Financial metrics commonly used by loan underwriters (part 02)

By Victor Alarsa

If you are looking to get into Real Estate financier, here you will find a few metrics commonly used by loan underwriters.

As discussed in part 01, covenants are financial metrics used by lenders to determine how risky lending capital might be for a given project. We learnt about LTV/LTGDV/LTC, and now we are going to find out a bit more about two other important ratios: DSCR and ICR.

DSCR (Debt Service Coverage Ratio)

In short, DSCR is the ratio between cash available and cash required for debt servicing. In other words, it is the ratio of the right amount of cash to repay the debt.

Commercial lenders use the DSCR to assess how large a commercial loan can be supported by the cash flow generated by the asset.

Continue reading Financial metrics commonly used by loan underwriters (part 02)

Financial metrics commonly used by loan underwriters (part 01)

By Victor Alarsa

If you are looking to get into Real Estate financier or just being more familiarised with its vocabulary, here you will find a few metrics commonly used by loan underwriters.

The daily life of a developer is not easy. They need lenders to help them to finance their developments, but lenders do not lend money without a thorough due diligence on the investment, starting with the covenants. Covenants imposes a limit on the amount of money a financier can lend to a development. In this article and the next, we are going to run through the most common covenant metrics used by loan underwriters.

Continue reading Financial metrics commonly used by loan underwriters (part 01)

An overview of the “UK-complex-housing-planning-permission-system”

By Victor Alarsa

Who’s responsible for granting planning permissions?

The planning system is designed to be applied by local authorities. There are three layers of authorities:

  • Nationally (national plan)
  • County councils (regional plan)
  • Unitary authorities such as districts, boroughs or city councils, hereafter referred as to Local Planning Authority (LPA)

LPA is ultimately responsible for designing local plans and granting planning permission.

Continue reading An overview of the “UK-complex-housing-planning-permission-system”

Do you know how to count the number of cells filtering several different criteria using Excel?

By Victor Alarsa

In essence, the COUNTIFS function is used to count the number of cells that meet one or multiple criteria, given a specific range of the array.

You may have noticed that COUNTIFS has an “S” in the end, which differs from its cousin COUNTIF, which is programmed to count the number of cells meeting only one condition and a single range, whereas COUNTIFS accepts several criteria.

The formula is comprised of ( criteria range 1, criteria 1 ), this is the required argument. In case you want to add new criteria, just add after the first two arguments

E.g. ( criteria range 1, criteria 1, criteria range 2, criteria 2).

You could add as many criteria as you want. The criteria range accounts for the array you want to count (highlighting them), and the criteria are the condition to be tested against those values.

Continue reading Do you know how to count the number of cells filtering several different criteria using Excel?

The benefits of SUMPRODUCT?

By Victor Alarsa

If you are one of those who loves to model using lots of “IF”, “AND” and “OR” functions, then this article is for you.

Let’s discuss the SUMPRODUCT, which literally means summing up the multiplication (product) of two or more different arrays.

For example, if you want to calculate total rental value of a property with different floor sizes and rents per square foot, then you simply need to multiply each floor size by its corresponding rent and sum up everything in the end.

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London: Density vs. Price, Challenges & Opportunities

By Victor Alarsa (valarsa@cambridgerefinance.com)
& Maria Wiedner (mwiedner@cambridgerefinance.com)

We are living in the age of the City. Larger and denser cities are likelier to be more innovative and generate more wealth. For instance, as the population of a city increases by 100%, its residents get 115% more innovative, productive and hence 15% wealthier1. This attracts more people, which, in turn, makes the city larger, denser, more innovative, wealthier. This cycle continues up until a point when pollution, house unaffordability, traffic and crime outweigh the benefits of agglomeration, i.e. when a city becomes too large for its own sake.

Density in general is massively beneficial, for example in 2015, London represented 14% of the UK population but was responsible for 23% of its GDP. However, the virtuous cycle of agglomeration needs to be accompanied by a housing expansion, which many cities struggle with. In London, finding housing accommodation is a challenge; land is scarce and restrictions in planning permission deter new constructions. Demand, on the other hand, is further growing as people want to move to London where jobs are available and the clustering of people has made public goods such as entertainment, health and transport more accessible.

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Top 10 ‘Golden Rules’ of Financial Modelling in Excel

In our financial modelling courses, we discuss what makes a great financial model in Excel and here are the top 10 ‘Golden Rules’ that I find will help you to achieve that.

  1. Don’t hard code values, instead use input tables
  2. Don’t use CTRL + Shift + Enter command
  3. Use intermediate calculations to help simplify your formulas
  4. Don’t use more than 4 (four) “IF” functions per formula
  5. Use data validation
  6. Build error checks
  7. Create one formula per row (or column)
  8. Protect your workbook
  9. Avoid circular references
  10. Keep it simple and elegant

Continue reading Top 10 ‘Golden Rules’ of Financial Modelling in Excel

What is the relationship between yields, risk, rents and price/value in property?

Yields have many different meanings in finance – yield to maturity, running yield, dividend yield, interest yield – and in property finance, the case is very similar. We can talk about initial yield, equivalent yield, reversionary yield etc. It is, therefore, really easy to get lost in a “yield” conversation, unless you stop the other person and ask: “which yield?!”

If you are emotionally intelligent enough (and I bet you are if you are reading this!), you won’t do this so blatantly. So, let’s break down this “yield” conversation first to ascertain the relationship between yields, risk etc. Continue reading What is the relationship between yields, risk, rents and price/value in property?

RICS and Cambridge Finance collaborate to bridge the skills gap between real estate and finance

The Royal Institution of Chartered Surveyors (RICS) is delighted to announce a collaboration with Cambridge Finance to develop a comprehensive training course that will help bridging the gap between real estate and finance education.

The growing sophistication of the property and financial markets has meant that investment surveyors have not only been requested to advise on property location, covenants and physical structure of buildings, but also on debt, Continue reading RICS and Cambridge Finance collaborate to bridge the skills gap between real estate and finance

Demystifying real estate financial models

Real Estate financial models are mainly spreadsheets used extensively as an aid in decision support in the areas of property investment and lending. These spreadsheets will ascertain the present value of a stream of cash flows and generate risk / return ratios.

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