1. Foundations of Real Estate Management BOMA International ® Module 1: Real Estate Administration Valuation and Asset Management ®

2. Foundations of Real Estate Management Module 1: Real Estate Administration 2 ® Objectives  Describe how value is created on an income- producing property, and identify at least five ways a property manager can add value to a real estate investment  Describe the concept of equity as it relates to owning a piece of investment real estate, and explain how an owner can use leverage to increase the value of his real estate holdings  Describe what happens to the value of a real estate investment when the capitalization rate is increased or decreased

3. Foundations of Real Estate Management Module 1: Real Estate Administration 3 ® Income Producing Properties Goal: Make Money!

4. Foundations of Real Estate Management Module 1: Real Estate Administration 4 ® Cash Flow Net Cash Flow (NCF) - Non-Operating Expenses - Debt Service - Capital Expenses Net Operating Income (NOI) - Operating Expenses Income

5. Foundations of Real Estate Management Module 1: Real Estate Administration 5 ® Cash Flow  Income  Operating Expenses  Net Operating Income (NOI)  Capital Expenses  Debt Service  Non-Operating Expenses  Net Cash Flow

6. Foundations of Real Estate Management Module 1: Real Estate Administration 6 ® Increasing Cash Flow Income Expenses

7. Foundations of Real Estate Management Module 1: Real Estate Administration 7 ® Putting It Into Practice How do you increase income?

8. Foundations of Real Estate Management Module 1: Real Estate Administration 8 ® Putting It Into Practice How do you decrease expenses?

9. Foundations of Real Estate Management Module 1: Real Estate Administration 9 ® Be Careful… It’s OK to cut your expenses to the bone if that is your owner’s strategy – just don’t cut the bone!

10. Foundations of Real Estate Management Module 1: Real Estate Administration 10 ® Deferred Maintenance Deferred maintenance is not avoided maintenance… The work still needs to be done at some point in the future.

11. Foundations of Real Estate Management Module 1: Real Estate Administration 11 ® Adding Value to PurchaseSale

12. Foundations of Real Estate Management Module 1: Real Estate Administration 12 ® Value  Appraisal - estimate of value at a given time  Goal of the real estate manager:  Preserve the asset value  Improve the asset value

13. Foundations of Real Estate Management Module 1: Real Estate Administration 13 ® Appreciation

14. Foundations of Real Estate Management Module 1: Real Estate Administration 14 ® Value Ask yourself these questions:  What can I do with this asset?  How can I improve income or decrease expenses?  Can I redevelop the asset?  Can I overcome functional obsolescence?  Do I know something others do not?  Do I know something about changes in the marketplace?

15. Foundations of Real Estate Management Module 1: Real Estate Administration 15 ® Asset Management Cycle

16. Foundations of Real Estate Management Module 1: Real Estate Administration 16 ® Asset Management Strategies  Add value  Hold  Long-, intermediate-, short-term  Sell and “reload”  Sell and not “reload”  Maximize cash flow  Provide for an annual return

17. Foundations of Real Estate Management Module 1: Real Estate Administration 17 ® Risk/Return  Core: low risk  Core+: low to moderate risk  Value add; moderate/aggressive risk  Opportunistic: aggressive risk

18. Foundations of Real Estate Management Module 1: Real Estate Administration 18 ® Putting It Into Practice Work with your instructor to complete the exercise in your text book

19. Foundations of Real Estate Management Module 1: Real Estate Administration 19 ® Care and Feeding of Asset Manager

20. Foundations of Real Estate Management Module 1: Real Estate Administration 20 ® Value Market Value v. Market Price

21. Foundations of Real Estate Management Module 1: Real Estate Administration 21 ® Determining Market Value  Sales Comparable Approach  Comparable sales  Cost Approach  Cost to rebuild  Income Approach  How much is the cash flow worth?

22. Foundations of Real Estate Management Module 1: Real Estate Administration 22 ® Value Depends Upon the Cap Rate Gross Potential Rent $600,000 Less: Vacancy/Rent Loss ($3,000) Add: Other Income $3,000 Effective Gross Income $600,000 Less: Operating Expenses ($270,000) Net Operating Income $330,000

23. Foundations of Real Estate Management Module 1: Real Estate Administration 23 ® As the Cap Rate Changes, So Does the Value

24. Foundations of Real Estate Management Module 1: Real Estate Administration 24 ® Equity and Leverage  Mortgage (Leverage)  Principal  Interest  Interest only loans  Loan-to-Value (LTV) ratio  Equity  Debt