Ⅲ Key Legal, Tax and Accounting Considerations in Real Estate Securitization

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1 This capital is most commonly comprised of shares and equity-like securities (investment securities issued by investment corporations, specific investments and preferred equity securities of TMKs, etc.) issued by the securitization vehicle, investments in TKs and NKs and other investments that take the first loss if anything negative occurs. Note: On the balance sheet of a TK, the investment of a TK member is shown on the Asset side of the balance sheet but the balance sheet of the operator itself is limited by the amount indicated as paid-in capital in the commercial registry. Therefore, the investment of a TK member is ordinarily indicated as a long-term deposit or, when the amount is not material, the account category of other liabilities is used. (Excerpt from page 89 of Monetization and Securitization Accounting and Taxation, Second Edition published by Chuokeizai-sha). Equity investors can only receive dividends after all debt obligations have been met and so they receive dividends from the property remaining after the principal is repaid to the debt investors at the time of settlement. Thus the debt investor has preference over the equity investors. While the debt investor has the right to receive only the principal and interest agreed to in advance, distribution to the equity investor is greatly impacted by the success or failure of the business. While the equity investor may obtain a very high return, the equity investor may receive less absolute distribution than the debt investor; this increases the risk, but equally the returns, if successful, are high. Financial institutions that provide loans to a securitization vehicle are the debt investors. Financial institutions often take a different approach that involves pooling a diverse range of credits from real estate backed loans, placing these in an SPE as an asset and then issuing asset-backed securities (ABS) backed by these loan credits. These ABS securities are known as mortgagebacked securities (MBS) and can be subdivided further into commercial mortgage-backed securities (CMBS) and residential mortgage-backed securities (RMBS); both of these have been issued continually since 2001 by the Japanese Government Housing Loan Corporation (the Japan Housing Finance Agency since April 2007). Ⅲ Key Legal, Tax and Accounting Considerations in Real Estate Securitization [ 1 ] Legal Considerations (1) Bankruptcy Remoteness: Concept and Necessity As mentioned in the first section of this chapter, one of the most basic requirements of the real estate securitization structure is to ensure that the entity bankruptcy is remote from the originator and any investors and vice versa. Thus the concept of bankruptcy remoteness is that even if an interested party of a securitization, especially the originator and vehicle, goes bankrupt, the cash flow of the securitized asset and thus the redemption of the principal and interest and any equity returns as defined at the inception of the securitization are not affected by the bankruptcy of the interested party as a result of the performance of the assets being based on the assets in the structure and the structure itself with cash flow continuing to be paid. Securitization transfers the securitized asset from the originator and places it in a securitization vehicle which has a capital structure created based on the cash flows that the asset can generate. In principle the securitization is not dependent on the creditworthiness of the originator and so investors demand that any direct impact on the investors of bankruptcies to the originator or the vehicle itself be eliminated; this is referred to as being bankruptcy remote. Bankruptcy remoteness is essential in an asset monetization securitization, which requires the stability of the securitization vehicle, and the steps taken to ensure bankruptcy remoteness would include: i. Legally separating the securitized asset from any influence of the bankruptcy of the originator; and ii. Minimizing the bankruptcy risk of the actual vehicle owning the asset subject to securitization (TMKs under the Asset Monetization Law, SPEs with the form of KKs and LLCs, etc.). (2) Separation from Originators If a securitization vehicle receives staffing or capital influences in its administration from the originator or equity investors, the vehicle may become embroiled in bankruptcy proceedings if the originator were to go bankrupt. This may lead to the investors being treated as general creditors, which may disallow investors from receiving profit distributions or receive the redemption of principal and interest. For this situation to occur the custodian appointed on bankruptcy of the originator would judge that the transfer of the asset was not a true sale (see (4)) but that it was a transfer of collateral and thus deny the original transfer of the asset to the securitization vehicle. If this were to occur, the collection of investment funds is only possible through reorganization of collateral rights in relation to the corporate reorganization of the originator. The following are considered when judging the bankruptcy remoteness of a securitization vehicle from its originator. i. Rational intent of the interested parties as indicated by the contract 22 Real Estate Securitization Handbook

