Category: Specialized Finance

3.1 How Governments Actually Finance Themselves ✦ In Plain WordsA government that spends more than it collects must cover the gap in one of three ways: by borrowing, by running down its cash, or by creating money through the central bank. In ordinary times borrowing is the main way. In fiscal 2025 the US deficit […]

✦ In Plain WordsReal assets face six main risks: vacancy, construction delays, interest rates, refinancing, obsolescence and regulation. Borrowed money magnifies all of them. The risks tend to arrive together: a rate rise can hit values and refinancing at the same moment. So they must be stress-tested together, not one at a time.Why it matters: […]

2.6 Infrastructure Debt and Equity — Who Invests and Why ✦ In Plain WordsRoads, power lines and pipelines attract pension funds, insurers and sovereign funds, because contracted or regulated assets pay long, predictable cash flows that are often linked to inflation. How bond-like an asset behaves depends on who sets its income: a contract, a […]

2.4 Commercial Real Estate Debt — Mortgages, CMBS, and Mezzanine ✦ In Plain WordsCommercial property loans are limited by the smallest of three tests: loan-to-value, debt service coverage and debt yield. Many are pooled into CMBS, bonds backed by those loans, where losses run from the bottom layer, the B-piece, upward, and a special servicer […]

2.2 Cap Rates and Property Valuation ✦ In Plain WordsA cap rate is a property’s yearly net income divided by its value, so value equals income divided by the cap rate. It works like a yield. The cap rate equals the required return minus the growth rate of income. So when interest rates rise, cap […]

✦ In Plain WordsA property deal is paid for in layers called the capital stack: senior debt, mezzanine debt, preferred equity and common equity. Each layer is paid in full before the next gets anything, like water filling a tower of glasses from the top. A layer’s risk depends on its attachment point: how far […]