- Real Estate 101 - Real Estate Metrics

Real Estate Metrics

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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

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Real Estate Metrics

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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

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Real Estate Metrics

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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

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YOC Yield on Cost

+ Market Rent / Total Project Costs

+ What does it mean?

+ Why important?

+ Stabilized Rent over

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ROC Return on Cost

+ ROC = Profit / Total Project Cost

+ Profit = End Value Total Project Cost

+ What does it mean?

+ Why important?

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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 handhow 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

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Tell me What is wrong with this OM?

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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

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