2 CHAPTER 2: Overview of Real Estate Securitization ii. Defenses against third party claims in the securitization process iii. Appropriateness of the transfer price iv. Is the risk of the transaction appropriately assigned? v. Is the transaction merely for accounting purposes to move assets off the balance sheet? vi. Is the securitization vehicle independent? (Eliminate all aspects of control the originator may have over the securitization vehicle) The last of this list requires some technical aspects to be addressed, and to achieve a bankruptcy remote structure Cayman SPCs with charitable trusts or Chukan Hojin are regularly utilized. (3) Minimizing the Risk of the Securitization Vehicle going Bankrupt If a vehicle used in an asset monetization securitization filed for bankruptcy, it would be impossible for the secured debt holders to seize the assets due to preservative order the court would place over the assets, and thus the securitization structure would not function correctly. Thus, in addition to measures to prevent the bankruptcy of the vehicle, additional measures should be taken to avoid the securitization vehicle filing for bankruptcy. Among the actions taken to prevent this are i) the securitization vehicle (debtor) foregoing the right to file for bankruptcy through contract between the vehicle and investors, but most commonly the secured lender, ii) the selection of a director who is independent of the originator and other interested parties, and iii) requiring the approval of all directors to file for bankruptcy in the articles of incorporation. However, the legal validity of these preventative measures has not been tested in the courts so cannot be 100% relied on yet. (4) True Sale A key requirement to secure bankruptcy remoteness of a securitization vehicle is that a legally valid sale occurs when the asset is transferred from the originator to the securitization vehicle. If, for some reason, the sale is rejected legally, the transaction is treated as a transfer of collateral. In such a case, if the originator goes bankrupt, the rights of the securitization vehicle to the transferred assets would become restricted and a default would potentially occur because the securitizations would not have free unfettered access to the cash flows from the assets, and thus the redemption of principal and interest according to its loan contracts would be no longer possible. The judgment of whether a transaction is a collateral movement or a true sale is a legal judgment and can in practice lead to problems in the event of a bankruptcy. Therefore specific steps are taken that include clearly stipulating the desire to sell and buy the asset to be securitized in the sales and purchase agreement and obtaining a legal opinion that assesses the risk being borne by the originator after the transfer of the asset as well as whether or not fair consideration was paid for the asset among other aspects. When the 5% accounting rule prevents an asset from being moved off a balance sheet for accounting purposes, there are many instances where a true sale is demonstrated through a legal opinion and an annotation is added to the balance sheet in which the asset is consolidated and the sale of the asset has been completed. However there remains a difference of opinion in the market over the validity of this process. (5) Defenses Against Third Party Claims If defenses against third party claims are not in place at the time of transfer of the assets to be securitized and the originator goes bankrupt, the bankruptcy custodian or other third parties may be able to make a valid claim against the assets. To provide sufficient defense against third party claims in the ordinary transfer of assets requires a notice to be issued or the approval of the debtor that the asset being transferred is released from any claim and such approval should be provided in writing. Designated monetary claims of corporations can have third party claims mitigated without the approval of the debtor by registering the credit transfer in the registry; this is as a result of the Law on the Exception to the Civil Code concerning Requirements Set Up Against the Transfer of Claims (Special Credit Transfer Law) issued in conjunction with the SPC Law in As it is impossible to meet the requirements against the debtor, it is normally necessary to issue notices or complete other procedures to prevent the creditor from exercising any rights with regard to set off when the originator and debtors were related in some fashion and where the creditor has rights of offset payments. (6) Bankruptcy of Servicers When a servicer involved in the recovery debts that were previously attached to the assets transferred to the securitization vehicle goes bankrupt, there is the risk that the funds collected by the servicer for the payment of third party debts that servicer was collecting are seized by the creditors of the servicer as an asset and that these funds become embroiled in the bankruptcy proceedings of the servicer. This risk that the funds recovered by the servicer for third party debts and the servicer s own operating funds become mixed together is called commingling risk. The most common methods for mitigating commingling risk are the use of separate dedicated accounts for the management of collected funds for third parties, the reduction of the period of time the servicer actually holds the funds in its accounts to a minimum and credit enhancement of the servicer through posting of cash collateral, the use of bank guarantees, etc. There have been Real Estate Securitization Handbook

