Course Overview

The overriding goal of this course is to provide participants with the information and analytical framework needed to make wise investment decisions regarding investment choices in Real Estate, an important asset class available to investors.  This course considers real estate primarily from the view of the investor.  We consider the characteristics of real estate, most especially the different asset classes, the different investors and their investment appetites, the sources of capital and lending preferences, and the available investment strategies.  The risks, returns, and costs of investments in real estates are compared to the risks, returns, and costs of investments in portfolios of individual securities (stocks, bonds, and related financial investments) by individual and institutional investors.  A primary goal is to provide potential investors the information they need to determine whether and when investments in real estate rather than investments in individual stocks, bonds, and other financial instruments should be undertaken.

Types of real estate asset classes are explored and the nuances that accompany each type of asset class are detailed.  The participants and components of a real estate transaction is analyzed, including sponsors, lenders, transaction types, and loan types.

Course Methodology

This introductory course primarily relies on lecture and class discussion, although we also utilize in-class individual and group exercises to illustrate theory and practice relevant to financial decision-making regarding investment in real estate.  Class participants should bring a laptop to the course, preferably with Excel, and should have a basic familiarity with the workings of Excel software.  Basic uses of Excel will be reviewed in class.  A limited number of more advanced calculations will be explained in detail during the class.

Course Objectives

By the end of the course, participants will be able to:
  • Understand the importance of real estate as a stand-alone investment and as an asset in a more diversified portfolio
  • Understand characteristics, advantages, and disadvantages of investments in real estate
  • Understand the different asset types of real estate available
  • Understand the different investors in real estate
  • Understand the different capital providers and loans in real estate
  • Understand the basic deal process and how deal valuation is determined

Target Audience

Individual investors, investment advisors, institutional investors, developers, as well as finance professionals looking to deal with real estate

Target Competencies

  • Real estate characteristics and organizational structures: Goals and investment objectives of various real estate investments
  • Advantages, risks, expected returns, and costs of real estate
  • Identifying different investment strategies in the different real estate offerings that meet desired investment goals.
  • The different participants in real estate transactions and the roles they play

Course Outline

OVERVIEW

    What is Real Estate?
    • Property Consisting of Land or Buildings
    • Residential
    • Commercial
  • Why is real estate, notably commercial real estate, an important asset class?
  • The Sponsor
    • Publicly Traded Corporations
    • Private Developers
    • Property Managers
    • Individuals
    • REIT
    • Hedge Fund
  • Any participant looking to hold real property or a share in real property
  • An Overview of the CRE Landscape
  • Why invest in real estate rather than a portfolio of individual stocks, bonds, and other investments?
  • What is the typical capital structure for funding a commercial real estate deal
    • Equity
    • Debt
    • Preferred Equity / Mezzanine Financing

Commercial Real Estate Property Types

  • Residential vs. Commercial
  • Types of Commercial Properties:
    • Multi-Family
    • Retail
    • Office
    • Industrial
    • Hospitality (Hotel)
    • Medical
    • Specialty

Capital Sources

  • CRE Loans can come from a wide variety of places
    • Local & Regional Banks
    • National Banks
    • Life Insurance Companies
    • CMBS/Conduit Lenders
    • Specialty Lenders
      • Bridge Lenders
      • Mezzanine Lenders
      • Hard Money Lenders
  • Overview of the Capital Market Landscape
    • Transactional Dollar Volume
    • Breakdown of Lender Volume
    • Breakdown of Asset Class Volume
    • Interest Rates

Equity

  • Equity Makes up 15-35% of a capital stack for any given transaction
  • Equity Sources
    • Life Insurance Companies
    • Equity Investors & Investment Funds
    • Family Offices
    • High Net Worth Individuals
  • Return structure
    • Equity Split
    • Waterfall

Valuation Methods and Considerations for Commercial Real Estate

The most common way that we approach determining value is to consider net operating income (NOI) and the capitalization rate.

  • NOI = Income-Expenses
    • NOTE: principal and interest, capital expenditures, depreciation, income taxes, and amortization of loan points are not included in NOI
  • CAP Rate = Return of the Building/Total Price of the Building
  • Property Value = NOI/CAP Rate
  • Valuation Example
  • Debt Service Coverage Ratio
    • Before banks will lend, they also want to make sure that the property will generate enough income to support the loan. Banks look at the Debt Service Coverage Ratio (DSCR) to determine this. Most banks require a DSCR of 1.2+ in order to lend
    • DSCR = NOI/Amount Required for Debt Service (Loan Payment)
  • DSCR Example
  • Things to consider when valuing properties
    • Leasing (Multifamily and Retail)
    • Tenant Mix (Retail)
    • Property Flag and Franchise Agreement (Hospitality)
    • Environmental Issues (all asset classes)
    • Location, age, and amenities (all asset classes)

CRE Loan Types

  • Commercial Real Estate (CRE) loans are typically taken out for 3 reasons: (spell out what CRE stands for the first time used)
    • Develop property from the ground up
    • Acquire commercial property
    • Refinance the existing debt on property
  • Loan Types
    • Construction Loans
    • Acquisition Loans
      • Traditional Acquisition Loan
      • Bridge Loan
    • Acquisition and Development Loan
    • Refinancing
  • Property Acquisition Example
  • Mixed-Used Development Construction Example
  • Existing Property Refinance Example

Loan Process

  • Brief overview of the loan process chronologically
    • Sponsor has a deal
    • Package a formal Loan Request or Offering Memorandum
    • Lender issues a Term Sheet
    • Sponsor Signs the Term Sheet
    • Full Underwriting/3rd Party Assessments
    • Lender issues a Commitment Letter
    • Closing

Investment Strategies

  • Sponsors all have different preferences
    • NNN
    • Trophy Assets
    • Regionally Diversified
    • Asset class specific
    • Asset class diversified
    • Income Producing vs. Value Growth
    • Development vs. Acquisition
  • Expected Returns
  • Exit Strategies
  • Risks

Class evaluation of course and instructor

 

 

Location & Dates
Call us at +971 4 430 8394