Real estate abstract
A data processing system for managing a plurality of discrete accounts.
Each account provides a swap between a property holder and the plan
manager wherein the holder dilutes their exposure to the real estate
market by exchanging future appreciation of the property for a current
cash flow stream. The system thereafter implements the packaging
of plural accounts into baskets of real estate assets and sells
this real estate exposure to the institutional market. The data
processor retains a system equilibrium by continuously updating
the relative positions and the control parameters influencing these
Real estate claims
What is claimed is:
1. A system for managing a plurality of accounts that correspond
to a selected position in a future appreciation of a select real
estate asset comprising;
data entry means for receiving and processing a select set of parameters
corresponding to an applicant for exchanging a position in real
estate for a return tied to a non-real estate asset;
database development means for receiving plural account participants
and attendant data thereon and storing said data in an addressable
participant qualification means for selectively qualifying real
estate properties as suitable participants in said system;
system management means for processing incoming participant event
data and updating said database in accordance therewith; and
investment pool processing means for collecting data on said real
estate assets and processing said data to form one or more investment
pools, wherein said pools include plural real assets each having
at least one common property characteristic.
2. The system of claim 1 wherein said parameters includes a description
of a residential building, and a select percentage of ownership
interest in the change of value of said building at a future point
3. The system of claim 2 wherein said return on a non-real estate
asset is a fixed income to accrue until sale of said building.
4. The system of claim 3 wherein said database includes updated
files on each account in terms of percentage ownership in said building.
5. The system of claim 4 further comprising real processor means
for selective entry of events for modulating or terminating said
percentage of ownership interest.
6. A system for processing data corresponding to a plurality of
individual investor accounts:
account processor swap means for converting account parameters
into a current income steam and a future correspondence to a valuation
change of a select real estate asset,
account processor database means for storing and tracking a plurality
of separate accounts to effect a net aggregate position and to update
said future correspondence to a valuation change due to intervening
account processor distribution means for distributing a stake in
said future correspondence to a valuation change to real estate
investors, wherein said distribution means balances a portfolio
of investments to insure limited investment exposure by a system
investment pool processing means for collecting data on said real
estate assests and processing said data to form one or more investment
pools, wherein said pools include plural real estate assets each
having at least one common property characteristic.
7. The system of claim 6 wherein said swap means included qualification
means to regulate system manager exposure.
8. The system of claim 7 wherein said distribution means includes
exposure limit to discern requisite change in account qualification
9. The system of claim 8 wherein said future correspondence is
established by a system characterized termination event.
10. The system of claim 6 wherein said intervening events include
11. A data processing method for managing a plurality of individual
accounts wherein each account corresponds to a participant, wherein
said participant owns a real estate asset, said method comprising
the steps of:
a) creating an account database of separate participant accounts
wherein said database comprises a plurality of account entries and
each account entry includes participant information stored in physical
memory locations in an addressable memory means, said participation
information comprises data on said participant and said real estate
asset owned by said participant;
b) inputting data on a periodic and/or event driven basis wherein
said inputted data is stored in system memory and includes transactional
information relating to one or more of said participant accounts;
c) processing said inputted data in accordance with program controlled
logic defining an investment equity contract relationship, exchanging
a first exposure in said real estate asset corresponding to a change
in value thereof, for a defined return, wherein said processing
of said inputted data provides a change in one or more parameters
associated to said participant account;
d) creating an aggregate investment pool of real estate assets
each having at least one common property characteristic; and
e) updating said account database with said changed parameters
to support interim report generation and select output of one or
more asset activities wherein asset activities include payment of
funds to an account participant, and collection of funds pursuant
to a real estate asset sale.
12. The method of claim 11 wherein said data processing step includes
use of a program controlled digital computer to update account parameters
in accordance with periodic events.
13. The method of claim 11 wherein said periodic events includes
the transfer of cash or cash equivalent stream to a participant
in accordance with stored parameters delineating a fixed return
for an exposure to a portion of a defined real estate asset.