3 cases where back-up servicers have been used to recover funds in place of the original servicer when the original servicer is unable to perform these duties for some reason. (7) Bankruptcy Remoteness by Vehicle Analysis by Governing Law A. Asset Monetization Law 1) TMK Asset monetization securitization requires the vehicle to be bankruptcy remote. The basic requirements for this are as indicated above, but it is necessary to eliminate any control the originator has over the vehicle and ensure the TMK is remote from any impact that the bankruptcy or any other actions of any other related party, such as those with voting rights in the general meeting of members, can have on the TMK. There are a number of structures for severing the relationship between the originator and the securitization vehicle which includes the special interest trusts under the Asset Monetization Law and described in more detail below or charitable trusts or Chukan Hojin. Some methods for preventing the arbitrary termination of directors in the general meeting of the members of a TMK include limiting the legal voting rights of preferred equity members and/or using the articles of incorporation to eliminate any proposals by members to terminate directors. 2) Special Purpose Trusts (SPTs) The basic requirements for determining bankruptcy remoteness are the same whether a corporate structure or a trust is used, however the significant difference is that once a property is placed in trust it becomes the property of the trustee and is thus separated from the settlor (originator). Thus in a settlor directed trust where the settlor is also the beneficiary, even if the settlor/beneficiary interest holder goes bankrupt, the bankruptcy custodian merely succeeds the prior beneficiary s position as the beneficiary interest holder. The creditors to the trust receive priority in the payments from the trust property over the bankruptcy custodian that succeeded the position of the beneficiary. B. Investment Trusts Law 1) Investment Corporation The Investment Trusts Law does not specifically address the bankruptcy remoteness of equity investors and investment corporations, however listed J-REITs and other REITs have created strong governance and high transparency in their management policy which reduces the possibility of bankruptcy to a level which is lower than ordinary joint stock corporations. 2) Investment Trusts Investment trusts, like the Tokutei Mokuteki Shintaku (TMS, special purpose trust), achieves bankruptcy remoteness due to the nature of a trust. C. Real Estate Syndication Act (TKs) In the case of TK real estate syndications it is possible to separate partnership property as a TK account, but there are no specific measures that assure bankruptcy remoteness when the operator goes bankrupt. Thus the rights of the TK investors for the established debts are the same rank as ordinary creditors if the operator were to go bankrupt. (8) Bankruptcy Remote Structures The three primary methods used ensure the relationship between the originator who is investing equity in the securitization vehicle and the securitization vehicle itself is severed are: 1) Special interest trusts, 2) Cayman SPC (TMK) + charitable trust and 3) Chukan Hojin. Initially the most commonly used of these was the Cayman SPC (TMK) + charitable trust, but recently there have been more cases of the Chukan Hojin being used. Although the special interest trust is provided for in the Asset Monetization Law its actual use is still very limited. A. Special Interest Trust The special interest trust is a trust whose objective is to manage the interest related to specific investments in a TMK under the Asset Monetization Law so that the operations related to the monetization of assets based on the asset monetization plan may occur without interference. The law stipulates many aspects that allow the specific interest to be placed in trust with a trust company without the approval of a general meeting of shareholders. This prohibits the trust settlor from issuing instructions to the trustee and prevents the settlor or trustee from being able to terminate the trust during the trust period. Use of a special interest trust eliminates all influence of the originator of the TMK over the TMK and achieves the same purpose as a Cayman SPC and charitable trusts. However there are still very few instances where the special interest trust has been used because of doubts over the validity of the law that prevents the termination of the trust during the trust period. B. Cayman SPC & Charitable Trust used in Conjunction with a TMK Charitable trusts, used in combination with a Cayman SPC (shareholder) and either a TMK or KK as the securitization vehicle, is the bankruptcy remote structure. 24 Real Estate Securitization Handbook

