MODULE 9 INTRODUCTION TO REAL ESTATE FINANCE Fundamentals of Real Estate Finance w Financing Decisions Balancing Risks and Rewards w Risk Analysis Inflation.

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Presentation transcript:

MODULE 9

INTRODUCTION TO REAL ESTATE FINANCE

Fundamentals of Real Estate Finance w Financing Decisions Balancing Risks and Rewards w Risk Analysis Inflation (Purchasing Power Risk) Default Risk Business Risk Liquidity Risk Financial Risk Leverage Intermediation w Real Estate Finance Industry w Financing Process w Recent Trends and The Economy

US Savings Rate % Source: BEA

Real Gross Private Domestic Investment Bill. Of 1992 $ Source: US Dept. of Commerce

Total Personal Savings Bill. $ Source: US Dept. of Commerce

Gross Private Savings Bill. $ Source: US Dept. of Commerce

’97-98 Ranking of Capital Sources for Real Estate: w Pension Funds w Insurance Companies w REITs w Non-REIT Securitization w Domestic Investors & “Opportunity Funds” w Domestic Banks w Foreign Investors w Credit Companies w Foreign Banks

Flow of Funds in Savings Investment Cycles Indirect Finance Banks Thrifts Life Insurance Mutual Funds REITs Pension Funds Surplus Income Units Savings Deposits $ Securities, Notes $ Funds Deficit Income Units $Direct Finance Brokers Mortgage Bankers FNMA GNMA FHLMC Private Financing Mortgages Securities Secondary Mortgage Market $

Total Outstanding Mortgages $, Bill. Source: Federal Reserve

Total Agency MBS Outstanding $, Bill. Source: GNMA, FNMA, FHLMC

Outstanding Agency CMOs $, Bill. Source: GNMA, FNMA, FHLMC

Net Increase of Foreign Owned Assets in US $, Mill. Source: BEA, DOC

Primary Market vs. Secondary Market

The Financing Environment I Funds Capital Equity Debt ServiceReturn on and of Equity The Real Estate Property Taxes & Fees Public Sector Municipal Services Funds Debt Fees Service Developer Operator The Markets & Users Occupancy Costs Real Estate “Services”

The Financing Environment II

Interest Rates & Yields Determination 1. Supply & Demand 2. Money, Economy & Inflation 3. Default Rate 4. Callable Risk 5. Maturity Risk 6. Marketability (or Liquidity) Risk

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