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102 Cards in this Set
- Front
- Back
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Comingled RE funds |
Direct investment in RE |
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rE operating company |
Public form of re ownership |
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Lead time for rentals |
Time when approvals, property built, fully leased |
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Re risk/return usually between stocks and bonds |
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Gross lease |
Owner pays operating expenses |
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Net lease |
Renter pays operating expenses |
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Percentage lease or rent |
Rent increases with sales |
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Value in use |
Value to particular user |
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Assessed value |
By taxing authority |
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3 types of RE valuation |
1. Cost approach. Buyer wont pay more than it would cost to build themself 2. Sales comparison 3. Income |
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Highest and best use |
Use of vacant lot that brings greatest value less costs not juat hgihest value |
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NOI |
Income + other income -vacancy / collection loss -operating expense Op expenses include taxes and ins Coll loss calc off income and other income
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Discount rate |
Rf + premium |
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Cap rate |
Discount rate - growth |
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Cap rate |
Noi/value |
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Value |
Noi/cap rate Previous formula rearranged |
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Cap rate on comp sales |
Noi/ comp sales |
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Any all risks yield |
Rent /comp sales |
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If tenants pay all expenses rent in place of NOI. And value= |
Rent / ARY |
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2 methods of income approach |
Dcf Capitalization |
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Cap rate applie to 1st yr NOI. If NOI not good need to stabalize |
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Rr of 12%. Noi is at 6mm but would have been 10mm w/o renovations. Noi will increase 4%/yr...value= |
10mm / 12%-4% |
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Gross income multiplier another form of capitilization |
Sales price / gross income |
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Values off gross mult |
Gross income * gross inc multiplier |
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Discount rate |
=Cap rate + growth Off cap rate = disc rate - growth rate |
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Value over time |
Noi/cap rate Noi / (r-g)
R is rr going off previous slide formula |
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For term value noi/(rr-g) then discount back |
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When contract rent and market rent differ take reversion approach. ....find pv of current rent then fin erv which is market rent / ary . then add together |
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Layer method...term rent/let prop rate....then future rent-current/inc discount rate |
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Fixed cost applies to all sqft. Variable only applies to occupied |
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Steps in cost approach |
Est land value Est building replacement cost Deduct depreciation(in actual value |
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Incurable items increase effective age |
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Functional Locational Economic obsolescence |
1. Bad floor plan 2. Location bad 3. Replacement cost is more than rentbinnarea could support |
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nPI is an index that measures appraisal values= |
(NOI -capex+(chamge in market value)) / beg market value |
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The return on npi is the holding period return equal to a 1 period IRR |
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Appraisal indexes lag and transactional ones dont |
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Transactional |
Repeat Hedonic(1 time sales) |
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Dscr |
1st yr NOI / debt service |
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Ltv |
Laon amt / appraisal amt |
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10% I only payment. 1.2mm appraisal. Has to have debt service 1.5 and ltv 80%. Noi 135k. What is max loan amt |
135k/1.5=90k *10=900k for dscr 1.2mm*.8= 960k for ltv |
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When debt is used equity holders will calc equity div rate= |
1st yr CF/ equity |
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From previous example equity div rate is 45k/300k. Difference in noi and interest. Difference in appraisal and loan. |
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To find irr pv in 6 years being sold at 1.5mm using calc. N=6 PV=(300) pmt=45k fv=600k cpt iy=24.1 |
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REOC |
-not tax advantaged -set up if not elgible to be reit like if they are set up to develop and sell RE or operates in a country that doesnt allow reits |
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RE debt secueities much larger than RE equity. MBS Mortgage reit Generate funds from underlying securities |
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Advantage of reit but nit reoc |
Tex exempt Predictable earnings High yeild |
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Disadvantage of public re investing |
1sometimes losses on real re can be written down 2 lack of control 3 costs of public structure 4 price off market 5 conflicts of interest |
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Disadvantage to reit but not reoc |
Limited growth due to high payouts Forced equity issuance if credit hard to obtain since they need to refi existing debt Lack of flexibility-limited to amt of investment |
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4 major economic factors on REITS after GDP growth |
Pop growth Job creation New space suplly vs demand Retail sales growth |
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Characteristics of reits |
Tax exempt High yield Low volatility due to dependence on int rates and rent 2nd equity offerings due to distributing most of it eaenings and need financing |
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Riskier reits are sectors with bigger supply demand mismatch like healt, hosp, office. Or hotels with hgih occupancy fluctuations |
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Cap rat |
Noi/ property value |
