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- Real Estate 101 - Real Estate Metrics

Jan 10, 2017

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Real Estate

  • 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

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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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