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MODULE 9
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INTRODUCTION TO REAL ESTATE FINANCE
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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
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US Savings Rate % Source: BEA
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Real Gross Private Domestic Investment Bill. Of 1992 $ Source: US Dept. of Commerce
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Total Personal Savings Bill. $ Source: US Dept. of Commerce
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Gross Private Savings Bill. $ Source: US Dept. of Commerce
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’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
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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 $
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Total Outstanding Mortgages $, Bill. Source: Federal Reserve
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Total Agency MBS Outstanding $, Bill. Source: GNMA, FNMA, FHLMC
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Outstanding Agency CMOs $, Bill. Source: GNMA, FNMA, FHLMC
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Net Increase of Foreign Owned Assets in US $, Mill. Source: BEA, DOC
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Primary Market vs. Secondary Market
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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”
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The Financing Environment II
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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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