課程四 : 不動產投資分析

不動產開發

services

tax

user fees

capitalcapital gain

Political SystemSocial System

Enterprise System

Public

Sector

ConsumptionSector

ProductionSector

Sites

serv

ices

tax

rentals, purchases

FinanceSector

Interest

Construction CostRegulation

Mortgage PaymentsREGULATION

MACRO

ECONOMICS

討論重點

投資策略分析財務可行性分析現金流量分析財務報表預測資金來源 , 融資決策分析風險分析

投資策略分析 Investment Strategy

• Identify investment objectives• Analysis of the investment environment

– market analysis

– legal analysis

– sociopolitical analysis

• Plans and policies • Forecast of cash flows• Decision criteria

– financial criteria

– nonfinancial criteria

Investment objectives

• growth• protection of purchasing power• diversification• tax shelter• regular return• capital gain• retirement income• rapid recovery of equity• entrepreneurial profit

Plans and policies

• contracting• rent fare• large equity• loan amount and type• depreciation plan

…

財務可行性分析 Cash Solvency Analysis: House Purchase Decision

• Question: How much housing can a household afford and still remain cash solvent?

• Price of house = PV of future benefits generated by the house

• Value of benefit = PV outflows necessary to support the consumption of benefits

• Outflows: mortgage payment, equity in the house, property taxes, insurance, utilities and maintenance costs

SIMPLE MODEL OF HOUSE PURCHASE DECISION

• Price of house = capitalized value of annual cash outlay

• V = I/R

• V = market price of house

• I = annual cash outlay (mortgage payment, real estate taxes, property insurance)

• R = Capitalization rate

RESTATEMENT OF MODEL

• Model can be restated in terms of key housing expenditures as:

– V = house price; Y = household income– S = obligation ratio; MC = mortgage constant– T = maintenance and utilities as % of income allocated

to housing; X = real estate tax as % of house price; I = property insurance as % house price; D = down payment

DIXMC

TYSV

1)(

)1(

Application of model• Assumptions

• obligation ratio = 30% (% of income allocated to housing consumption)

• annual household income = $45,000

• maintenance and utilities as % of income allocated to housing = 18%

• real estate tax as % of house price = 1.96%

• property insurance as % house price = .15%

• mortgage constant (contract rate = 8.5%, term =360 months) = 9.23 or .0923

• Downpayment = 20%

Application of Model

• Determine the annual cash outlay• Annual household income = $45,000• x % obligation ratio @30% .30• = amount allocated to housing = $13,500• less maintenance/utility @ 18% = $2430• = annual cash outlay = $11,070

Application: continued

• Determine the capitalization rate• Mortgage constant = .0923• + Real estate tax = .0196• property insurance = .0015• Unadjusted capitalization rate = .1134• x (1-downpayment ratio) = x .80• = adjusted cap rate = .09072

Application continued• Now determine affordable house price• Using general model as • V= $11,070/.09072 = $122,023

• or using specific model as• V = [(45,000)(.30)(1-.18)/(.0923+.0196+.0015)]/.80 =$122,023

Commercial Properties:Real Estate Capital Budgeting Techniques; Highest and Best Use Analysis

• Front Door Approach• Given total project determine the required rent

• Back Door Approach• Given market rent determine justified project cost

CAPITAL BUDGET

MARKET orREQUIREDRENT

FRONT DOOR

BACK DOOR

Highest and Best Use AnalysisAn Application

• Consider the case of a small 2-story suburban office building on an 80,000 sq. ft. site costing $100,000. The building has 16,000 sq.. ft. of space per floor. Construction cost is at a rate of $30/sq.ft., fees and construction interest equal $100,000, and indirect cost is $180,000. The total budget is thus $1,240,000. It is hoped that lenders will provide 80% of the required funds (or $992,000). The term of loan will be 20 years and interest rate is 11.5%, with monthly mortgage payments. The balance of funds required, at least $248,000, assuming no working capital and no cost overruns, would be provided by a partnership of equity investors. They require only 6% cash dividend (equity dividend rate or before tax return) on their investment each year. Experience has shown that operating expenses for this multi-tenant building will approximate $2.5/sq.ft. of gross leasable area or GLA. Real estate taxes are running about $1.00 per sq.ft. for comparable properties in the area. Property management indicates cash replacement cost of $1,000 a year for carpeting, and vandalism loss. Vacancy rate is assumed to be 5%.

Site : 80,000 sq. ft Space per floor : 16,000 sq. ft

Site Cost : $100,000 Construction Costs : $30/ft = $960,000

Fees : $100,000 Indirect cost : $80,000

Total Capital Budget : $1,240,000

Lenders Share of funds : 80%

Term of Loan : 20 years

Interest Rate : 11.5%

With Monthly Mortgage Payments

Debt Service Constant : .127968

Highest and Best Use Analysis: 2-story office

Balance funds required (equity) : $248,000

Equity Dividend Rate : 6%

Operating Expenses : $2.5/ sq. ft of GLA

Real Estate Taxes : $1 / sq. ft of GLA

Replacements reserve : $1,000

Vacancy rate : 5%

Case Illustration (Contd.)