4 CHAPTER 2: Overview of Real Estate Securitization The Cayman SPC holds the equity interests with voting rights in the Japanese SPC (TMK or KK) and is the 100% parent company of the domestic SPC, and the Cayman SPC is owned in turn by a trust company for the benefit of the charitable trust. The trust company uses the trust pledge system to form a charitable trust with the shares it owns in the Cayman SPC and then concludes a contract that the residual property of the Cayman SPC, upon completion of the trust period, will be donated to a charitable body (charitable body designated the beneficiary interest holder). In this case, the trust company becomes both the trust settlor and trustee and by taking these steps a structure is created where there is no specific shareholder with voting rights in the Japanese SPC and so is bankruptcy remote. Cayman SPCs are used because there is no minimum capital requirement in the Caymans and it is thus both inexpensive and easy to establish an SPC plus there are tax advantages. C. Chukan Hojin Chukan Hojin are devised to act as a bankruptcy remote structure to replace the Cayman SPC + charitable trust. The Chukan Hojin is based on the Chukan Hojin Law and its use reduces costs and enables a bankruptcy remote structure to be created entirely within Japan. 1) Legal Definition of Chukan Hojin The Chukan Hojin is defined in the Chukan Hojin Law as: A corporate entity, established according to this Law, whose corporate objective is to seek the common interest of the members without distributing retained earnings to its members. There are two types of Chukan Hojin: limited liability Chukan Hojin and unlimited liability Chukan Hojin. The members of a limited liability Chukan Hojin have voting rights but have no obligation to contribute funds (equivalent to paid-in capital in a KK). Thus the limited liability Chukan Hojin has the characteristic where the investor in the Chukan Hojin (equivalent to a shareholder in a KK) and the holder of the voting rights (member) are not necessarily the same. 2) Bankruptcy Remote Structure Using the Chukan Hojin The basic idea for a bankruptcy remote structure using the Chukan Hojin utilizes the characteristic of a limited liability Chukan Hojin where the investor is not necessarily the holder of the voting rights. Even when the originator is the investor of the funds, the originator is not made a member and thus the originator does not hold voting rights. Bankruptcy remoteness from the originator is secured by having the equity interest that carries the voting rights of the SPC which owns the securitized asset acquired by the limited liability Chukan Hojin. The specific structure is as follows: Two or more individuals who are not directors or employees of the originator are appointed members of the limited liability Chukan Hojin. In general these members are certified public accountants. The originator invests funds in the limited liability Chukan Hojin. The limited liability Chukan Hojin owns all the equity interests with voting rights in the securitization SPC that owns the asset being securitized thus making the SPC a 100% subsidiary of the limited liability Chukan Hojin. In order to avoid the risk of the SPC filing for bankruptcy the directors and members of the limited liability Chukan Hojin conclude contracts with the SPC that eliminate their ability to file for bankruptcy. 3) Merits of the Chukan Hojin The merits of the bankruptcy remote structure utilizing the Chukan Hojin over the Cayman SPC structure are as follows: As all of the establishment procedures for the limited liability Chukan Hojin can be completed in Japan there is no need to translate contracts into English. There is no need for foreign exchange and procedures related to the Foreign Exchange and Foreign Trade Law. Establishment and maintenance costs are reduced. The establishment period is shorter. Monitoring the Chukan Hojin during the securitization is more convenient. Further, the use of ordinary incorporated associations is being examined since reforms to the public welfare corporation system will abolish the Chukan Hojin. [ 2 ] Tax Points (1) Double Taxation The essence of real estate securitization is asset finance, which separates the securitized asset into the bankruptcy remote securitization vehicle that either owns the real property or is the beneficiary of a real estate beneficiary certificate. Figure 2-7 illustrates the tax concept of real estate securitization. The key issue is whether the securitization vehicle is taxable, and if so what the impact is on the securitization. If the securitization vehicle is treated as a taxable entity it will recognize taxable income and corporation tax will be Real Estate Securitization Handbook

5 assessed. This will reduce the profits that are available to be distributed to investors and any distributed profits received by the investors will be taxed as income to the investors. From the perspective of the investor this double taxation is a poor result and if it may be avoided investment return will increase to the investor. There are two primary methods for avoiding double taxation: i. Use a securitization vehicle that is not taxed as a vehicle, i.e. a pass through entity, and ii. Develop a structure where even if the vehicle is a taxable body, the profits distributed to investors can be recorded as deductible expenses, i.e. a pay through entity. (2) Conduit Requirements The requirements of the tax system that need to be met to avoid double taxation plus meeting the bankruptcy remoteness requirements are known as conduit requirements for a given asset, and securitization vehicles that satisfy these requirements are called conduits. Pass through conduits include NKs and TKs and many trusts are the same in principle. Pay through conduits include TMKs and SPTs under the Asset Monetization Law, and investment corporations and investment trusts under the Investment Trust Law and trusts issuing specific beneficiary securities. The following is an overview of the requirements of the respective conduits. A. NKs under the Civil Code An NK under the Civil Code can have multiple investors investing