Real Estate Metrics LearnCRE.com Real Estate Finance 101
Welcome message from author
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
Real Estate Metrics
LearnCRE.comReal Estate Finance 101
LearnCRE.com
Real Estate Metrics
+ Why?
+ Examples
– YOC – Yield on Cost = Stabilized Rent / TPC
– ROC – Return on Cost = (End Value-TPC) / TPC
– IRR – Internal Rate of Return
– Dev IRR – IRR over the development period (end value at dev end)
– 10 Year IRR – IRR over 10 year period (or 5 or 7) (end value at period end)
– EM - Equity Multiple = Equity In / Equity Out (ratio)
– GRM – Gross Rent Multiplier = PP or TPC / Rent (similar to P/E ratio)
– Cash on Cash Return = (Equity In - Equity Out) / Equity Out (%)
– Cash Yield / Cash on Cash Yield = NOI-Debt Service / Equity Outlay
– DSCR NOI / Debt Payment
– Debt Yield NOI / Loan Amount
– LTV Loan to Value = Loan / Value
– Passing Yield Contracted first year NOI / Property Value
39
LearnCRE.com
Real Estate Metrics
40
At Acquisition Cash Flow (pa) Cost/Value Comment
Total 7.0 100.0
Debt 3.0 60.0 5% interest rate, 5 year term, I/O
Equity 4.0 40.0
At Disposition Cash Flow (pa) Cost/Value Comment
Total 8.1 115.9 At same yield, 3% rent growth
Debt 3.0 60.0 Pay off loan with proceeds
Equity 5.1 55.9
1 2 3 4 5 6
Acq -100.0
Rent 7.0 7.2 7.4 7.6 7.9 8.11
Disp 115.9
Total -93.0 7.2 7.4 7.6 123.8
Loan 60.0 -60.0
DS -3.0 -3.0 -3.0 -3.0 -3.0
Equity -36.0 4.2 4.4 4.6 60.8
LearnCRE.com
Real Estate Metrics
41
Unlevered Returns Value Math Definition
YOC 7.0% =7.0/100.0 Yield on Cost
GRM 14.3 =100.0/7.0 Gross Rent Multiplier
ROC 15.9% =(115.9-100.0)/100.0 Return On Cost
IRR 13% =IRR(cashflows) Internal Rate of Return
Levered Returns Value Math Definition
EM 1.40 =55.9/40.0 Equity Multiple
Cash on Cash Return 40% =(55.9-40.0)/40.0
Cash on Cash Yield 10% =4.0/40.0
Levered IRR 22% =IRR(cashflows post debt)
Bank Returns Value Math Definition
DSCR 2.3 =7.0/3.0 Debt Service Coverage Ratio
Debt Yield 12% =7.0/60
LTV 60% =60/100 Loan To Value
LearnCRE.com
YOC – Yield on Cost
+ Market Rent / Total Project Costs
+ What does it mean?
+ Why important?
+ Stabilized Rent over
42
LearnCRE.com
ROC – Return on Cost
+ ROC = Profit / Total Project Cost
+ Profit = End Value – Total Project Cost
+ What does it mean?
+ Why important?
43
LearnCRE.com
10 Year IRR vs Dev. IRR
+ Internal Rate of Return
– The discount rate that sets estimated discounted cash flows equal to the initial investment
+ Revisit Business plans
– It is easy to figure out B1 returns by hand…how about B3?
– IRR helps here…
+ 10 Year IRR
– Total IRR over 10 year period
– Cash out phase
– Cash in phase
– End Value Phase
+ Development IRR
– IRR from start to Development End
– Cash out Phase
– End Value Phase
44
LearnCRE.com
Tell me What is wrong with this OM?
45
LearnCRE.com
Cap Rate
+ Capitalization rate
+ Market Rent / End Value or = Stabilized Rent / Purchase Price
+ “Yield forever” or “IRR as time approaches infinity”
+ Risk free rate plus real estate risk
+ How does this differ from passing yield?
+ Risks:
– Different property types
– Different locales
– Different property quality
– Different tenant profile
46
Related Documents
