Alternatives (REOC & REIT)

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mustafa.khokhawala

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How an asset class is distinguished between Equity or Alternative investment when investment is made in equity shares of listed companies, primary business of which owning, buying & selling the real estate or developing the land and selling. Is the investment classified as alternative (REOC) or equity investment.
 
Same as investing in commodity stocks (eg.mining companies). It’s counted as invested in commodities and in case of REOC into RE sui generis.
Risk & Return same or very similar characteristics as investment to equivalent physically.
Hope now it’s clear.
 
More than the legal vehicle through you own a company (public/private shares, prefered shares, participations, etc) look at the nature of the core business of the company. REOCs and REITs invest in real estate which is an alternative investment. Mining and commodities trading companies are also categorized as alternative investments.
If you own 80% equity stake in a public company that trades in the NYSE (I’m guessing a lot) which its core business is to buy and sell post-modern artworks, you are investing in alternative investments, not classical equity.
Hope this helps.
 
Thanks for clarification. Referring example stated of post-modern artworks, investment would still be as an alternative if holding percentage is less than 5%?
 
Asset class allocation mean what type of asset you are investing in. There are 3 main classes (the classic view of investments): Equity, Fixed Rent, and Money Market instruments (short-term investments that generate interests, loans to be simple). However, there is a forth class, Alternative Investments.
Alternative investments as a class have appeared because of their different risk characteristics and the increased exposure of investors over time on this type of assets. Alternative investments include Real Estate, Commodities, Derivatives, Artwork & Collection pieces, etc. By 2014 25% of the world investment portfolio was on alternative investments.
You can classify your investments in the classic way, or in the “new” one, it is up to you. I would use the latter.
Just remember that alternative investments can take other forms. For example, you can buy an equity share of a company that only trades commodities as its core business, so call it an alternative investment, not just equity. If you buy a house with the intention to resell or rent it, you have an alternative investment. If you buy a REIT share in NYSE, you also have an alternative investment, it doesn’t matter if you own 0.02% of the REIT.
Hope this helps.
 
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