14. The method of claim 11 wherein said database entries include
descriptive data entries on said underlying real estate assets.
15. The method of claim 11 further comprising the step of inputting
investor data comprising data on an investor position in one or
more pools of real estate exposures.
16. A system for managing a plurality of real estate equity accounts
and a plurality of real estate investor accounts comprising:
a) a first database means for storing in electronic form a series
of data entries corresponding to one or more real estate assets;
b) a second database means for storing in electronic form a series
of data entries corresponding to one or more investors participating
in defined investment relationships in said real estate asset exposures;
c) data processing means for periodic manipulation of said data
entries in said first and second database to track and update said
databases in accordance with controlling logic, wherein said controlling
logic defines a return of income to a group of real estate asset
owners and a participation by said investors corresponding to a
change in asset value over time, wherein said second database means
includes record storage means for aggregated pools of said real
estate assets grouped based on at least one common property characteristic.
17. The system of claim 16 wherein said data processing means tracks
and updates said plural accounts in accordance with event driven
input to said system.
18. The system of claim 16 further comprising output corresponding
a periodic payment of a fixed amount to each real estate owner.
19. The system of claim 18 wherein said output includes a periodic
statement referencing said payment.
Real estate description
The present invention generally relates to systems for managing
a plurality of equity based accounts for reducing single market
exposure and, in particular, a data processing system for implementing
controlled dilution of select holdings of a plurality of individual
accounts in accordance with plan directives.
BACKGROUND OF THE INVENTION
For as long as investment has been passionately pursued, the watchword
has been diversification. Holders of stocks are routinely told to
expand their bond position so that a turn in the market may be better
weathered. Likewise, holders of fixed income securities are warned
of the ravages of inflation, which may be best warded off through
high growth but volatile stocks. Indeed, most investors think in
terms of portfolio management, where their portfolio is carefully
balanced to consider offsetting positions in various securities.
Health Care stocks may combined with oil stocks; cyclicals combined
with growth--each combination with the intent to dilute the negative
impact that may strike one sector of the economy.
Typical in most investor's assets is some form of real estate investment.
Real estate, as an investment vehicle, has attributes that are quite
distinctive when compared to other forms of securities such as stocks
and bonds. There are several methods of investing in real estate.
First, and most often recognized, is the direct purchase of land
or property--to be managed by the investor. Many a real estate empire
has come and gone based simply on purchasing properties using borrowed
money, with the expectation that the value and income of the property
will exceed the interest paid on the loan. This is known as leverage,
and with its great potential for success is the possibility of sizable
failure. Other forms of real estate investment exist, all of which
can be characterized as holding, derivative interest in property.
This is done either by separate corporations, limited partnerships
(REITS) or other bifurcated vehicles designed to limit the investor
from the extremes of good and bad turns in the real estate market.
Surprisingly, most investors have sizeable if not dominating real
estate holdings--without appreciating the substantial position taken.
This, of course, comes about through the purchase of a home which
in many areas of the country involves hundreds of thousands of dollars
of borrowed money with the borrowing at significant interest rates.
Indeed, the average investor with a portfolio of $50,000 may have
a further position in real estate--due to their house--of another
$350,000. In this scenario, the investors real estate position is
85% of the total portfolio. This is routinely referred to as being
real estate "heavy" and runs counter to the established
principles of diversification.
The repercussions of this are clear; down turns in the real estate
market will dominate and deplete an otherwise well-balanced and
successful portfolio of stocks and bonds. This has happened in the
late 1980s in many areas of this country and many other industrialized
countries, sizably reducing the net worth of many investors; whereas,
the equity markets in general have performed well, real estate,
at best, has been a turbulent market. There is, therefore, a great
incentive for investors to dilute their real estate exposure. On
the other hand, there are presently no investment vehicles to reduce
this exposure in a cost effective manner.
OBJECTS AND SUMMARY OF THE PRESENT INVENTION
It is, therefore, an object of the present invention to provide
a system to implement an investment vehicle that is tied to the
real estate market so as to provide investment participants the
ability to reduce their exposure to the real estate market.