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Property value |
Noi / cap rate |
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Find cash noi subtracting non cash rent adding back adj for aquisitions Multiply by growth rate Take that divided by cap rate for value of op lease Add back cash, land, ar, prepaid for gross value Subtract debt for NAV Divide by shares for NAVPS |
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FFO |
Ni+ depreciation+ def tax expense - gains on sale or debt restructure +losses on sales and debt restructure |
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Affo |
Ffo -non cash straight line rent adj - capex and maintenance commsision |
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Straight line rent adj |
Avg rent over lease period not actual rent paid |
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3 key factors impacting pric to ffo etc |
1. Growth 2. Risk to underlying RE 3. Risks to leverage and acces to capital |
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Can use dcf same way as ddm dcf used in PE |
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Nav calculated |
Cash noi/ cap rate +cash and ARs -debt |
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Approaches to reit valuation |
1. Nav per share 2 multiples like price to ffo 3 dcf. Like ddm with a terminal value |
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Multiply ffo by sector p/ffo for nav/share |
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Post money value |
Pre+inv |
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Ownership portion of VC |
Inv/post |
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4 exit routes for PE firms |
1. Ipo 2. 2ndary market sale 3. Mbo 4. Liqidation |
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General partner is mgr of fund with unlimited liability. Lp is limited to investment |
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1. Carried interest 2 ratchet 3 hurdle rate 4 vintage 5 term of the fund 6 committed capital 7. Paid in capital |
1 GPs share of fund profits 2 allocation between shateholders and mgmt 3. Irr needed before Gp cannearn carried interest 4. Year fund was started 5 life of fund. Usually 10 yrs. 6. Amt promised 7. Amt actually received from investors |
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Carried interest 20%. Hurdle rate 9%. Deal cost 50mm. At end of yr 2 sold for 7mm profit. What was carried interest |
Pv=-50 Fv= 57mm N= 2. CPT Iy=6.8% Which is lower than 9%, so no carried interest |
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1 Distribution waterfall 2 no fault divorce 3 co investment |
1method of paying profits. Usually deal by deal or total return 2 if supermajority of of LPs 75% or more vote than GP can be removed. 3 allows LPs to invest in GPs othe funds at low or no mgmt |
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NAV of pe |
Assets - Ls |
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PE funds are commitedband later drawn down. Returns are usually Jcurve |
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IRR is GIPS recommended. Gross IRR no fees. Net IRR takes out fees and is the relevant irr between fund and LPs |
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Multiples also used but dont factor time value of money |
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DPI distribued paid in capital |
Realized returns. Distrubtions/ committed capital. Also called cash on cash return |
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RVPI residual value paid in capital |
Unrealized return /comm capital |
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TVPI tot value paid in capital |
Realized and unrealized returns. Sum of DPI and RVPI |
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Post money value |
Pv of exit value |
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Pre value |
Post-Inv |
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NPV method of fravtion of VC ownership |
Inv/post |
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2nd method IRR method |
Future value of investment in round 1 / exit value |
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Shares vc |
Shares founder *(irr or npv value / 1-irr or npv value) |
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Price per share |
Investment / number of new shares |
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Post |
Exit value / (1+r^n) |
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Second round of vc financing INV2 New fractional ownership f2 |
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F2= |
Inv2/post 2 |
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Post2 |
Exit value / 1+r^n2 |
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Pre2 |
Post2-inv2 |
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Post1 is dpv of value of companybat time ofn1st round. Its post money value after 1st round= |
Pre2 / (1+r1)^ n1 |
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F1(fractional ownership 1st round) uaing npv method |
Inv1/post1 |
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New shares required (VC1) |
SharesFounders *(inv fractional shares/ 1-inv fract shares) |
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Price |
Inv1 / sharesVC1 |
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New shares requored to VC in 2nd round |
(Shares Vc1 + sharesfounders) * ( f2 / 1 -f2) |
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Price2 |
Inv2 / sharesVC2 |
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Use a higher discount rate for lack of diversification and prob of failure Adjusted diacount rate r*= |
(1+r / 1-q) -1 |
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Investor has dr of 30%. Thinks company has a 25% of failure. R*= |
1+.3 / 1-.25=73.33% |
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A 2nd approach finding a realistic value is to adjust terminal value Example three options 1. earnings of 4 and Pe of 10(term value 40mm) 2. Earnins 2 Pe 5(10mm) 3. Failes term is 0 |
1/3*40 + 1/3 *10 + 0=16.7 |
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Disadvantage for reit is structural conflict of interest between partnership and reit in either Upreit or Downreit structure |
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Upreit Downreit |
1most common. Reit is GP and has controlling interest 2. Reit Has ownership in more than 1 partnership and can own at the partnership and reit level |
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Dcf for RE often assumes income growth same as expense growth |
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Sales comparison |
Avg sale price per square feet of other sales(including adjustments ie if -4.5% times sq ft by 1-.045) * square foot of building |
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Est value of cost approach increases if replacement cost goes up Higher eff age increases incurable deterioration and lowers values |
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Finite residual income |
Bv now + discounted RI + future bv with premium discounted back |
