Real Estate Capital Markets

Real estate capital markets offer individuals and businesses a way to invest in real estate without actual-ly buying property themselves. Investors have the benefit of being financially backed by either a mort-gage or another property, rendering this a relatively safe investment type.

The real estate capital market forms part of a bigger group known as debt capital markets, which in-clude investment bonds. Funders can either invest directly or indirectly in this capital market.

  • Direct Investments

    Direct investments in the real estate market entails making a financial investment in a specific property or group of properties. If a company or individual invests in several property groups with the same fi-nancial goal, these become a property portfolio, which can ensure more diversity and better returns than a single investment.

    These investments are typically quite large and usually made by companies or businesses, and are usual-ly long term investments (Source).
  • Indirect Investments

    Property funds often make their shares available on the market and investing in one of these funds is considered an indirect investment. Basically, this fund uses the money of its investors to purchase properties, either commercial or residential, in order to generate a profit either from rental income or sales, which serve to pay dividends for investors.

    These types of investments are more suitable for individuals, as they allow for smaller investments val-ues and is more easily liquidated. On the downside, investors are not included in management decisions, and are effectively trusting a fund manager to have their bet interest at heart.
  • Equity Providers

    Real Estate Investment Trusts or REIT’s are trusts that manage a commercial real estate portfolio, that can be diversified in order to maximize profit. Some REIT’s invest directly in properties or a group of properties, while relying on sales, management and rental income to sustain dividends.

    On the other hand, REIT’s can also opt to invest indirectly in real estate through real estate debt such as mortgages or mortgage backed properties. Besides this, they tend to be quite specific in their invest-ment sector and focus on retail, or healthcare or hospitality for example.

Types Of Real Estate Loans

Real estate loans can be broadly categorized in residential and commercial real estate. Although they both essentially do the same thing, their approach is slightly different.

Residential loans focus primarily on smaller loans compared to commercial property loans, and come in all shapes and sizes. Some examples of these include fixed-rate mortgage loans, adjustable-rate mort-gage loans, conventional loans and so forth.

Commercial sources of funding can be diverse and shifting, and when it comes to the real estate capital market they usually comprise one of the following:

  • Equity investors that find part of a venture or property, and get a part of the profit in return.
  • Opportunistic lenders invest in higher risk opportunities that may not be served by the more traditional funding avenues.
  • Conduit lenders provide a commercial mortgage backed security loan for a conduit of proper-ties with a similar profiles, which investors can the support financially.
  • Banks specializing in investment property loans.