It is another object of the present invention to provide a data
processing system that manages a plurality of separate accounts
associated with participants to insure compliance with the terms
of the transaction and to update portfolio positions accordingly.
It is yet another object of the present invention to provide a
system to aggregate a plurality of diverse positions into a unified
investment offering to large institutional investors.
The above and other objects of the present invention are realized
in a novel data processing system designed to manage a plurality
of real estate investment accounts. On the retail side of the operation,
the system manager provides to a plurality of individuals with large
holdings in real estate, such as homeowners, the opportunity to
reduce their exposure to changes in the real estate market. The
system implements individual contracts with each property holder,
wherein a cash stream at a fixed rate is exchanged for a future
stake in the appreciation of the property. In effect, the property
holder is trading a stake in their real estate holding, expressed
in percentage terms, for a fixed income return. The system parameters
are engineered to maintain and manage the arrangement to the conclusion
and thereby monitors and accepts interim modifications based on,
e.g., home improvements, etc. Upon conclusion of the arrangement,
the property is sold and the proceeds representing incremental appreciation
of the property are then applied to the original owner and plan
manager in percentages corresponding to their individual stakes.
In accordance with the varying aspects of the present invention,
the plan manager in turn converts the foregoing agreements with
the property owners into transactable securities for resale in the
institutional markets. Pension fund managers desiring a position
in real estate will commit funds corresponding to the contract with
the agreement permitting sharing in the appreciation of the property
upon sale thereof. The system tracks the transactions and balances
the various positions to insure compliance with the terms and conditions
of the arrangement.
The foregoing features may be more fully appreciated by review
of a specific illustrative example of the present invention taken
in conjunction with drawings of which:
DESCRIPTION OF THE FIGURES
FIG. 1 is a block diagram of constituent participants in the transactions
associated with the present invention;
FIG. 2 is a block diagram of the relationship between the plan
manager and the various servicers as implemented in the context
of the present invention;
FIG. 3 is a block diagram of the operative hardware used to implement
the present invention;
FIG. 4 is a chart indicating graphically the division of assets
accomplished in conjunction with the present invention;
FIG. 5 is a logic flow diagram for the initial operation of the
FIG. 6 is a logic flow diagram for on-going operations of the plan
FIG. 7 is a block diagram of the institutional side of the transactions
implemented in the context of the present invention;
FIG. 8 is a logic flow diagram for the implementation of system
interface with institutional investors in accordance with the present
FIG. 9 is a logic flow diagram of the equilibrium function for
the present invention.
FIG. 10 is a logic flow chart for termination event processing.
DESCRIPTION OF THE PRESENT INVENTION
First, briefly in overview, the present invention is directed to
a data processing system for managing a plurality of accounts and
transactions relating to the controlled dilution of individuals
exposure in the real estate market. Operation of the system is by
the plan manager, who communicates to participating individuals
through a network of mortgage servicers. These servicers collect
the salient data from the applicants and convey the information
to the plan manager, where a qualification check is made. This qualification
is made based on a set of pre-determined system constraints implemented
to contour the resulting aggregate position in real estate to a
form marketable to institutional investors.
The plan manager (system) operates in real time, updating accounts
pursuant to events that either change or terminate the relationship
with the participating individuals. On the institutional side, the
system manages the investment by a plurality of institutional investors
into real estate derivative products tied to the value of the stake
taken by the plan manager. In this context, system parameters are
controlled through an interface trust linking the investors to the
plan manager and system operator.
With the foregoing discussion in mind, attention is first directed
to FIG. 1, wherein the plan manager and its operative communicative
arrangement is presented. In this context, the individual participant
is either a home buyer or home owner, 10, who operates in conjunction
with a mortgage servicer (typically a bank) 20. The relationship
may exist due to previous mortgage transactions, or is nascent.
