CH.8 [alternative pooled investments]

real estate investment trusts (reit)

• Typically invest in commercial real estate properties and mortgages

• Negotiable securities

• Qualify for conduit rule

Equity REIT

• Invest directly in commercial real estate properties

• Primarily seek capital appreciation

mortgage reit

• Invest directly in commercial real estate mortgages

• Primarily seek income

Hybrid REITs

• Combination of equity and mortgage REIT

• Invest directly in commercial real estate properties and mortgages

non-listed REITs

• Trade solely in the OTC markets

• Can be subject to liquidity risk

private REITs

• Offered to select investors

• Avoids SEC oversight

• High level of liquidity risk

subchapter M (conduit rule) for REITs

• To qualify:

  • 75%+ invested in real estate

  • 75%+ income from real estate

  • 90%+ net investment income distributed

hedge funds

• Unregulated investment funds

• Only wealthy investors participate

• High risk and high gain potential

• Subject to lock-up periods

direct participation programs (DPP)

• Pass through business returns and losses to investors

• Investor suitability:

  • Seeking tax benefits

  • Comfortable with liquidity risk

limited partnerships

• The most common form of DPP

• Must contain:

  • At least one general partner

  • At least one limited partner

general partners

• Similar role as an issuer or fund sponsor

• Sets up, manages, and runs the business

• Have unlimited liability

limited partners

• Provide funding for the business

• Have limited liability

real estate limited partnerships (RELPS)

• Invest in commercial properties

• Various investment goals:

  • Capital appreciation

  • Income

  • Tax benefits

• Tax credits available for:

  • Low-income housing

  • Historic rehabilitation

Oil and gas programs

• Seek profits and tax benefits

• Gain tax deductions through:

  • Intangible drilling costs (IDCs)

  • Depletion allowances

income (stripper) wells

• Proven oil wells

• Investment potential:

  • Low risk

  • Low return

  • Low IDCs

developmental (step-out) wells

• Drill near proven oil fields

• Investment potential:

  • Intermediate risk

  • Intermediate return

  • Intermediate IDCs

exploratory (wildcat wells)

• Drill in unproven lands

• Investment potential:

  • High risk

  • High return

  • High IDCs