purpose of this paper is to analyze the securitization of rental streams, a new investment and finance product introduced in the USA in 2013 that enables fundraising…

Abstract

Purpose

The purpose of this paper is to analyze the securitization of rental streams, a new investment and finance product introduced in the USA in 2013 that enables fundraising from large residential portfolios owned by major investment funds and investment banking. The securities are made up of non-performance loans as well as real estate portfolios of financial entities.

Design/methodology/approach

An academic analysis of the European securitization market is performed, as well as a broad overview of the state of the art of the rental housing market and investment property market. Moreover, a market study of Real Estate Owned (hereinafter, REOs) and Real Estate Debts is carried out to determine both the present framework and future trends. Various financial entities and real estate management companies are examined through interviews and data collection to assess the reality of distressed assets and residential portfolios owned by major investors. It introduced the Broker’s Price Opinion concept, de loan-to-value concept and the London Interbank Offered Rate.

Findings

REO-to-rental securitization is a step forward toward the democratization of finance through the globalization of the residential market, improving risk sharing for major and retail investors. The securitization of rental streams in Europe has not taken off, despite several issuances in the USA since 2013 with significant success where first tranches obtained a credit qualification of triple-A from the majority of the main rating agencies.

Originality/value

At the end of 2013, a global investment firm launched an innovative finance and investment vehicle that securitized the cash flows originating from leased residential properties. That issue resulted in considerable success and in the development of a new alternative and innovative financing source for real estate activity. Taking into account that housing is a primary need of our society, there is a strong motivation for improving the residential market, and thus, REO-to-rental securitization could help take a step forward in making the housing market more efficient.

Details

International Journal of Housing Markets and Analysis, vol. 10 no. 4
Type: Research Article
ISSN: 1753-8270

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Article
Publication date: 26 August 2014

Stephen E. Roulac

The questions of loan availability and pricing were considered from the perspectives of financial economic theory and practice as well as a survey of lenders capable of…

Abstract

Purpose

The questions of loan availability and pricing were considered from the perspectives of financial economic theory and practice as well as a survey of lenders capable of financing a one-year bridge loan to determine the market's willingness to make such a loan and what rate of interest would be charged. Utilizing the sources above, in conjunction with professional knowledge and industry contacts, 101 lenders were selected as representative of the universe of lenders who had the capacity to make directly or otherwise to arrange, a $192 million bridge loan. The survey of lenders involved interviews with 67 of the 86 selected lenders from 59 firms. The paper aims to discuss these issues.

Design/methodology/approach

Loan availability and pricing were considered from perspectives of financial economic theory and practice plus a survey to determine market's willingness to make a loan at what price. Utilizing professional knowledge and industry contacts, 101 lenders were selected as representative of those which had the capacity to make a $192 million bridge loan. When lenders were evaluated against criteria of size, product type, geographic territory, and willingness/capability to provide nonstandard loans, list selected for telephone interviews was narrowed, then subsequently expanded with referrals that led to identification of new potential lenders to be contacted.

Findings

Nine lenders offered conceptualized deal structures to provide the required financing. Though the price may be expensive, especially relative to what borrowers may wish to pay, financing is available. Developers’ and deal-makers’ protestations that “it's impossible,” should be discounted and rejected. Because the subject property is characterized by high-risk, it is logical conclusion that the lenders expressing a desire to provide the bridge loan would expect to earn a high return, meaning that the interest rate would approach, if not exceed, 20 percent.

Research limitations/implications

Because the nature of the research required that the specific identities of the building and the parties were not revealed, some lenders might decline to consider this financing opportunity. And, real world negotiation of financing terms could result in higher rates than quoted and/or disinclination of lenders to proceed. Because of very specialized circumstances surrounding this proprietary research, conducted subject to nondisclosure agreement, publication had to be deferred until those constraints no longer applied. Though the data are more than a decade old, this consideration does not compromise the relevance, validity, or generalizability of the findings.

Practical implications

Markets can accommodate transactions that might be perceived as improbable. Investors which approach opportunities with creativity and open mind, can make deals that would not be possible, were strict, rigid, unbending eligible deal preference parameters to be employed. Strategists establishing policies for real estate enterprises should insist on progressive, expansive thinking in turning the scope of their potential venture involvements. Real estate education and training should address more attention to financial economic theory, strategic initiative, and creative deal making, which priority topics are too seldom prioritized, with the consequence that too many in real estate think narrowly rather than expansively.

