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CFAspace CFA Level II Private Real Estate Investments Part I CFA Lecturer: Zhaoyun Ji a Provided by APF Academy of Professional Finance 专业金融学院
Map Academy of Professional Finance 专业金融学院 Copyright © CFAspace.com Real estate investments Basic forms Characteristi cs Classification s Private real estate Reasons to invest Principal risks Role plays in a portfolio Commercial property Due diligence Indices Financial ratios Valuing real estate properties Cost approach Sales comparison approach Income approach
Learning Outcome Statement a LOS a: Classify and describe basic forms of real estate investments. Academy of Professional Finance 专业金融学院 Copyright © CFAspace.com Figure is adapted from: 2014 CFA Kaplan Level 2 Study Note Book 4
Learning Outcome Statement b LOS b: Describe the characteristics, the classification, and basic segments of real estate. Academy of Professional Finance 专业金融学院 Copyright © CFAspace.com Real estate characteristics HeterogeneityHigh unit valueActive mgt High transaction cost Depreciation and desirability Cost and availability of debt capital Lack of liquidity Difficulty in determining price
Learning Outcome Statement b Academy of Professional Finance 专业金融学院 Copyright © CFAspace.com Real estate property types Residential Single family Multi-family Non- residential Commercial properties others
Learning Outcome Statement c, l LOS c: Explain the role in a portfolio, economic value determinants, investment characteristics, and principal risks of private real estate. Academy of Professional Finance 专业金融学院 Copyright © CFAspace.com LOS l: Explain the role in a portfolio, the major economic value determinants, investment characteristics, principal risks, and due diligence of private real estate debt investment. Reasons to invest in real estate Current income Capital appreciation Inflation hedgeDiversificationTax benefits
Learning Outcome Statement c, l Academy of Professional Finance 专业金融学院 Copyright © CFAspace.com Principal risks Business conditions New property lead time Cost & availability of capital Unexpected inflation Demographic factors Lack of liquidity Environmental issues Availability of information Mgt expertiseLeverageothers
Learning Outcome Statement c, l Academy of Professional Finance 专业金融学院 Copyright © CFAspace.com Role of real estate in a portfolio Bond like: periodic rent pmts Stock like: capital appreciation of the property fluctuates with market. Role of leverage in real estate investments Given the condition that the investment return is larger than the debt interests, using leverage can increase returns.
Learning Outcome Statement d LOS d: Describe commercial property types, including their distinctive investment characteristics. Academy of Professional Finance 专业金融学院 Copyright © CFAspace.com Comerical property types officeGross leaseNet leaseindustrialRetailMulti-family
Learning Outcome Statement e LOS e: Compare the income, cost, and sales comparison approaches to valuing real estate properties. Academy of Professional Finance 专业金融学院 Copyright © CFAspace.com Valuation approaches: Cost approach: a buyer would not pay more for a property than it would cost to purchase land and construct a comparable building. Sales comparison approach: buyer would not pay more than others Income approach: present value of future cash flows
Learning Outcome Statement f, g LOS f: Estimate and interpret the inputs (for example, net operating income, capitalization rate, and discount rate) to the direct capitalization and discounted cash flow valuation methods. LOS g: Calculate the value of a property using the direct capitalization and discounted cash flow valuation methods. Academy of Professional Finance 专业金融学院 Copyright © CFAspace.com Income approach Direct capitalization method: capitalizing the first year NOI with a capitalization rate. Discounted cash flow method: PV of the future cash flows using a discount rate
Learning Outcome Statement f, g Academy of Professional Finance 专业金融学院 Copyright © CFAspace.com Net Operating Income (NOI) & Stabilized NOI Rental income if fully occupied + Other income =Potential gross income - Vacancy and collection loss = Effective gross income -Operating expense =Net operating income (NOI) +/- Temporarily Income/Loss =Stabilized NOI
Learning Outcome Statement f, g Academy of Professional Finance 专业金融学院 Copyright © CFAspace.com Capitalization rate Discount rate (the required rate of return) = risk-free rate + risk premium Cap rate = Discount rate – Growth rate = r-g Property Value = NOI 1 / r-g
Learning Outcome Statement f, g Academy of Professional Finance 专业金融学院 Copyright © CFAspace.com Upfront premium % = (CDS spread - CDS coupon) * CDS Duration price of CDS (per $100 notional) = $100 - upfront premium % Example is adapted from: 2014 CFA Curriculum Level 2 Book 5
Learning Outcome Statement f, g Academy of Professional Finance 专业金融学院 Copyright © CFAspace.com Answer: Example is adapted from: 2014 CFA Curriculum Level 2 Book 5
Analyzing Income-Producing Properties Chapter 16.
Chapter 17 Investing in Income-Producing Real Estate Advantages of Real Estate Investment –Attractions of real estate as an investment Cash flow from operations.
Chapter 16 Analyzing Income- Producing Properties.
Global Real Estate: Transaction Tools Chapter 6: Value Concepts.
Ch 19 Analyzing Income Producing Properties. 2 Outline I. Advantages of Real Estate Investment II. Disadvantages of Real Estate Investment III.
Investing in Real Estate ADVANTAGES Pride of Ownership Personal Control Self Use Competitive Returns Safety of Capital Cash Flow Leverage Tax Benefits.
VALUATION BY INCOME CAPITALIZATION LEARNING OBJECTIVES Explain the difference between appraisal and investment analysis. Estimate the NOI in a reconstructed.