The mortgage servicer offers a specific contract to the home buyer
that exchanges a fixed income cash flow, based on a percentage of
the property value for the same percentage stake in the future appreciation
of that property at sale (termination of the contract). For example,
a house has a purchase price of $100,000; the owner can contract
away 50% of the appreciation of this house in exchange for a fixed
income on the $50,000 (50% of the purchase price). In a sense, the
owner is swapping the exposure of $50,000 worth of real estate for
a fixed return, similar to that of a bond.
In this arrangement, the system operator and plan manager are one
and the same; all incoming new accounts collected by mortgage servicers
are processed by the plan manager 30 and approved or disapproved
by the plan manager. Although communication is by path "A";
the legal relationship, "B" is directly between the plan
manager and the home buyer 10.
Turning now to FIG. 2, the plan manager 30 is the hub of a network
of separate mortgage servicers 20, providing a plurality of real
estate transactions paralleling the above example to numerous applicants,
each through a discrete channel. The hubspoke structure permits
simplified communications to each servicer. This is important as
a single check for, e.g., $1,400,000 is distributed to one servicer,
to be redistributed to the individual plan participants by the servicer
in accordance with the specific allocations dictated by their contract.
It is, therefore, important that each servicer has a separate database
for all the participants in their domain; while the plan manager
has one unified database for all participants.
In this context, and now turning attention to FIG. 3, the plan
manager employs a specific data processing system having a central
processing unit (CPU) 100 in communication with a real time database
110. The database can be maintained in one of many available storage
systems, including optical or magnetic, with search and access controlled
by the CPU in accordance with the governing software. As can be
appreciated by the networked nature of the system, both local access
130 and remote access 120 to the system is important for day-to-day
The nature of the transaction managed by the system is the swap
of the future growth or shrinkage of a real estate asset for a fixed
income return. This is presented graphically in FIG. 4, where a
$100,000 house is charted at T.sub.o. At this initial point, the
homeowner elected to swap $50,000 (50%) of the house value as an
investment, for a fixed return of 5% (5% on the $50,000 per year).
The homeowner begins collecting immediately, while living in the
same house. At some future time, T.sub.1, the house is placed on
the market for $120,000; if sold at this price, the incremental
capital gains of $20,000 is divided in half--50% for homeowner and
50% for the plan manager.
If, on the other hand, the owner dies at T.sub.2, the house has
lost value and is sold for $90,000, and the plan manager owes the
owner's estate $5,000 (50% of depreciation). Alternatively, a separate
arrangement may be offered wherein no downside or loss exposure
exists for the plan manager.
System operation is program controlled The program statements implement
the various system functions on a real time basis or overnight basis,
updating the database of accounts, approving new participants, and
orchestrating the institutional side of the transactions. The controlling
programs operate on hardware facilities compatible to the functions
outlined herein, and the use of conventional hardware systems for
processing and data storage is acceptable. The programming language
isn't limitative so long as it is compatible with the selected operating
system and hardware platform. Acceptable results will be achieved
using a network of PC workstations tied together and linked to a
file server or mini-computer.
The governing logic for controlling system operation is depicted
in the flow charts as described hereinbelow. First, turning to FIG.
5, this flow chart depicts the initial application process for home
buyer/owner as channeled to the system through the servicer. Logic
starts conceptually at block 200 and continues to block 210 wherein
the USER is given an identifying index variable "I". In
this context:, the USER(I) is the applicant for diluting a position
in property presently owned or to be purchased. At test 220, the
system determines whether a new purchase is contemplated.