Some Basic Investment Concepts

1. TOTAL PROJECT COST = SITE ACQUISITION COST + CONSTRUCTION COST + FEES AND INTEREST = $1,240,000

2. LOAN TO VALUE RATIO = 80%

3. LOAN AMOUNT = (.8)(1,240,000) = $992,000

4. DEBT SERVICE = $992,000x.127968 = $126,944

5. MORTGAGE CONSTANT= 126,944/992,000 = .127968

6. EQUITY DIVIDEND RATE (EDR)= 6%

Basic Investment Concepts

• Gross Leasable Area (GLA) = Total Square footage in the building (32,000 SQ.. FT.)

• Net Leasable Area (NLA) = 27,200 SQ.. FT.• Building Efficiency Ratio (BER) = NLA/GLA = 27,200/

32,000 = 85%• NLA = (GLA)(BER) = (32,000)(.85) = 27,200 SQ. FT• Floor Area Ratio (FAR) = GLA/LA

– where GLA = Gross Leasable Area; LA = lot area

Construction Budget: $960,000

Indirect Cost and Development Fees: $180,000

Total Capital Budget: $1,240,000

+

=

1-loan to cost ratio=.2

Cash Equity required: $248,000

Equity Dividend Rate: 6%

20 yr. 11.5% monthly pay

Mortgage loan:$992,000

Loan to Cost Ratio: .8

Debt Service Constant: .127968

Debt Service: $126,944

x

=

x

=Before Tax Cash Flow: $14,880

x

=

x

=

$141,824

$1.25x80,000 sq. ft.

32,000x$30/sq. ft.

+Site Acquisition Cost: $100,000

FRONT DOOR APPROACH : LOAN TO VALUE RATIO

CONTINUE NEXT PAGE

Net Operating Income : $141,824

Operating Expenses: $80,000+

Real Estate Tax: $32,000+

Replacement Reserve:$1,000+

Effective Gross Income: $254,824

(1 - Vacancy Ratio) : .95

Potential Gross Income: $268,236

Net Leasable Area: 27,200 sq. ft.

Rent Required Per Unit: $9.86/ sq. ft.

=

=

=

$9.86 sq. ft. NLA

Before Tax Cash Flow Model and Other Concepts

A. Before Tax Cash Flow ModelPOTENTIAL GROSS INCOME (PGI)

less VACANCY & BAD DEBT (VBD)

= EFFECTIVE GROSS INCOME (EGI)

less OPERATING EXPENSES (OE)

less REAL ESTATE TAXES (RET)

less REPLACEMENT RESERVE (RR)

= NET OPERATING INCOME (NOI)

less DEBT SERVICE (DS)

= BEFORE TAX CASH FLOW (BTCF)

Before Tax Cash Flow Model and Other Concepts

b. RISK MEASURES– Debt Coverage Ratio (DCR) = Net Operating

Income/Debt Service.– Default Ratio (DR) = (Operating expenses + Real

Estate Taxes + Replacement Reserve+ Debt Service)/PGI

Current Return Measures

1. Equity Dividend Rate (EDR) = Before Tax Cash Flow/Initial Equity Investment.

Note: this yield measure does not include return from appreciation(depreciation) of the investment

2. Return on Investment (ROI) = Net Operating Income/Total Capital Investment

Application of Risk Measures

1. DEBT COVERAGE RATIO = $141,874/$126,944 = 1.11

2. DEFAULT RATIO (DR)=

DR = ($80,000 + $32,000 + $126,944 + 1000)/$268,236 = .89

(a) Project could withstand a vacancy of x% = (1- DR)

= (1 - .89) = 11%

Application of Risk Measures

(b). A default ratio of .89 would mean the project could survive 11% vacancy or an increase in operating expenses and real estate taxes of 22% before going into default. This tolerance for increase in real estate tax and operating expenses (22%) is calculated as follows:

Operating expenses and real estate taxes tolerance

= [(PGI x ROI)/(OE + RET)] - VAC

= [(268421 x.1144)/(80,000 + 32,000)] - .05

= .27416 - .05 = .22416 or 22.416%

Where PGI = potential gross income; ROI = return on investment; OE = operating expenses; RET = real estate taxes; VAC = vacancy and bad debt allowance

BACK DOOR APPROACH - DEBT COVERAGE RATIO

Potential Gross Income: $251,600 27,200 sq.ft. NLAx$9.25

5% Vacancy & bad debt: $12,600

Effective Gross Income: $239,000

Operating Expenses: $80,000

Real Estate Tax: $32,000

Replacement Reserve: $1,000

Net Operating Income: $126,000

-

=

-

-

-

=

CONTINUE NEXT PAGE

(LENDER’S POINT OF VIEW)

Before tax cash flow: $21,000

Required Before Tax Return: 6% Debt Service Constant: .127968

Justified Mortgage Loan: $820,517$1,170,517

Net Operating Income Available for debt payment, IT, Cash Dividends: $126,000

Justified Equity Investment : $350,000

Debt service: $105,000

Total Justified Investment

Debt Service: $105,000 Debt Coverage Ratio: 1.2

= =

Existing claims or planned improvement budget: $280,000

-

Proceeds available for property purchase as is: $890, 517

=

= =

_

Land & Indirect Costs

ConstructionBudget

$890,517/32,000 = $27.83/ sq. ft.

