Certificate in Real Estate Development & Value-Add Investments Financial Modelling

Funding and financing the real estate project

• Sources and types of funding available: rates, sample terms and investment structures
• Principles of corporate finance: picking the right capital structure to fund the property development project
• Forward funding
• Typical senior debt terms and structures
• Typical mezzanine debt terms and structures
• Sourcing additional equity
• Inter-creditor and shareholders agreement
• Basics of development loan structures
• Lending criteria and typical capital structures
• Lending fees

Introduction to UK Taxation of Real Estate

• Principles of taxation for real estate
• Property taxes and financial returns
• Taxes on acquisition, development, occupancy and disposal
• Off-shore versus on-shore companies’ taxation

Exit options, sales, marketing strategy and tactics in practice

• Marketing and client segmentation
• International investors and marketing overseas
• Marketing strategy and tactics for your project
• Estate agents: structures, hiring and firing
• Structuring offers for buyers
• Controlling sales and marketing budget

Sustainability in real estate

• The value of green buildings
• Sustainability certifications
• Environmental, social and governance for development and investing
• Well-being in real estate
• Property Management
• Property management requirements and strategies
• Asset management plans, processes and control techniques

Case study:

Value-add development in West London

Best practice in financial models

• Simple tips to help you become an efficient financial modeller
• How to avoid errors and present your models in a persuasive way

Implicit investment valuation methods

• Term & Reversion
• Layer / Hardcore
• Property yields
• Defining term and reversionary yields
• Calculating the equivalent yield

Build your cash flow from scratch

• Inputs: passing rent, estimated rental value, initial and exit yields, market growth, review cycles and most importantly, target returns
• Outputs: internal rate of return, net present value and worth
• Annual and quarterly discounted cash flows: modelling purchase price, passing rent, rent reviews, exit rent and exit price

Gearing / Leverage

• Adding senior debt “bullet” loan

Analyse the results

• IRR, NPV and Worth
• Data tables & sensitivity analysis
• Risk visualisation (charts)

Case study:

Single-tenant office building in the UK

Multiple tenant properties

• Modelling tenancy schedules and rents forecast
• Rent reviews, upward-only, break options, lease expiry
• Modelling hypothetical second leases
• Void period, rent free and estimated rental values

Time-varying rental growth

Net Operating Income Forecast

• Modelling capital expenditure for refurbishment and operating costs (letting fees, void costs, empty rates)

Investment decision

• When to accept the project and make investment recommendation

Case study

Multi-tenant office building in the UK

Residual Valuation Appraisal

• Property Yields
• Land Value
• Profit Appraisal
• Gross and Net Development Values
• Return on GDV, Cost and Equity

Pro-forma development cash flow

Inputs:

Timings: purchase date, works start date, planning, lead in, construction and refurbishment, void period, lease start, sale date

• Revenue: sales proceeds, estimated rental value per sqf, net internal areas, rental growth and target returns
• Development Costs: construction and refurbishment, site purchase and vacant possession value, contingency, professional fees, statutory costs, allowances and rights
• S-Curve vs. Straight Line

Outputs:

• Internal Rate of Return (IRR)
• Net Present Value (NPV)
• Maximum Bidding Price
• Total profit, profit on cost and equity multiple

Financial viability testing & risk analysis

• Data tables & sensitivity analysis
• Risk visualisation techniques

Case study: 

un-geared office redevelopment in the UK

Development finance

• Debt & Equity Structures
• Senior Debt
• Mezzanine Loan

Geared cash flow

Debt Types

• Rolled-up interest senior debt
• Equity first capital deployment waterfall
• Debt repayment structures for development finance

Joint-venture structures

• Equity waterfall structure
• Preferred returns
• Promote Cash Flow

Capitalised interest & circularities

Case study:

geared office redevelopment in the UK

Lead-in period

• Current in-place leases, operating expenses – vacancy costs, including rates and empty costs
• Site acquisition including options, pre-development and planning costs
• Equity and debt drawdowns, including mezzanine finance

Construction period

• Development hard and soft costs using S-curve, Straight line and Known curves
• Construction finance drawdowns following an equity-first model

Lease-up and stabilisation period

• New leases with gross and net lease clauses
• Tenant incentives such as rent-free and capital expenditure contributions
• Operating expenses – delayed rates, letting fees, service charges and void costs

Investment options modelling

• Lease re-gearing, hold or sell
• Re-develop, refinance and hold
• Re-develop, stabilise and sell

Sources of funds

• Calculating debt and equity peaks
• Modelling the debt repayment waterfall
• Calculating total cost of debt (interest and fees)

Carried Interest / Promote Structures

• Profit shares and preferred equity returns
• Equity returns based on different IRR tiers

Risk modelling and presentation

• Sensitivity analysis (2-way data tables)
• Scenario analysis
• Financial ratios: IRR, NPV, Residual Land Value, Profit on Cost, Profit on GDV, Equity Multiple