Social implications

This research substantiates a fundamental theory of financial economics and refutes conventional applied wisdom. Seldom do researchers and investors have the opportunity to “get inside” the lending decision process for a large scale commercial property, especially one characterized by daunting circumstances and considerable complexity, such as studied here. A unique real world date set – not normally accessible to property scholars – enables study of the proposition that every commodity has a price, no matter how severe or difficult the circumstances, in a manner fully congruent with the new AACSB Business School Deans policy emphasis on relevance in addition to rigor.

Originality/value

As commercial mortgages much less studied than residential mortgages, this paper is significant addition to undeveloped segment of literature. As the majority of mortgage finance research, estimated to be in the range of 90 percent, has been limited to single family residential financing, the study of commercial mortgage financing is relatively under-researched. Further, the studies of commercial mortgage finance tend to be illustrative case studies with stylized facts rather than explorations of empiricism-based investigations. As most researchers engaged in exploring real estate topics limit themselves to public information, research that provides access to real world private transactions is especially important.

Details

Journal of Property Investment & Finance, vol. 32 no. 6
Type: Research Article
ISSN: 1463-578X

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Article
Publication date: 9 May 2008

Giacomo Morri and Christian Beretta

Unlike previous studies on capital structure decisions, the purpose of this paper is to focus on US real estate investment trusts (REITs) in order to find out the main…

Abstract

Purpose

Unlike previous studies on capital structure decisions, the purpose of this paper is to focus on US real estate investment trusts (REITs) in order to find out the main determinants of capital structure choice for real estate companies and in order to verify if they are related to factors similar to those affecting the decisions of public firms in other sectors.

Design/methodology/approach

Using a methodology similar to Rajan and Zingales, a sample of 119 listed REITs with different investment strategies and in different property sectors was analyzed. The analysis is carried out in order to determine the basic factors underpinning the capital structures by selecting financial items and ratios related with leverage (such as asset size, profitability ratios, tangibility of assets, growth opportunities, operating risk and geographical diversification of investments).

Findings

Results show that REITs follow a pecking order theory of financing since more profitable firms are less levered and REITs with more growth opportunities have higher leverage ratios. The tangibility of assets turns out to be positively correlated with leverage, while REITs whose operating risk is high prefer a lower financial risk and consequently a lower gearing. Finally, it is not clear how size affects leverage decisions and more diversified REITs appear to be riskier.

Originality/value

The research also addresses the issue of asymmetric information and the debt‐equity choice for REITs sampled on the basis of their size, highlighting differences with other business sectors.

Details

Journal of European Real Estate Research, vol. 1 no. 1
Type: Research Article
ISSN: 1753-9269

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Article
Publication date: 1 April 2004

Chris Eves

Since the late 1990's‐2003, there have been a number of severe floods in areas that have not been subject to this level of flooding in earlier times. All these recent…

Abstract

Since the late 1990's‐2003, there have been a number of severe floods in areas that have not been subject to this level of flooding in earlier times. All these recent floods have resulted in two alarming factors for all property markets. This paper is based on a comprehensive survey of property professionals throughout England and Wales and a study of flood‐affected residential property in Sydney, Australia. It provides details of how exposure to flood events impacts on residential property markets and buyer behaviour associated with flood‐prone property, and will also provide some insight into the implications and possible ramifications of flooding on the construction, finance and insurance of residential property in flood‐affected areas.

Details

Structural Survey, vol. 22 no. 2
Type: Research Article
ISSN: 0263-080X

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Case study
Publication date: 1 May 2013

Khaksari Shahriar and Platikanov Stefan

The case presents a financing dilemma at a fast growing, Brazilian construction company. The growing demand for residential and commercial real estate in Brazil, coupled…

Abstract

Case description

The case presents a financing dilemma at a fast growing, Brazilian construction company. The growing demand for residential and commercial real estate in Brazil, coupled with the capital intensive nature of the industry generates the need for a considerable external financing. The students are invited to take the perspective of the financial manager and evaluate three financing alternatives – an issue of debentures, a seasoned equity offering, and a capital-raising ADR offering. In their evaluation and final recommendation students need to consider the implications of each of the financing alternatives on firm value, equity risk, cost of capital, financial leverage, issuance costs, and ownership structure. The case also presents a valuable opportunity to discuss the interdependence between the institutional development of an economy and the development of its capital markets.

Details

The CASE Journal, vol. 9 no. 2
Type: Case Study
ISSN: 1544-9106

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