in common real estate interests be members of the NK through a contract to jointly operate the business. Unless a group characteristic that supersedes the individual members is recognized, the rights and obligations of the syndication are passed directly to the investors and tax is not imposed at the NK level so it acts as a pure pass through. B. TKs under the Commercial Code For a TK contract under the Commercial Code, the operator receives monetary investments from the third parties, those investors become members and the operator acquires the real estate to be securitized with the investment funds. Income from leasing or other operations and the resulting profits (or losses) are distributed to the members under the terms of the TK Agreement. Figure 2-7 Outline of the Real Estate Securitization Tax System Originator Stage Trust bank Entity Stage Entity Investor Stage [Debt] (Transfer of trust) *Trust registration license tax Originator B Originator A (Beneficiary interest in trust) (Sale of beneficiary interest) *Corporate tax (capital gains tax) (Sale of underlying asset) (Real estate) *Corporate tax (capital gains tax) *Registration license tax for changing names of beneficiaries *Consumption tax/local consumption tax (for building) *Real estate acquisition tax *Registration license tax *Consumption tax/local consumption tax (for building) *Corporate tax *Real property tax *City planning tax *Levied indirectly where beneficiary interest in trust (Investment, purchase of securities, etc.) Asset B (beneficiary interest in trust) Asset A (Dividend) *Income tax on dividend (individual) *Corporate tax (Payment of interest) *Tax on income from interest (individual) *Corporate tax (Purchase of corporate bond certificates, etc. ) Investor (individual) Investor (corporation) (Examples) *Corporate bond *SPC specific corporate bond *Beneficiary securities like SPT corporate bonds *Investment corporation bond *Non-recourse loan, etc. [Equity] Prepared by ARES (Examples) *Stocks *SPC (TMK) preferred equity securities *SPT (TMS) beneficiary interest *Investment units of investment corporations *Investment in TK, etc. Investor (individual)/ Investor (corporation) (Transfer) *Capital gains tax (individual) *Corporate tax (capital gains tax) Third party investor (Corporation/individual) 26 Real Estate Securitization Handbook

6 CHAPTER 2: Overview of Real Estate Securitization As the business is conducted in the name of the operator the TK is not taxed and the investors share of the profit or loss is recorded as a deductible expense of the operator and so is a pass through structure. To create a real estate securitization vehicle, LLCs or KKs are combined with TK contracts to create a pass through entity for investors. C. Handling of Trusts The Principle of Taxation of the Beneficial Recipient of Income is regulated in Article 11 of the Corporation Tax Law and Article 12 of the Income Tax Law. However, Article 12 of the Corporation Tax Law and Article 13 of the Income Tax Law both prescribe pass through regulations in principle regarding trusts. According to this principle of trust taxation, the beneficiary actually possessing the rights as the beneficiary is treated as possessing the trust property and the trust is not deemed to be a taxable entity under the tax code (pass through). D. TMKs and TMSs under the Asset Monetization Law In both cases the corporation tax is assessed but when certain requirements are satisfied, dividends paid to preferred securities equity are recorded as deductible expenses. The specific regulation requires that more than 90% of income that can be paid as dividends is paid as dividends (see Chapter 4 II for details). However, it is important to note that the payment of principal on corporate bonds and other debts are not treated as expenses, so if expenses are rejected after settlement and the dividend requirement is not satisfied then corporation tax will be assessed on the securitization entity. E. Investment Corporations and Investment Trusts under the Investment Trusts Law As with TMKs and TMSs described in D., in principle corporation taxes are assessed but when certain requirements are fulfilled, including the distribution of more than 90% of the net profit as dividends, the dividends paid to investors are recorded as a deductible expense (see Chapter 4 III for details). The repayment of principal on debt is not an expense, and so if the dividend requirement of distributing more than 90% of net profits is not met after settlement corporation taxes will be assessed on the entity. F. Trusts Issuing Specific Beneficiary Securities Trusts issuing specific beneficiary securities are trusts issuing beneficiary securities that satisfy certain requirements including having a retained profit ratio versus the total trust principal of the undistributed profit that is 2.5% or less. These trusts issuing specific beneficiary securities are classified as collective investment trusts. The trustee or fiduciary stage is not taxed and income tax or corporation tax is levied on the distribution of earnings that the beneficiary receives (see Chapter 5 IV for details). (3) KKs and LLCs in Other Situations When the Asset Monetization Law and Investment Trust Law regulate vehicles that satisfy the conduit requirements of a collective investment structure, there is no particular method to avoid double taxation when KKs, etc. are used as they are seen as ordinary business corporations. In practice, when KKs, etc. are