Principles of Financial Leverage

• POSITIVE LEVERAGE– ROI > MC

– EDR > ROI

– EDR > MC

• NEGATIVE LEVERAGE– ROI < MC

– EDR < ROI

– EDR < MC

• NEUTRAL LEVERAGE

Financial Leverage Analysis

• The cost of funds must be less than return on total investment (ROI) for positive leverage.

• The cost of funds is equated to the mortgage constant (MC) which equal to .127968 or 12.7968% in our example.

• The return on investment (ROI)

= $126,000/$1,170,500

= .1076 or 10.76%

Note: Figures are from backdoor approach using debt coverage ratio

Financial Leverage Analysis

• A 10.76% return on investment is lower than either the interest rate of 11.5% or the mortgage constant of 12.769%

• Thus we have negative leverage• A small drop in borrowed funds permitted a large

increase in cash equity. This improved the solvency position .

• When interest rates are high more equity (often raised through partnerships) is used to improve project feasibility.

Formal Leverage Analysis

• MAXIMUM LOAN AMOUNT SUBJECT TO DCR CONSTRAINT

Maximum loan = [NOI/DCR]/MC = NOI/(DCR*MC)

where NOI = Net Operating Income

DCR = Debt Coverage Ratio

MC = mortgage constantTo illustrate using figures from backdoor approach based on required DCR of

1.2

Max loan = [126,000/1.2]/.127968 = 105,000/.127968 = $820,517 (See back door approach from lender’s point of view)

The preceding front door can also be summarized in the form of an equation:

TCB[(L/V*MC) + (1 - L/V)*EDR]

RPGI = --------------------------------------------------------

[1.0 - (EXP + RE T + VAC + RES)]WHERE:

RPGI= Required Potential Gross Income

TCB = Total Capital Budget or Project cost

L/V = Loan-to-value ratio

MC = Mortgage Constant

EDR = Equity Dividend Rate

EXP = Operating expenses as % of GPI

RE T = Real estate as % of PGI

VAC. = Vacancy as % of PGI

RES = Replacement reserves as % GPI.

The backdoor can also be summarized in the form of following equation.

PGI

TCB = ------------------------------------------------------

[(L/V*MC) + (1 - L/V)*EDR]

--------------------------------------------------------

[1.0 - (EXP + RET + VAC + RES)]

WHERE:

PGI = Potential Gross Income

L/V = Loan-to-value ratio (or Loan-to-cost ratio)

MC = Mortgage Constant (loan repayment per $1)

EDR = Equity Dividend Rate (Before tax equity return)

EXP = Operating expenses as % of PGI

RE T = Real estate as % of PGI

VAC = Vacancy as % of PGI

RES = Replacement Reserves as % PGI

Illustration: assumptions

• Zoning data

• permitted use = apartment

• parking space per unit = 180 sq. ft

• Project data

• lot area = 200 sq. ft. x 300 sq.ft.

• building cost/sq.ft = $60/ sq. ft

• Furnishings = $2,000/unit

• Land Cost = $15.00/sq. ft

• parking = $8.00/sq.ft

• number of units = 70 units

• proposed project = 2-BDRM units, 1000 sq.ft./unit

Illustration: Assumptions• Financing data:

• loan to value ratio = 75% of total cost

• interest rate = 12%

• amortization period = 20 years

• Market data:

• expense ratio = 22% of PGI

• real estate tax ratio = 10% of PGI

• vacancy = 8% of PGI

• replacement resrve = 2%

• market rent for 2-BDR apartment = $800 - $1,000

• building efficiency ratio = 85%

• before tax return on equity = 9% EDR

Illustration• Total project cost

– Land = 200 x 300 x $15 = $900,000

– Building = 70 units x 1000 sq.ft./unit x $60 = $4,200,000

– Furnishings = $2,000/unit = 70 x 2000 = $140,000

– Parking = $8/sq.ft. = 70 x 180 x 8 = $100,800

– Total project cost = $5,340,800

Illustration: Front Door

$5,340,800[(.75x.011011x12) + (.25x.09)]

RPGI = --------------------------------------------------------

[1.0 - (.22 +.10 + .08 +.02)]

= $649,345.94/.58

= $1,119,717.14

Potential Gross Income = $1,119,717.14

Rent/unit/year = $15,995.96

Rent/unit/month = $1,332.99

Question: Is the proposed project feasible?

Illustration: Back door

Potential Gross Income = $1000 x 70 x 12 = $840,000

$840,000

TCB = ------------------------------------------------------

[(.75x.011011x12) + (.25x.09)]

--------------------------------------------------------

[1.0 - (.22 + .10 +.08 + .02)]

$840,000 /.209653448 = $4,006,611.90

Total construction budget should be no more than $4,006,612, if the project is to break even within this particular rental market. This figure is significantly lower than the project cost used in the front door analysis