Foundations of Real Estate Management BOMA International ® Module 1: Real Estate Administration Valuation and Asset Management ®
Chapter 18: Risk Analysis. Introduction to Risk Analysis Risk is the probability that events will not occur as expected. Actual return may differ.
The Real Estate Income Statement. The value of any investment is simply the present value of its expected cash flows, using a discount rate that reflects.
Multi-Period Analysis Present Value Mathematics. Real Estate Values Set by Cash Flows at different points in time. Single period Analysis revisited
Lecture 11 Introduction to Real Estate Investing.
Real Estate Valuation. Real Estate Valuation: Market Comparison Approach.
RES 110 Session Five Commercial Real Estate Math Concepts Commercial Real Estate Math Conceptsand Understanding the Value of Commercial Investment Property.
Commercial and Investment Real Estate Opportunities Types of Properties Diversity of Clients ® Dearborn Real Estate Education, 2002.
INVESTMENT DECISION MAKING LEARNING OBJECTIVES Identify the basic types and characteristics of investment properties. Forecast annual cash flows, net of.
“Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner Chapter 11 Introduction to Investment Concepts.
“Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner Real Estate QUIZMASTER DefinitionsAnalyticalNumericalFormulaeAcronyms.
1 Chapter 10 Valuation of Income Properties: Appraisal and the Market for Capital.
©2011 Cengage Learning. Chapter 16 ©2011 Cengage Learning SUMMARY OF REAL ESTATE INVESTMENT PRINCIPLES.
Real Estate Investment Chapter 12 Comparison Screening © 2011 Cengage Learning.
Chapter 22: Accounting for Leases 上海金融学院会计学院. 1.Explain the nature, economic substance, and advantages of lease transactions. 2.Describe the accounting.
Real Estate Principles and Practices Chapter 16 Investment and Tax Aspects of Ownership © 2010 by South-Western, Cengage Learning.
1 Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin CHAPTER 13 VALUATION MODELS IN THE INCOME APPROACH Discounted.
1 Chapter 11 Investment Analysis and Taxation of Income Properties.
Real Estate Principles and Practices Chapter 16 Investment and Tax Aspects of Ownership © 2014 OnCourse Learning.
Chapter 10: Investment and Risk Analysis Motivations for R/E Investment Return (cash flow) Appreciation (inflation hedge) Diversification Tax Benefits.
©2011 Cengage Learning. Chapter 17 ©2011 Cengage Learning INCOME TAX ASPECTS OF INVESTMENT REAL ESTATE.
Income Tax Considerations Converting to after tax cash flows.
McGraw-Hill/Irwin ©2008 The McGraw-Hill Companies, All Rights Reserved CHAPTER13CHAPTER13 CHAPTER13CHAPTER13 Risk Analysis.
Fundamentals of Real Estate Lecture 14 Spring, 2003 Copyright © Joseph A. Petry
BARTRAM & COCHRAN Real Estate Math for Attorneys Marc Louargand, Ph.D., CRE ®, FRICS & Maura Cochran, CRE ®
1 Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin CHAPTER 3 INVESTMENT DECISIONS Forecast cash flows from operations.
Chapter 9 Real Estate Appraisal This chapter introduces a central issue in real estate decision making, “What is the property worth?”
CFAspace CFA Level I Ethical and Professional Standards Part 1 Introduction CFA Lecturer: Julie He The Courses Provided by APF Academy of Professional.
Making an investment decision. Value Investment value: The value determined in view of investment objectives, goals and constraints. Market value:
Intro to Financial Management Understanding Financial Statements and Cash Flows.
Fundamentals of Real Estate Lecture 4 Spring, 2002 Copyright © Joseph A. Petry
Business Valuations. Reasons for wanting to know about value: Market transactions Scorecards Estate planning Family transfers ESOP Litigation.
Lecture 28. Chapter 17 Understanding the Principles of Accounting.
CONCEPTS of VALUE. FACTORS OF VALUE UTILITY –THE ABILITY OF A PRODUCT TO SATISFY HUMAN WANTS. RELATES TO THE DAMAND SIDE OF THE MARKET. SCARCITY –THE.
CHAPTER 6 AN INTEGRATED APPROACH TO FINANCIAL ANALYSIS.
©2014 OnCourse Learning. All Rights Reserved. CHAPTER 11 Chapter 11 Nuts and Bolts for Real Estate Valuation: Cash Flow Proformas and Discount Rates SLIDE.
FINANCE MAP By Gaylen K. Bunker. Objectives of Workshop Principles: Time lag between investment and return. Compounding versus Summing Value = Discounted.
Basics of Valuation By Norm Miller, PhD. Introduction Value as a concept is theoretical in nature PRICE is usually factual in nature Value by nature.
CHAPTER TEN VALUATION OF INCOME PROPERTIES: APPRAISAL AND THE MARKET FOR CAPITAL.
APPRAISAL ACTIVITIES 1. COLLECTION OF PERTINENT DATA. 2. INSPECTION OF THE SUBJECT PROPERTY, COMPARABLE SALES, THE AREA AND NEIGHBORHOOD. 3. ORGANIZATION.
CHAPTER SIX The Returns and Risks from Investing CHAPTER SIX The Returns and Risks from Investing Cleary / Jones Investments: Analysis and Management.
FINANCIAL STATEMENT ANALYSIS UNISEL. 1. INTRODUCTION Financial analysis is a process of selecting, evaluating, and interpreting financial data, along.
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