Exam

• model misspecification

• incorrect inputs

• market shocks

• human bias

  • anchoring: anchored to initial viewpoint

  • overconfidence: in initial opinion discounting contradictory data

  • non-systematic process: heuristics rather than rigorous, data-driven process

• Assess past forecasts: Collect historical forecast data and generate estimates with the respective methodology. Then, compare these forecasts to the actual outcomes to calculate the errors and assess their accuracy

• Test on forecast evaluation: ME, MAE, MSE

  • If market shocks are a big concern, MSE is most appropriate since it penalises large errors, which particularly happen during market shocks

• Assess Theil’s U1 for forecast accuracy

• always try to test in different periods or longer sample periods

• GP execution risk: can developer (GP) deliver on time, on budget and to expected standards?

• Market & Pricing: Will the property achieve the target sale value?

• Asset management ability, esp. if project requires active leasing or repositioning

• Cost inflation: unexpected sot overruns may reduce return

• Debt structure risk: Exposure to balloon payments, rising interest rates or refinancing risk

• Misalignment of interests: Without incentives, GP may lack motivation for high performance

Definition: Property is converted into many digital tokens which can be sold by issuer or sponsor via an online marketplace (blockchain). Buyer owns parts of asset (via smart contracts). Token holders receive a share of the distribution throughout the investment/ holding period.

1. Liquidity: easier to buy/sell fractional ownership – enables broader access for small investors

2. Accessibility: enables retail investors to enter institutional-grade markets

3. Transparency: Blockchain ensures secure, tradable transactions

4. Efficiency: reduced paperwork, faster settlement, lower intermediation, reduced transaction costs

5. Active management: because of tradable tokens, investors can actively manage their portfolios by adjusting exposures to specific regions or property sectors.

Property risks

1. Management & Property Quality: Poor management reduces asset performance → lowers token value.

2. Valuation Gaps: Token price may diverge from real asset value.

3. Disconnect from Fundamentals: Prices driven by broader market sentiment, not property performance.

Market Risks

1. Market Risks Rent declines, tenant defaults → tokens hard to sell at expected value.

2. Thin Secondary Market Limited trading despite tokenisation → poor liquidity.

3. Liquidity & Concentration Risk Few token holders or inactive trading → low price discovery, vulnerability to manipulation.

System

1. Regulatory Uncertainty Unclear tax and legal frameworks create compliance risks.

2. Platform Risk Technology failures, fraud, or weak security threaten the system.

How to mitigate risks:

• Due diligence on Issuers and Properties

• Diversification: Spread investments across multiple assets

• Professional Advice helps to achieve optimal diversification

Why Property Derivatives / Futures?

1. Provide certainty of future returns and reduce risk at portfolio level.

2. Lower capital outlay (only notional amounts traded).

3. Enable portfolio rebalancing between sectors (manage exposure).

4. Reduce tracking error (align portfolio weights with benchmark).

5. Offer low-cost exposure to real estate.

Definition: A strategy that combines financial returns with measurable positive social, environmental, infrastructure growth and other long-term impacts. The goal is to invest in projects or assets that generate both profit and impact.

Focus: long-term value creation aligned with broader social needs.

How is the performance evaluated?

• By specific impact metrics alongside financial returns

  • Social indicators (e.g. affordable housing units, no. of jobs created)

  • Environmental indicators (e.g. energy and water saving, CO2 reduction)

• Measurement complex process, but quantitative and qualitative assessments using frameworks like IRIS + CORE metrics

• Standardised benchmarks are limited

• Intentionally: clear intention to create specific impacts

• Additionally: creating impacts that would not have happened oterhwise

• Measurability: Impact must be quantified and reported using clear metrics

• Involves risk

  • higher initial costs

  • lower IRR in short-term

  • long-term investment horizon

  • measurement and verification challenges

Impact hurdle: Minimum social/environmental outcome (e.g. carbon reduction, affordable housing, job creation) an investment must achieve, similar to a financial hurdle like IRR.

Key Characteristics and Challenges

• Not standardised: no agreed calculation, setting targets is difficult due to limited inconsistent data

• Difficult to verify: Impact is harder to quantify, especially across different projects

• Still useful: despite challenges, increasingly used by funds to screen and evaluate impact performance

Complementary metrics to impact IRR and financial IRR

• Jobs created locally

• Number of social housings

• BREEAM or LEED rating

• CO2 and energy reduction

• UN sustainability goals alignment

ESG Investing

• Integrates environmental, social, governance risks into investment decisions

• Aims to improve risk-adjusted returns (mainly by screening or selecting)

• Broad framework, often applied in public markets (equities, bonds, REITs)

Impact Investing

• Intentionally targets investments with measurable positive social/environmental outcomes

• Aims for dual returns: financial + impact

• Focused strategy, typically used in private markets (direct investments, thematic funds)