If "NO", logic proceeds to block 230 and the system collects
a select profile of data, the key of which is an independent appraisal
of the property AP(I) so that a proper valuation may be entered
and used for the requisite calculations. On the other hand, a positive
response to test 220 will branch logic to block 240 and data is
collected on the purchase price of the house PP(I) to be used for
Continuing in FIG. 5, processing invariably proceeds to block 250
wherein the percentage and value of the property to be swapped by
the applicant is entered by the System and combined with the other
data in the USER(I) file. Using this data, the system then screens
the applicant to confirm compliance with the qualification elements
of the system. For example, the percentage of property to be "swapped"
or invested must be between 25% to 65%, the property must be a primary
residence of 1 to 4 units; also, the property cannot be a co-op,
land or used for investment purposes by the applicant. The minimum
amount to be swapped is $30,000 or other applicable value. If the
applicant fails for any of these or other reasons, the system responds
negatively to test 260, and logic proceeds to block 270, where a
report on the failed application and reasons therefor is printed
Assuming applicant's data meets the specifications of the system,
test 260 is answered in the affirmative and logic branches to block
280 where the specifics of the CONTRACT are printed and transmitted,
via the servicer, back to the applicant for execution. System logic
then proceeds with the next applicant in the same fashion (continue
block 290), indexing the applicant counter:
In accordance with the above process, the system quickly develops
a substantial database of applicants, which require periodic updating
pursuant to the terms of the transactions. This process is accomplished
as described in FIG. 6. Specifically, logic begins at Start block
400 and continues to block 410 for entry of USER(I,J) wherein the
J index variable tracks the time period of the entries.
The system first tests whether the USER(I,J) is an initial run,
test 420; if so, logic branches to block 430 and the main database,
DDbase, is updated with the new account information. Otherwise,
logic proceeds to test 440 wherein the system tests for an EVENT
of consequence. Events of concern are typically a payment cycle,
a sale of the house or an improvement of the house. In fact, affirmative
response to test 440 causes system inquiry as to the event, via
test 450, wherein a home improvement is discerned. A home improvement
is important, as it represents the owner's investment into the equity
of the previously divided property. To the extent that the improvement
increases the ultimate purchase price of the house, the owner and
not the system manager, should reap the reward.
To insure this outcome, block 460 rewrites the original Contract,
DCON(I), to reflect the enhancements associated with the home improvement
event submission. In either path, logic continues to test 470 which
checks for a Termination event, i.e., the termination of the contract
and the sale of the house at market price. If a termination event
has occurred (and these include foreclosure, death, etc.), the system
accesses the relevant file DCON(I) and processes the records accordingly,
The foregoing processing is repeated for this cycle for each participant,
I, by loop processor Next command of block 490. At the end of the
period, a payment run is made, block 500, wherein aggregate payment
to the servicer(s) is calculated, the database updated, block 510,
and the funds transferred, block 520. Processing is then repeated
for the next period by index variable J, via loop processor Next
command of block 530.
The above discussion has focused on the retail side of the processing,
wherein the plan manager assumes the contractual obligations associated
with swapping fixed income for a percentage of market appreciation
of the participants' houses. By doing this, the plan manager develops
an investment position highly exposed to changes in the real estate
market and, in essence, is holding a portfolio of concentrated real
estate investments in the form of contract rights. These contract
rights are, however, readily assignable and, therefore, easily transferred,
traded and exchanged. Therefore, consistent with the desire to diversify
and otherwise exchange its position in real estate for other assets,
the plan manager is ideally positioned to separately trade the obligations
corresponding to the various contracts within the database portfolio.
These trades, however, are accomplished on the institutional side
of the market, with the primary customers and traders taken from
large pension fund managers having a desire to invest in real estate,
again as a form of diversification.
To effect the institutional side of the system, the plan manager
operates through a trustee wherein a swapping arrangement may be
accomplished in a manner similar to that discussed above. More particularly,
and referring to FIG. 7, the plan manager 30 is linked to a trust
60 for holding transaction supporting assets, like U.S. Treasury
bonds. In turn, the trust communicates with various large pension
funds 70, exchanging economic interest in bonds for economic interest
in the real estate market. For example, CUST A will exchange the
exposure of $100 million of 6.25% coupon 30-year treasuries for
$100 million of a specified real estate basket. The basket is defined
by properties selected in terms of house size, location and type.
The plan manager receives the coupons on the treasuries and exchanges
them for a lower fund coupon. When a home in the basket is sold,
the treasuries are returned plus any appreciation in the house price.
