Intermediate1 hour16 terms

REI Alpha & Excess Return: Key Terms Collection

Explore a curated collection of key terms that might be helpful when analyzing and pursuing excess returns in real estate investment. This reference focuses on commonly referenced concepts and metrics used to identify opportunities beyond benchmark performance. Use this collection to clarify terminology and deepen your understanding of value creation.

Term Collection

Going-in Cap Rate

The going-in cap rate is a real estate investment metric that measures the initial unleveraged rate of return an investor can expect from a property based on its first year's projected Net Operating Income (NOI) relative to its purchase price.

Intermediate3 min

Capitalization Rate

The Capitalization Rate (Cap Rate) is a real estate valuation metric used to estimate the potential rate of return on an investment property, calculated by dividing its Net Operating Income (NOI) by its current market value.

Intermediate14-15 min

Value-Add Strategy

A real estate investment strategy focused on acquiring underperforming properties and increasing their value through renovations, operational improvements, or repositioning to boost Net Operating Income (NOI).

Intermediate15-18 min

Sortino Ratio

The Sortino Ratio is a risk-adjusted performance measure that differentiates harmful volatility from total volatility by focusing solely on downside deviation below a specified minimum acceptable return (MAR). It is particularly valuable for real estate investors assessing asymmetric risk profiles.

Advanced5 min

Equity Multiple

The Equity Multiple is a performance metric that measures the total cash distributions received from an investment relative to the total equity invested, indicating how many times an investor's initial capital has been returned.

Intermediate13-16 min

Net Operating Income

Net Operating Income (NOI) is a key real estate metric representing a property's annual income after deducting all operating expenses, but before accounting for debt service, income taxes, and capital expenditures.

Intermediate11-12 min

Net Present Value

Net Present Value (NPV) is a financial metric that calculates the difference between the present value of cash inflows and outflows, used to evaluate the profitability of a potential investment by accounting for the time value of money.

Intermediate15-18 min

Risk-Adjusted Return

Risk-adjusted return measures an investment's return relative to the amount of risk taken, providing a more comprehensive evaluation than nominal returns alone, crucial for sophisticated real estate portfolio management.

Advanced5 min

Waterfall Distribution

Waterfall distribution is a tiered profit-sharing structure in real estate syndications, dictating how cash flow and profits are allocated among investors and sponsors based on predefined hurdle rates and preferred returns.

Advanced13-16 min

Preferred Return

Preferred Return is a priority distribution threshold in real estate syndications, ensuring limited partners receive a specified annual return on their unreturned capital before general partners share in profits.

Intermediate12-15 min

Sharpe Ratio

The Sharpe Ratio is a measure of risk-adjusted return, indicating the average return earned in excess of the risk-free rate per unit of total risk (volatility or standard deviation). It helps investors understand the return of an investment compared to its risk.

Advanced5-6 min

Discounted Cash Flow

Discounted Cash Flow (DCF) is a valuation method that estimates the intrinsic value of an investment by projecting its future cash flows and discounting them back to their present value.

Intermediate14-15 min

Carried Interest

Carried interest is a share of the profits of an investment fund, typically a private equity real estate fund or syndication, paid to the general partners (GPs) or managers after limited partners (LPs) have received their initial capital and a preferred return.

Advanced13 min

Return on Cost

Return on Cost (ROC) is a real estate metric that measures the projected Net Operating Income (NOI) of a stabilized property against its total development or value-add cost, providing a forward-looking assessment of profitability for new projects.