The current focus is on tracking, analyzing, and exploring capital market trends globally and distilling that information to highlight the impact on the Houston metro area. A series of newsletters will be distributed throughout the year that educate the ULI Community on capital markets. A few sample topics to be covered are: real estate debt and equity markets, various methods utilized to finance real estate deals, and major developments pertaining to the real estate capital markets sector. The on-demand and interactive webinars will be focused more on deep dives into specific areas such as capital stack development for particular deals. We will include industry subject matter experts and also cover topics of interest submitted by our committee or our broader ULI Houston audience. In addition to this, we will also present any recent real-world cases where capital markets were a significant contributor to the success of a project.

Working with partners, sponsors, and supporters, the Committee will vigorously pursue these activities to ensure that it is a significant contributor to ULI’s mission.

CAPITAL MARKETS BASICS

A capital market is the exchange of funds through financial securities. Investors trade capital to entities needing funds through equity (stocks) and debt (bonds) securities. Capital markets provide companies, school districts, municipalities, and governments a way to raise money to grow their business or complete projects. Within capital markets there two categories, primary and secondary.

The Primary market is where funds are introduced into the system in exchange for securities direct from the issuer. For example, when a company sells stock for the first time, also known as an IPO (Initial Public Offering) it is done in the primary market. Primary markets are usually made up of investment bankers and large institutional investors.

A secondary market is where securities are traded after the initial offering on the primary market. This is where individual investors have access to securities on the major stock exchanges through platforms like Etrade or Robinhood. The price for financial securities on the secondary market is driven by demand or lack thereof. This fluctuation of value creates liquidity in the market and helps drive the economy.

CAPITAL MARKETS IN COMMERCIAL REAL ESTATE

Capital markets fit within commercial real estate by the creation of what is known as the capital stack. The capital stack includes all the types of capital used to finance a real estate transaction. Types of capital can include senior debt, mezzanine debt, preferred equity, common equity, and public subsidies (such as low-income housing tax credits). Each type of capital offers a different risk reward ratio for the investor in the real estate transaction. Debt carries a higher priority in repayment with a lower return ratio and equity has a lower priority in repayment with a higher yield potential. The arrangement of the capital stack on a real estate transaction can differ based on the type of transaction – acquisition, new development, redevelopment – and the specific goals or mandates for the investors.

Below are a few examples of how a real estate transaction can be financed.

Example 1 – New Ground Up Development

Example 2 – Large Urban Redevelopment

Example 3 – Affordable Housing Development

Knowledge Resources

Each newsletter we will try to incorporate some news on current capital markets events with links. Here are some links to capital markets news outlets that may be of interest in learning more about real estate investments and project capitalizations:

News

Specific Topic: Rural Financing