As presented in FIG. 8, processing on the investment side begins
with Start block 600 and continues to block 610 for the entry of
account data on the Kth investor, INV(K). By this method, each individual
investor is given the opportunity to take a selective stake in a
real estate investment and the system tracks the plural investor
accounts maintained within the database. Continuing in FIG. 8, test
620 determines whether the Kth investor is "new"; if "YES,"
the system enters that investor's unique parameters, PAR(K), at
block 630. Logic proceeds to block 640 where the investor's selective
criteria for its stake in terms of location, house style, price
bracket, etc. are entered the system then develops a aggregate basket
of houses complying with this criteria, designated B(K), at block
The system then determines at test 660 whether this aggregate basket
conforms to previously established guidelines; if not, logic is
returned to reset the criteria parameters. Approval of the aggregate
directs system logic to block 670 wherein the basket parameters
are saved. Importantly, the system then updates a separately tracked
USER(I) counter(I) indicating the net sales of a stake for each
property in that basket. For example, a stake in one house may be
sold five times and bought three times--M would thus; equal Z. Thereafter,
at block 700, the system establishes the associated rate of return,
RR(K) for that particular basket.
As can be recognized from the above, the plan manager must rationalize
in real time, continually changing investment positions on both
the retail and institutional side with the objective to maintain
a balance between each side, i.e., to assure that the exposure to
the real estate market taken on the retail side is for the most
part taken up by institutional investors, thereby retaining a relatively
risk free position. This can only be accomplished by unified processing
of the various incoming investment positions and adjusting the qualifying
constraints in the system so that balance is re-established. For
example, to the extent that four bedroom houses are in demand on
the institutional side, the system must reconfigure its retail qualifying
terms to insure sufficient supply of four bedroom exposure.
The inventive system continually updates the relative position
of each side of the transaction in accordance with the commands
delineated in FIG. 9. Logic conceptual starts at Start block 800,
and continues to block 810 wherein the current convergence criteria,
PON(L) is accessed and entered. The system then calculates (block
820) the current aggregate position, A.sub.-- RV. Specifically,
A.sub.-- RV represents the net aggregate position taken for each
house for a given territory (state, county or even country). Please
note that the A.sub.-- RV position will include both positive and
negative positions, as the system permits investors to take an inverse
real estate investment position. This position is explicitly verified
on a per house basis (block 830).
At test 840, the absolute value (in dollar terms) of the net position
by the system is compared to the convergence criteria PON(L). If
within the criteria ("NO" to test 840), logic proceeds
to block 870. If "YES", then the direction of imbalance
is discerned, and the appropriate qualification parameters adjusted
to rebalance the system at blocks 850 and 860, respectively. This
is then incremented for the next time frame basket L.
Turning now to FIG. 10, the system rationalizes a termination event
for investors that have a basket of houses which include the corresponding
property. More particularly, logic begins at Start block 900, followed
by block 910 wherein the USER(I) file is accessed at test 920, checking
for the existence of a termination event. A negative response drives
logic to the end of this logic sequence and the (I+1) USER. A positive
response to test 920 directs logic to block 930 wherein the terminal
payment, TP(I), is calculated based on the incremental time period
between payment intervals pursuant to the contract. Thereafter,
the sales price SP(I) for the property is entered at block 940.
The system then computes the net value of the contract to the system
proprietor at block 950; to the extent any amount is due to the
USER(I), this amount is authorized for payment at block 960.
At test 970, the system determines, based on the USER counter,
how many times the property undergoing a determination event has
been bought or sold. For each instance of a purchase by an investor,
logic branches to 980 and the system authorizes payment TP+INT(I).
For each instance of a sale by an investor, logic proceeds to branch
990 wherein the system is authorized to receive payment TP+INT(I).
Logic culminates at block 1000 wherein the DDbase is updated and
block 1010 wherein the system is purged of the USER(I) file.
The above-described arrangement is merely illustrative of the principles
of the present invention. Numerous modifications and adaptations
thereof will be readily apparent to those skilled in this art without
departing from the spirit and scope of the present invention.