used as SPEs, a pay through structure is created by using TK agreements that makes the SPE the operator of the TK and the investor the TK member, and all profits are distributed through the TK Agreement. [ 3 ] Accounting Considerations (1) Requirements to be Met for Moving Assets Off Balance Sheet One of the merits of asset monetization of real estate is that the real estate that is securitized allows the originator to move the property off its balance sheet, but certain requirements must be met for the asset to be successfully transferred off balance sheet. A property can only be moved off balance sheet of the originator and the capital gains or losses recorded when accounting rules recognize the transaction as a true sale and purchase. Conversely, when it is recognized that the originator continues to own and control the property despite utilizing a property transfer transaction, for accounting purposes the transaction is not recognized as the transfer of property but is accounted for a financing secured with real estate. The guidelines for recognizing if a property has been successfully moved off balance sheet are detailed in the Practical Guidelines on the Accounting of the Transferring Party in Real Estate Monetization Using TMKs (prepared and issued by the Japanese Institute of Certified Public Accountants in July 2000). These Guidelines are generally referred to among practitioners as the SPC 5% Rule and Practical Guidelines. The standards concerning the consolidated treatment of SPEs are also presently being further clarified for participants. (2) Important Elements from the Practical Guidelines on Real Estate Monetization The Practical Guidelines are described in detail in Chapter 4, but the following lists important practical elements from the Practical Guidelines. i. The Practical Guidelines cover the asset monetization structure and not the asset management structure. In other words, it only applies to TMKs and equivalent vehicles (the SPEs) under the Asset Monetization Law. Real Estate Securitization Handbook

7 ii. The Practical Guidelines are exclusively concerned with the accounting treatment of the transfer of real estate to TMKs and do not necessarily apply to the tax accounting for the transaction. Thus there are cases where the sale is not recognized for accounting purposes but capital gains are recognized for tax purposes. iii. The Practical Guidelines designate the accounting treatment when the originator transfers existing real estate it owns to an SPE. Therefore, it is not applicable when an SPE acquires real estate from a third party. Hence it does not cover development securitizations where an SPE acquires newly developed real estate; however, the issue of consolidated or non-consolidated treatment does emerge with the company that is the investor in the SPE. iv. The Practical Guidelines state that the sales treatment of real estate is the following for a true sale: Moving the concerned real estate off the balance sheet is recognized when almost all of the risk and the economic value related to the transferred asset are transferred to another party (risk and economic value approach). Conversely, the interpretation can arise that when the transfer off balance sheet is not recognized then the sale (transfer) of the real estate is not recognized, and in this case it will be treated as a financing transaction secured by the asset. v. Almost all of the risk and economic value has been transferred to another party is deemed to be achieved when the portion of risk borne by the originator of transactions is generally within 5%. Generally allows for a certain degree of latitude and discretion; however, caution is needed in the situations where this risk rises over time. vi. When the originator continues to be involved in the real estate even after it has been transferred, there is the possibility that it will be deemed that the economic risk and economic value have not been transferred to a third party. In the case of a sale and leaseback that is frequently seen in monetization, continual involvement is not recognized when the lease agreement is an operating lease transaction and the paid rents are market prices. vii. When the contract allows for the originator to purchase the transferred asset at some point in the future, the sale of the real estate will not be recognized and it will be treated as a financial transaction. Further, if it is difficult to sell the subject real estate in the market to a third party in as is condition or other special conditions exist, a sale will not be recognized for accounting purposes. Figure 2-8 Background to the Development of Real Estate Securitization Fall in land prices Weakening of balance sheets among real estate companies and for profit corporations Suppression of loans for real estate Flow from indirect finance to direct finance Asset deflation and extremely low interest rates Massive accumulation of non-performing debt Fall in the financial standing of financial institutions Increasing need to move assets off balance sheet Foreign capital purchases non-performing loans Separation of ownership and management Advances in financing and management skills Asset financing becomes accepted Perceptions of real estate risk changes (change from "assets to be owned" to "assets to be invested in") Risk diversification and need for small lot units Expansion of investor base Development of real estate securitization Prepared by ARES 28 Real Estate Securitization Handbook