New York School of Real Estate Finance
Understand the complex process of real estate investment & finance
Real Estate continues to attract the attention of funds, banks, corporates and investors looking for diversification and liability matching. However, cross border investment and financing brings risks as well as opportunities. This advanced programme is designed as an integrated series of modules which will increase participants’ understanding of today’s complex and sophisticated process of real estate investment and finance. In addition to expert course tuition, delegates will benefit from a collegial atmosphere, with networking and information-sharing a valuable part of the course.
The programme’s main objective is to give a thorough understanding of the most popular financing and investing structures, as well as the latest thinking in analytical techniques, in a changing capital markets context. Participants will consider frameworks for decision rules on major capital expenditure commitments in public and private real estate markets, both at the asset and portfolio level.
The recognition and analysis of risk will be a component part of the programme. The programme covers many techniques and tools that can be applied to dealing with and resolving practical, everyday problems. An intermediate level programme covering:
- Investment cash flow analysis
- Public and private real estate vehicles
- Debt and equity securitisation and investment strategy
- Corporate real estate finance and structured leasebacks
- Risk analysis, simulation and real options pricing
- Putting investment into a portfolio context
- Use of debt in a real estate investment context
Module 1: Real estate investment & finance Introduction
- Structure of Module 1
- Delegates’ objectives
Real estate markets: macro View
- Markets & sectors
- Niche markets logistics, residential, retail & hospitality
- Emerging markets & the importance of transparency
- Property cycles: opportunities and threats. What to look for in different stages in the cycle.
Appraisal & valuation fundamentals What should financiers and investors ask for? What should they look for? Worked examples
- Terminology & techniques
- Investment appraisal methods
- Different methods for different assets & markets
- Regulation & guidance
- Types of income
- How do lease terms affect value?
- Slicing the income and converting to capital
- Understanding yields and cap rates
- Types of yield
- Unbundling the all-risk yield
- What are the key drivers of value?
Spreadsheet analysis: investment acquisition
- Setting up, analysing and comparing different appraisal approaches including income capitalisation & depreciated replacement cost
- Applying and adjusting cap rates and Income
- Using different types of cap rates
Structuring the cash flow How to structure, avoiding common mistakes. Investor approach -v- financier’s concerns. Worked examples and practical issues
- Business plans
- A Cash flow primer: typical patterns of cash flows
- Discounted cash flow construction: key inputs, variables and outputs
- Projecting rents, operating expenditure and cap rates
- Lease roll-overs
- Net operating income: A line by line assessment from gross to net income
- Impact of depreciation & obsolescence
- Use of capital expenditure
- The exit: when, why, how?
- IRR & NPV: ratio analysis and diagnostics
- Solving the maximum price to pay / target sale price
Spreadsheet analysis: Investment cash flow model
Setting out a dynamic cash flow. Shaping up the basic investment deal before finance
- IRR, NPV, income and exit ratios. Assess uncertainty & the merits of the investment
- Setting the target rate of return. What is an appropriate discount rate?
- What else will show whether it is a good deal?
- Considering the possible merits and limitations of the project
- “What if” testing and adding sensitivity analysis
Sourcing product & asset management
- From sourcing to closing
- Due diligence: identifying potential “red flags”
- Asset management techniques
- Adding and enhancing value
- Leasing strategies
Case study: acquisition & due diligence process Participants will work in small groups to analyse a case study that considers the acquisition of a mixed use investment and the appropriate due diligence processes.
Risk analysis in DCF appraisals
- Risk identification & management techniques
- Sensitivity analysis & data tables
- Measuring risk
- Simulation: pros & cons
Spreadsheet analysis: risk analysis in cash flow model
Testing the uncertainty in the project cash flow
- “What-if” testing and adding sensitivity analysis
- Scenarios & probability testing
- Simulation: a practical technique?
Structuring the finance Gearing up an investment acquisition (use of leverage). Key financial covenants, sizing the debt, understanding risks, pricing and risk mitigation.
- The quadrants of finance
- Alternative opportunities to raise and structure finance
- Corporate strategies
- PropCo, OpCo and leasebacks
- Returns on NOI and returns on equity
- Typical financial covenants and points for negotiation
- Different structures, including amortisation
- Sizing the debt
- Applying financial covenants to the cash flow
- After debt cash flow & metrics
- Profitability -v- financial risk
- Identifying and quantifying the risks in the loan
- Structuring for protection
Case study: Investment aquisition and finance
Financing a core investment acquisition. Participants will discuss terms for a loan for an investment opportunity. Examples of term sheets will be used to focus the discussion on suitable terms. On completion, a spreadsheet model will be used to illustrate the cash flow implications and key structuring issues.
Mezzanine and participating loans
- Stretched debt to quasi equity
- Structuring a package
- Stand alone or blended?
- Inter-creditor agreements
- Lookback IRRs, warrants and convertibles
- Worked examples
Spreadsheet analysis: Extending the cash flow model to add the finance
- Analysing the impact of different levels of debt and equity in a cash flow context
- Adding the senior debt tranche: analyse and adjust a geared cash flow model
- Mezzanine finance: working through the capital stack including lookback and side by side participation in a risk return context, by adjusting key inputs to the model
- Review of module and further reading & references
Course summary and close
Who should attend
- Lending and Project Finance Bankers